Forecasts and market analysis based on price assessments from Fastmarkets MB and Fastmarkets AMM

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July 2019 | Welded steel tube & pipe

Rising global offshore LSAW demand to tighten up pipe mill capacity into 2020

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Improving demand being seen in offshore LSAW markets
The recovery of the global offshore oil and gas market is expected to bring opportunities for a number of large-scale pipeline projects in both Greenfield and Brownfield developments.

Over the past year manufacturers of longitudinal submerged arc welded (LSAW) linepipe have struggled with a lack of projects to drive their utilization rates, as a result prices for LSAW linepipe have seen little momentum.

In recent months though, we have seen a series of offshore linepipe projects awarded in Australia, Saudi Arabia and Mozambique, and this has helped to improve utilization rates for one of the leading Japanese suppliers.

Nonetheless, LSAW linepipe capacity still remains high with other LSAW export focused mills in Japan, Europe and India, who specialize in the supply of sour service offshore linepipes. However, the recent pick-up of offshore LSAW projects we have seen being awarded since the start of 2019, we believe, is set to increase further through to Q4 2020 as shown in the chart.

Figure 1: Offshore LSAW linepipe tenders expected to be awarded in Q4 2019- Q4 2020

Source: Fastmarkets MB research

Demand forecast to strengthen further into 2020
In Australia, three major offshore pipeline projects from Woodside and ConocoPhillips aim to both replace aging facilities as well as to add new LNG capacity to the country which is ambitious about becoming an even stronger net energy exporter.

Elsewhere in Asia, CNOOC in China is developing its first self-operated Lingshui 17-2 deep water gas field in the South China Sea, which will also see the construction of an offshore pipeline that links existing transmission networks. CNOOC has issued international tenders for the project, which requires around 30kt of LSAW linepipe. 

But, perhaps, the largest tonnage of LSAW set to arrive in the offshore market will come from the Middle East. Qatar is of particular interest as Qatar Petroleum looks set to move with both the North Field Expansion and Sustainability project. Both projects requiring hundreds of thousands tonnes of LSAW linepipe, in order for the country to maintain and ramp-up its LNG production.

In total, we estimate the offshore projects as shown in the chart, if all moved ahead would require ~ 1.6 Mt of LSAW linepipe.

Some mill utilizations should improve, helping to support prices 
How will the supply side of the LSAW market respond?

Total LSAW capacity in Japan is being reduced at a time when demand is improving. Nippon is to close its Kashima Works by October, shrinking its annual LSAW capacity to around 500kt, from 1Mt. JFE though also has an LSAW mill focused on exports, and is expected to compete in many of these offshore projects.

LSAW capacity though is available from India and Europe – other markets that specialize in the delivery of offshore LSAW linepipe. Europe, in particular, currently sees low utilizations remain with one of the world’s largest LSAW producer targeting these export projects.

So there is the capacity to deliver these projects identified in Figure 1, but it is important to note that the bulk of these offshore LSAW linepipe projects discussed are sour service. LSAW mills are required to undertake additional HIC (Hydrogen Induced Cracking) and SSC (Sulfide Stress Cracking) testing to supply this linepipe, which typically adds at least 5-6 weeks of delivery compared to a comparable non-sour LSAW pipeline.

Many of the pipeline projects identified in Figure 1 could also require additional hard spot testing for the pipe. Identifying hard spots is primarily undertaken at the plate manufacturing stage and not the pipe making stage. However, some clients might ask the pipe mills for additional UT (Ultrasonic NDT) testing on plate arrival at the pipe mill etc. which could add further to the delivery time as well.

As a result, moving into 2019/20 we do expect to see lead times extend in several of the leading global Tier 1 LSAW mills.

It is though perhaps a little optimistic at the moment to suggest we could see a surge in LSAW linepipe pricing into 2020 driven just by demand alone. The tonnages associated with all of these offshore projects are not enough to fully book-out export focused LSAW mills, even with longer lead times on delivery.

From a supply side this article has focused on the Tier 1 export mills in Europe, Japan and India. There is also prominent LSAW capacity in China and Russia and rising Middle East local capacity. While mills in Russia and China primarily focus on domestic markets, a slow Russian market as we currently see could force large LSAW mills here to start to focus on these global offshore projects. Although there might be challenges with obtaining end-user approvals etc. from customers for these newer entrants, this could still provide a deterrent factor in driving prices up.

Edison Luo & James Ley, 
Fastmarkets MB research

Fastmarkets MB research produces a quarterly online platform forecasting the 5-year outlook of large-diameter linepipe demand , supply and pricing, along with detailed project information in order to keep up to date with developments in these markets PLEASE CLICK HERE to take a look.

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