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ou don’t have to tell Piotr Galitzine that the midstream has been hot. If the chairman of pipe manufacturer TMK IPSCO needs to be reminded of the growth in his sector, all he need do is review his company’s financials.

“We’ve increased our shipments since we bought IPSCO by 50 percent in less than six years,” he notes. “We’ve tripled threading capacity and doubled heat-treat capacity. Our third R&D center is going up in 2016 in Moscow.”

A sizable portion of the expansion for TMK IPSCO (a unit of the Russian company OAO TMK, which is ranked among the top three pipe producers globally) has occurred in or near the Appalachian Basin. TMK IPSCO recently constructed and opened a new plant in Brookfield, Ohio, to complement its three existing facilities—two in western Pennsylvania and one in Kentucky. Demand has been so steady that the company already has activated a second threading line at Brookfield.

While Galitzine doesn’t diminish the significance of current uncertainty in midstream investment and development, he’s bullish for the future.

“If you look long term enough, it is inevitable that lots of pipe- line will be put in because the success in producing gas in the U.S. has been duplicated on the oil side,” he says. “We’re looking at a burgeoning corridor of gas going from Marcellus shales to the Gulf and an oil corridor going from the Bakken fields to mid-continent and the Gulf. But that’s if you look long enough out.

“Investment in pipeline has been delayed a little because the return to economic health has been slow and halting and not exactly accompanied by a rebirth in job creation to the extent many thought it would be. A lot of pipeline investors are sitting on the fence.”

10 Marcellus Quarterly 2014

He also observes that changes in the approach to drilling are forcing TMK IPSCO and other providers to modify their prod- uct mixes and emphasize drillers’ new needs.

“Pad drilling has changed things,” Galitzine says. “We’re no longer gathering hydrocarbon oil from discrete pumping jacks; it’s coming from a drilling pad. Practically all our clients think drilling up to nine wells from a pad is no big thing, So gathering lines have increased in diameter.”

One thing that makes Galitzine so sanguine about the future is a phenomenon that the oil and gas industry must view with considerably less enthusiasm: the aging of the world’s pipe- line networks. Because shale gas development in the Appa- lachian Basin is so new, we don’t necessarily think of anti- quated pipe as a problem. Galitzine is sure that it is.

“By our calculations, about 55 percent of all installed larger di- ameter networks—gas and oil—are between 40 and 64 years old,” he reports. “Around the world, replacement typically oc- curs at 40 years. Replacement won’t happen all at once— we’ll see it first on the gas side—but when it does, we’ll be standing by ready to meet the need.”

Moreover, when it comes to replacing pipeline and building out new infrastructure, he detects a new willingness to “buy American.” Says Galitzine:

“It’s a fascinating shift, really a major shift. The U.S. mantra always has been, ‘You can’t make it here; it’s too expensive. Make it someplace in Asia.’ For the first time, we’re seeing a sea change in investments and enthusiasm about invest- ing in America’s infrastructure. It’s all driven by inexpensive gas from shales, and the same thing will happen with oil from shales. Overall, it’s a very bright picture, and we’re right in the middle of all this excitement.”

Cover story continued on page 13 >>

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