The Global large diameter linepipe markets

Market outlook to 2010

4th June 2007

James Ley - Consultant Hatch Beddows

THE GLOBAL LARGE-DIAMETER LINEPIPE MARKETS

Contents

Hatch, Hatch Consulting and Hatch Beddows Current global API plate supply Current global large-diameter pipe demand Forecast global API plate new mills & expansions Forecasts global linepipe production in 2010 Forecast large-diameter linepipe demand Summary

Hatch Associates Limited, 2006

THE GLOBAL LARGE-DIAMETER LINEPIPE MARKETS

Contents

Hatch, Hatch Consulting and Hatch Beddows Current global API plate supply Current global large-diameter pipe demand Forecast global API plate new mills & expansions Forecasts global linepipe production in 2010 Forecast large-diameter linepipe demand Summary

Hatch Associates Limited, 2006

Our organisation Hatch supplies business, process and technology consulting, design and engineering and construction, operations and project management to the mining and metals, energy and infrastructure industries worldwide Established 1955 and employee owned 7300 highly skilled people serving clients worldwide US$16BN of projects now under management in 60 countries Our values Safety Quality Innovation Sustainable development Effective risk management We deliver unprecedented and sustained results for our clients
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HATCH

Global reach and resources 7300 people Oct. 2006

Canada Calgary, Alberta Hamilton, Ontario Montreal, Quebec Sorel-Tracy, Quebec Sudbury, Ontario Toronto, Ontario Vancouver, British Columbia

3400

Europe London, England Moscow, Russia

170
India
Delhi

USA Boston, Massachusetts Buffalo, New York Millburn, New Jersey Monroeville, Pennsylvania New York, New York Pittsburgh, Pennsylvania Pleasanton, California San Francisco, California Seattle, Washington

China Beijing Shanghai

120

South America Antofagasta, Chile Santiago, Chile Lima, Peru So Paulo, Brazil Vitoria, Brazil

700

South Africa Johannesburg Richards Bay

600
(Yellow indicates regional hub)

Australia Brisbane Gladstone Mackay Melbourne Newcastle

Perth Sydney Townsville Whyalla Wollongong

2300
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Hatch Associates Limited, 2006

HATCH CONSULTING

Hatch Consulting is the leading management consultancy dedicated to the mining and metals industries

Hatch Consulting is the worlds leading management consultancy specialising in the mining and metals industries and provides high level support services, ranging from corporate and business strategy development through strategic market studies to implementation of new technologies, management and operating practices Hatch Consulting is organised into specialised practices by industry and service, combining to provide precise solutions, expertly delivered to the exact needs of each individual client Hatch Beddows is the strategy and market development practice, specialising in steel and raw materials, and providing strategy development and implementation services Investment and Business Planning (IBP) provides economic, environmental and technical evaluations of minerals properties and processing facilities, due diligence, prefeasibility and feasibility studies and related investment planning and appraisal services HB Advisors (HBA), a FSA-regulated joint venture company, provides corporate financial advisory and transaction execution services

Hatch Associates Limited, 2006

THE GLOBAL LARGE-DIAMETER LINEPIPE MARKETS

Contents

Hatch, Hatch Consulting and Hatch Beddows Current global API plate supply Current global large-diameter pipe demand Forecast global API plate new mills & expansions Forecasts global linepipe production in 2010 Forecast large-diameter linepipe demand Summary

Hatch Associates Limited, 2006

CURRENT GLOBAL API PLATE PRODUCTION

API plate production has historically been dominated by Western Europe and Japan. China has recently emerged as a global producer

Production 1.5-2.0m tonnes

1.0-1.5m tonnes 0.5-1.0m tonnes

0.0-0.5m tonnes Major trade route Minor trade route

Total global API plate production for 2006 is estimated at = 10.6m tonnes Source: Hatch Beddows
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CURRENT GLOBAL API PLATE PRODUCTION

Some Western European and CIS heavy plate mills are heavily focused towards API plate production

Selection of heavy plate mills around the world, with% of production dedicated to API plate 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0%
U W kr es ai te ne rn W Eu es ro te pe rn W Eu es ro te pe rn W Eu es ro te pe rn W Eu es ro te pe rn W Eu es ro te pe rn Eu ro pe a a a re a hi n hi n hi n pa pa Ja Ko Ja C C C U SA n n

Some heavy plate mills in Western Europe are almost 100% dedicated to API plate production Japanese, Korean and Chinese plate mills are more focused towards other markets such as ship building

API production

Remaining plate capacity

Hatch Associates Limited, 2006 9

THE GLOBAL LARGE-DIAMETER LINEPIPE MARKETS

Contents

Hatch, Hatch Consulting and Hatch Beddows Current global API plate supply Current global large-diameter pipe demand Forecast global API plate new mills & expansions Forecasts global linepipe production in 2010 Forecast large-diameter linepipe demand Summary

