Increase in steel prices may lead to rise in pipeline project costs

Oil&Gas Materials 12 April 2010 13:02 (UTC +04:00)

Azerbaijan, Baku, Apr. 12 / Trend A.Badalova /

Austria's largest steel company Voestalpine plans to supply pipes for the undersea section of the South Stream Gas Pipeline, Bloomberg reported with reference to Voestalpine CEO Wolfgang Eder.

The company does not intend to participate in a tender to supply pipes for the Nabucco Pipeline Project, Eder said. 

"Nabucco is an overland pipeline, which makes this project less interesting for us in terms of quality [required steel] and length [pipeline]," he said.

The company plans to apply for a tender to supply pipes to the Black Sea section of South Stream, but the tendering process will end no earlier than 2012, Eder said.

The availability of financing for Nabucco is under question, although the project's costs are far lower than South Stream's. Nevertheless, the current situation on the steel market may result in price increases for both projects.

A 25-percent increase in steel prices began in January 2010 after a relative economic recovery from the recession. In March, prices reached a record level in Europe. Analysts believe the rise will continue throughout the year.

ArcelorMittal CEO Lakshmi Niwas Mittal forecasts steel prices rising by 21 percent this year on the backdrop of rising prices for the raw materials needed for production.

Earlier this year, steel prices on the world market were at about $600 per ton compared to $300-350 per ton in February 2009. Some Western analysts expect an increase in prices to 900 per ton in summer.

Increase in demand also stimulates further growth in steel prices. Based on World Steel Association forecasts, the global demand for steel in 2010 will grow by 10 percent on the background of the restoration of the global economy.

South Stream, worth 25 billion euro, provides for the delivery of Russian gas to South and Central Europe via the Black Sea. The project's main participants are Russia's Gazprom and Italy's ENI. The pipeline is expected to launch in 2015 with a maximum capacity of 63 billion cubic meters per year.

Nabucco is worth 7.9 billion euro. Participants are Austrian OMV, Hungarian MOL, Bulgarian Bulgargaz, Romanian Transgaz, Turkish Botas and German RWE companies. Each of participants has equal share of 16.67 percent. Construction of the pipeline is planned for 2011 and first supplies for 2014. The pipeline's maximum capacity will hit 31 billion cubic meters per year.  Nabucco Gas Pipeline International shareholders will invest 30 percent of the total cost, and the remaining 70 percent will be paid owing to loans.