Saudi Aramco plans to use 11,000 kilometers of line pipe in diameters up to 84 inches in the next five years. That's more than 2 million tons of steel, enough to build 274 Eiffel Towers or 2.3 Golden Gate bridges or to cover the distance from Riyadh to New York City with 8-inch pipe.
To meet the demand for line pipe - the kind of piping used to carry petroleum products - Materials Supply on Nov. 15 signed 13 innovative manufacturing capacity agreements with leading in-Kingdom manufacturers and local vendors, in line with the organization's strategy to achieve best-in-class status and to streamline the materials supply chain.
The plant capacity agreements were a first for Saudi Aramco, which will no longer compete for a share of the highly competitive and volatile global market using traditional spot-bid methods. Because of that competitive market and the potential shortage of required materials, other companies are seeking similar agreements. Saudi Aramco is one of the first to do so in this area.
The 13 agreements allow Saudi Aramco to reserve plant capacity from selected mills in order to guarantee price, quantity and optimum delivery terms to support the company's robust capital program and operational needs. More than 100 delegates from national and international businesses and Saudi Aramco attended the signing ceremony, as did several of the company's vice presidents and department managers.
Global demand for pipe has caused pressure on supplies and has resulted in mills reaching their production capacities in order to keep pace. Ultimately, that leads to longer delivery periods, which could delay projects. For example, two or three years ago, pipe deliveries took six to eight months. They now average more than 12 months, depending on the suppliers.
The five-year capacity agreements guarantee Saudi Aramco an uninterrupted supply of several kinds of seamless line pipe and structural pipe. The strategic agreements were organized into 42 groups for sizes and type of pipe to maximize mill participation and to include as many Saudi manufacturers as possible.
The agreements allow more than one source for most products to prevent bottle-necking of any product. The model also provides a rolling six-month forecast of commitment to be issued each month.
While Saudi manufacturers National Pipe Co., Arabian Pipes Co., Saudi Steel Pipes and Group Five were competing with global industry leaders, they captured the lion's share of the business. Their effort strengthens the Saudi economy and creates significant job opportunities for Saudi workers. Saudi Aramco provided the catalyst to form two local manufacturing consortiums to maximize in-Kingdom capabilities and strengthen synergy.
For required pipe not produced in-Kingdom, such as large-bore seamless pipe, procurement will be achieved through a strategic sourcing plan aimed at global industry leaders. Sources will include mills in Argentina, China, India, Italy, Japan, Mexico, Russia, the United Kingdom and the United States.