Hatch Associates Limited, 2006

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CURRENT GLOBAL LSAW LINEPIPE PRODUCTION

With increasing LSAW pipe production in Russia, India and the Middle East, pressure has been placed on API plate supplies
Global LSAW production in 2006 by region

Russia & Ukraine EU 27 USA & Canada Japan Iran

Production 2-3m tonnes 1.5-2m tonnes 1-1.5m tonnes 0.5-1m tonnes < 0.5m tonnes Latin & South America

Rest of Middle East

Rest of Asia

Estimated Total LSAW global production in 2006 = 10.8 m tonnes Source: Hatch Beddows
Hatch Associates Limited, 2006 11

CURRENT GLOBAL HSAW LINEPIPE PRODUCTION

Spiral pipe production is increasingly being accepted as an onshore application for oil and gas projects, and is not reliant on the API heavy plate mills
Global HSAW production in 2006 by region

CIS EU 27 Canada & USA Turkey Iran Rest of Middle East Other Asia Production 1-1.5m tonnes 0.5-1m tonnes < 0.5m tonnes South America

Total global spiral pipe production in 2006 is estimated at = 6.3M tonnes Source: Hatch Beddows
Hatch Associates Limited, 2006 12

THE GLOBAL LARGE-DIAMETER LINEPIPE MARKETS

Contents

Hatch, Hatch Consulting and Hatch Beddows Current global API plate demand Current global large-diameter pipe supply Forecast global API plate new mills & expansions Forecasts global linepipe production in 2010 Forecast large-diameter linepipe demand Summary

Hatch Associates Limited, 2006

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FORECAST GLOBAL API PLATE NEW MILLS & EXPANSIONS

With Russia and India both desperately short of API plate production currently, both are embarking on impressive new facilities

Producer OMK MMK Severstal Essar Steel Jindal Steel & Power Jindal Steel & Power Yingkou Baotou
Other developments:

Country Russia Russia Russia India India India China China

Max width (mm) 5,000 4,800 5,000 5,000 3,800 5,000 5,000 3,700

Estimated start date 2010 mid-2009 2008 Q4 2007 May 2007 2008/9 Q4 2009 Q4 2007

Estimated capacity (m tonnes) 1.2 1.5 1.0 (expanding Kolpino) 1.5 1.0 1.5 2.3 1.4

China has at least 5 plate mills aware to Hatch that are currently developing API plate qualities Welspun, India, has also proposed building a plate mill. The current status is unknown Mittal Steel Gary Indiana is planning to restart operations
Hatch Associates Limited, 2006 14

THE GLOBAL LARGE-DIAMETER LINEPIPE MARKETS

Contents

Hatch, Hatch Consulting and Hatch Beddows Current global API plate demand Current global large-diameter pipe supply Forecast global API plate new mills & expansions Forecasts global linepipe production in 2010 Forecast large-diameter linepipe demand Summary

Hatch Associates Limited, 2006

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FORECAST GLOBAL LSAW PIPE POTENTIAL PRODUCTION IN 2010

LSAW pipe production is expanding, especially in Russia, but planned (API) plate mills should be able to meet this demand
Forecast LSAW production by region in 2010 With TMK planning to enter the LSAW market, and OMK and ChTPZ expected to increase capacity. CIS LSAW pipe production will likely rise above 3m tonnes by 2010
Japan Iran

CIS USA & Canada EU - 27

Europipe & Vallourec to enter the Brazilian LSAW market with a JV

Production Latin & South America

3-4m tonnes

2-3m tonnes 1.5-2m tonnes 1-1.5m tonnes 0.5-1m tonnes < 0.5m tonnes

3 new mills in the Middle East & Iran will increase production

6 LSAW mills planned in China. Production to approach 3m tonnes. 1.6m tonnes of additional API plate required

Source: Hatch Beddows

With Welspun adding 500kt into the market Indian LSAW production could reach up to 2m tonnes
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FORECAST GLOBAL HSAW LINEPIPE PRODUCTION IN 2010

The North American market is pushing ahead with a number of planned HSAW pipe mills as onshore oil and gas pipeline demand rises
Forecast HSAW production by region in 2010

EU - 27

CIS

Turkey

5 planned spiral mills in North America will add an additional 1m tonnes of capacity Welspun/Lonestar (?) Posco/SeAH/US Steel Berg Ipsco expansion PSL

Borusan new mill in Spain

South America

Man Industries expansion of HSAW facilities will take Indian production over 1m tonnes

1-1.5m tonnes 0.5-1m tonnes

Source: Hatch Beddows

< 0.5m tonnes
Hatch Associates Limited, 2006 17

THE GLOBAL LARGE-DIAMETER LINEPIPE MARKETS

Contents

Hatch, Hatch Consulting and Hatch Beddows Current global API plate demand Current global large-diameter pipe supply Forecast global API plate new mills & expansions Forecasts global linepipe production in 2010 Forecast large-diameter linepipe demand Summary

