Stagnation of pipe manufacturers: the crisis and the reduction of the construction changed the industry significantly

The long wave of investment has not been replaced by a sustainable payback wave.
Origin source
One of the indicators of the country's oil and gas industry is the production of steel pipes. Volumes and dynamics of production of large diameter pipes (LDP) and the drill assortment reflect the actual situation in the oil and gas cluster, and also serve as a leading indicator of development.

During the period of the long wave of investment from 2004 to 2015, the largest Russian pipe producers invested in the modernization more than 400 billion rubles. Production capacity of the largest plants in the country increased from 9 to 19 million tons. There are new kinds of products with high added value and high competitiveness.

But to return the large-scale investment an extended period of stable demand is needed. To do this at the level of the state, as the main customer of infrastructure pipeline projects, there's a need for the willingness to go against a number of internal and external negative factors. It includes price pressure on the oil market, the pressure of new gas suppliers to the European market, the thorns in the path of the project of North Stream - 2, long-term uncertainty with South Stream and much more.

Sustainable turbulence

In the medium-term growth in demand for pipes due to declining investment activity in the consumer sectors is unlikely. The requirements of "Gazprom" in the large-diameter pipes are no longer growing. In 2015, the supply of large diameter pipes in "Gazprom" amounted to e 2.1 million tonnes. In June last year, Russian pipe producers - TMK, Severstal, OMK and ChTPZ - hoping for the growth of "Gazprom" needs in these tubes by a quarter. But "Gazprom" has reduced the plan of laying the pipeline to China twice - up to 400 km. As a result, supply of large diameter pipes to the Russian gas industry leader, fell on the results of 2016 by 30-40%. According to analysts of BCS, in 2017 the need of "Gazprom" in the LDP will not exceed 1 million tons. Implementation of the largest pipelines of "Transneft" project also is behind us. Therefore, demand for pipes from the oil transport monopoly will decline this year.

In these circumstances, in the pipe industry is expected to increase competition. An important advantage of this competition will be able to provide the necessary qualitative characteristics of pipe products. By this will spur consumers themselves (due to the increasingly complex hydrocarbon extraction and transportation conditions). Technological struggle will be developed for such performance properties as cold resistance, ability to withstand high seismic activity, corrosion and so on.

One or another supplier of "Gazprom" to develop new kinds of premium products, and the customer advances the development and ensure the marketing of products. The first such agreement, developed the concept of the "Agreement" future things, "was signed with TMK. For a period of seven years, in the amount of 50 billion rubles. Already in 2016 in the framework of this agreement, TMK has developed a pipe, resistant to hydrogen sulfide and carbon dioxide for the Astrakhan field. Another project - high-torque connection to drilling.

Forced evolution

Oil and gas industry evolves under the influence of positive motivation (development of exploration and production technologies, financial security) and negative (depletion of deposits, growth in the share of hard-to stocks in mining structure). The volume of drilling in Russia continues to grow, despite the drop in oil prices. If at the beginning of the last decade, Russian companies drilled less than 10 000 km per year (plus operational exploratory drilling), then in 2016 the figure was about 24 000 km. Following this locomotive industry moves, or rather should move pipe. But it turns out not always.

Russian consumers are often between price and quality is selected first. Traps prices negatively affect the long-term solution to problems both suppliers and consumers. Reduced performance pipe leads to the necessity of more frequent repairs and reduces the period of life pipes. The manufacturer is under such conditions may not invest in research and development.

The strategic objective is long-term development

Under these conditions, the long-term development of the pipe industry depends ultimately on the state, which is controlled through the "majors" defines the dynamics of the sector. If it is about the survival of the industry, thank God, is not, then the preservation of the strategic position of the Russian pipe manufacturers in the competitive market to speak without interruption. It solved the problem not only save the position, but also the dynamic development - both in terms of volumes and in terms of technology.

According to the analyst group BCS Oleg Petropavlovsky, the total EBITDA of the Russian pipe manufacturers is only about 3% of the capital investment of the Russian fuel and energy complex. Struggling for a small share of their capital expenditures, oil and gas companies lose a lot more. In the event of a crisis scenario, alternative supply pipes may be imports of these products, for example, from Europe or China. However, energy costs in this case will be much higher.