Hatch Associates Limited, 2006

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FORECAST LARGE DIAMETER LINEPIPE DEMAND

Energy prices are unlikely to crash in the next couple of years making largediameter linepipe projects still financially viable

US energy prices: Base case scenario

75 9.5 9 70 8.5 8 65 7.5 7 60 6.5

Oil prices are forecast to remain above $60/barrel out through to 2008
55

6 5.5

5 50 Q1 2006 Q2 2006 Q3 2006 Q4 2006 Q1 2007 Q2 2007 Q3 2007 Q4 2007 Q1 2008 Q2 2008 Q3 2008 Q4 2008

(LHS) Crude oil prices ($/barrel)

Natural gas ($/mcf)

Source: EIA, Hatch Beddows

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FORECAST LARGE DIAMETER LINEPIPE DEMAND

North America is set to lead the charge for large-diameter linepipe through the next couple of years, but Russia and Asia will also be close behind
Transnefts East-Siberian pipeline is helping to keep domestic producers busy. Nordstream is also likely to create opportunities (pos. not just in Russia) New pipelines will be needed after 2010 as regions other than Western Siberia are explored As well as latter stages of the WestEast pipeline, potential pipelines from Russia, Central Asia and the Caspian could keep Chinese LSAW/HSAW producers busy

North America forecast for the largest share of global pipeline additions: -USA will need to replace and refurbish obsolete facilities - Greenfield project will be required such as Mackenzie pipeline (?) and expanding capacity from the Rocky mountains to relieve system bottlenecks

The Middle East offers huge potential for new pipelines to Europe, Pakistan, India etc. but geopolitical tensions cause problems Source: Hatch Beddows
Hatch Associates Limited, 2006

By 2010 Indias pipeline infrastructure is forecast to have doubled to 32,000km

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FORECAST LARGE DIAMETER LINEPIPE DEMAND

The large diameter linepipe markets are set to see a tight supply/demand balance remain until 2009

Forecast demand for linepipe (>20 OD) based on known projects M tonnes
10 9

8 7 6 5 4 3 2 1

Average of just under 19m tonnes of largediameter pipe required between 2007 2009 2006 supply of large diameter linepipe = 17.1m tonnes However, some large-diameter ERW pipe could be used in some of these projects Based on current mill start dates just under 2.5M tonnes of further large-diameter linepipe will come on stream by the end of 2008

North America

Latin America

Europe

Africa

Middle East and Asia

Australasia

2007

2008

2009

Note: There are limitations with linepipe demand forecasts: Rapidly rising input costs could see projects shelved: E.g. Mackenzie in just two years the cost of the proposed pipeline has risen from $7.5bn to $16.2bn. Investors such as Conoco, Imperial and Shell are now looking at ways of letting the Canadian government take ownership of the pipeline to prevent it from not being built
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Source: Simdex, Hatch Beddows

Hatch Associates Limited, 2006

THE GLOBAL LARGE-DIAMETER LINEPIPE MARKETS

Contents

Hatch, Hatch Consulting and Hatch Beddows Current global API plate supply Current global large-diameter pipe demand Forecast global API plate new mills & expansions Forecasts global linepipe production in 2010 Forecast large-diameter linepipe demand Summary

Hatch Associates Limited, 2006

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THE GLOBAL LARGE DIAMETER LINEPIPE MARKET

Summary

Forecast API LSAW and HSAW pipe production capacity expected to rise by around 5.2m tonnes by 2010 Based on planned API plate mills, there should not be a bottleneck in API plate supplies While the supply/demand balance is set to remain tight for LSAW and HSAW pipe in the next couple of years, new pipe mills coming on stream will help to prevent supply shortages Pipe demand growth beyond 2008 will have to keep consistent with current growth in order to prevent an over-surplus of linepipe capacity New plate mills capable of producing API plate will open in regions very short of supply e.g. Russia and India, helping to reduce pipe mill input costs making them more competitive on the international market China, which has seen linepipe imports drop from around 295,000 tonnes (2003) down to 12,000 tonnes (2006) could have an increasing presence on the LSAW export market once the West-East pipeline development is complete Western European and Japanese producers will have to increasingly compete against these emerging producers in regions such as the Middle East and Southeast Asia

Hatch Associates Limited, 2006

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THE GLOBAL LARGE DIAMETER LINEPIPE MARKETS

Thank you for your attention

For further information please contact: James Ley Consultant Hatch Beddows 9th Floor, Portland House, Bressenden Place London. SW1E 5BH UK Tel: +44 20 7906 5127 Fax: +44 20 7963 0972 jley@hatch-europe.com

Hatch Associates Limited, 2006

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