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Pipeline market strong in face of shifting demands

Changing landscape includes larger pipelines, regulatory challenges, emerging technology

HDD is being used in larger jobs throughout the oil and gas pipeline installation and replacement industry.
HDD is being used in larger jobs throughout the oil and gas pipeline installation and replacement industry.

It’s no secret that the oil industry has suffered over the past year and half as prices declined sharply.

But that does not mean the pipeline construction market must be hurting, too. On the contrary, when times are tough, companies in any industry try to be more efficient. In the oil industry – and also gas – that’s when the advantages of pipelines become even clearer.

“A pipeline is a much more cost-effective and efficient way to transport energy compared with rail or truck – not to mention, it’s safer,” says Jon Heinen, commercial business manager for pipeline at Vermeer. “The tighter the margins get, the more need an owner company has for pipelines, actually.”

That’s just one of the reasons Heinen – who travels the world meeting with executives of energy and pipeline construction companies, as well as participating in industry associations – considers the North American pipeline market to be in a strong position, even if its associated industry is down.

That’s not to say there aren’t challenges or shifting demands. Larger-diameter pipes are being installed, which requires larger rigs. Government regulations, especially those related to drilling fluid disposal, are stressing contractors. Finding quality crew members is an ongoing struggle. And technology use is growing.

Larger pipelines and rigs

After a strong 2013 and start to 2014, the pipeline market saw a dip in action in 2015 as the price of oil was cut in half. But Heinen doesn’t believe that will have a long-term effect, because infrastructure still needs to be developed to move oil and gas around.

In fact, pipeline bids for jobs in 2016 and even into 2017 are up significantly compared with 2015.

“There’s a lot of confidence in the industry again,” Heinen says. “A lot of contracts have been awarded already for upcoming work, and permits are pending. Contractors are gearing up. The vibe is positive.”

That’s especially true for the transmission lines. The midstream business drove the North American pipeline construction market for many years, but it’s slowing down. The transmission business is where much of the activity will be in 2016 and 2017, according to Heinen.

This is creating change for pipeline construction companies. Namely, the new transmission pipelines are larger in diameter at 36 inches, 42 inches and even 48 inches (91.4, 106.7 and 121.9 cm), compared with the 20- and 24-inch (50.8 and 61 cm) pipelines of the past. This is happening not just in the U.S., Canada and Mexico, but also Europe, Heinen says.

The larger pipelines generally require larger equipment, including horizontal directional drilling rigs that feature pullback forces of 500,000 pounds (2,224.1 kN) and greater, trenchers, reclaimers and tooling. Heinen predicts this will lead to more specialization among contractors because of the size of equipment needed to do this work, although some will purchase machines that let them get into the emerging transmission line market.

There will still be plenty of work for the “smaller” rigs, such as horizontal directional drills with pullback forces of 220,000 pounds (978.6 kN) and 330,000 pounds (1,467.9 kN). Such machines are still perfect when a contractor needs mobility and faster setup and tear-down times for large-diameter bores over short distances, like road crossings.

Another market for these contractors, one Heinen calls “a bright spot in our industry in the next couple of years,” is replacing aging infrastructure. Much of this is in developed areas where machines with smaller footprints and more mobility than maxi rigs will be valued. These pipelines often range from 16 to 24 inches (40.6 to 61 cm) in diameter, and sometimes go up to 30 inches (76.2 cm).

Regulatory challenges

This is all good news for contractors. But there remain challenges. Chief among them, in Heinen’s view, is government regulations.

“I think the regulatory piece is the largest risk to the North American pipeline market,” he says. “We have the people, we have the equipment, we have the technology, we have the know-how, but regulations are such a moving target that it’s hard to plan a business around them.”

It’s not just that regulations vary region to region or even city to city – it’s that they can change job to job. There’s also the permitting process, which can take years and get caught up in politics, as has happened with the now-rejected Keystone XL pipeline project.

Falling under the regulations umbrella is drilling fluid, a huge issue in the horizontal directional drilling market. Although drilling fluid is basically just water and a special clay, it’s treated as a hazardous material. This hits contractors hard when it comes to disposal. Heinen says on some HDD projects, drilling fluid management can account for half a contractor’s total expenses. He’s even aware of contractors who have walked away mid-project because the disposal process was too unwieldly and the cost too high.

“The revenue generated didn’t account for the expenses incurred because of the requirements,” he says. “The dumping station was two hours away. They had to double up on vacuum excavators, and if the vacs are gone, it shuts down the drill crew.”

Pipeline contractors are turning to reclaimers and large vacuum excavators to meet their fluid management needs. Industry associations, equipment manufacturers and colleges are studying the issue to bring more science to what sometimes can seem more like a matter of public relations. “Beneficial reuse” is an emerging phrase in the HDD world. Might drilling fluid be reused in some sort of valuable way, rather than sending it to a landfill or a water treatment plant? Possibilities include drying it onsite, using it in a farming application or incorporating it with compost.

Labour needs continue

Labour continues to be an ongoing issue in the pipeline market. There are a couple of aspects to this. One is, like many other industries, the workforce is aging. But perhaps more pressing is the lack of skilled labourers, especially equipment operators. Heinen views it more as an opportunity than a challenge, however.

“I think we have a big opportunity in the next five years to bring in the next generation of operators,” he says.

Companies and industry associations would do well to share with high school and technical school students the message that a career working on a pipeline installation crew is a great opportunity. It’s becoming a profession that increasingly uses technology, there are opportunities to travel, and a drill operator’s pay is probably much better than some may expect. These are all selling points that would appeal to many people starting their careers.

There’s a lot of confidence in the industry again. A lot of contracts have been awarded already for upcoming work, and permits are pending. Contractors are gearing up. The vibe is positive.Jon Heinen, commercial business manager for pipeline at Vermeer

Data in high demand

Speaking of technology, that should soon permeate the pipeline market just like the rest of our lives. The oil and gas companies are ahead of pipeline contractors on this front, and Heinen says the energy companies are starting to expect the people they work with to embrace technology.

Telematics for equipment, planning and jobsite tools for pipeline construction jobs and digital reporting are examples of the type of technology some in the industry are already using and that will become more common in the coming years.

“There is going to be a huge demand for data,” Heinen says. “For job performance data, for operator-specific data, for ground conditions data, for tooling data, for the mud pump, everything you can imagine. That is definitely a trend in the industry. It’s being driven by the oil companies, because this type of data tracking is possible to do. We definitely are adopting that into the pipeline construction industry.”

He says contractors also can better position themselves by adopting lean methodology to eliminate waste. This is often associated with manufacturing – think of the factory setup in which wasteful movements are minimized – but as pipeline project deadlines and margins get tighter, construction contractors would benefit from a lean philosophy. They can try to be more efficient in their operations, in the layout of their shops, in jobsite setup and teardown and fleet management.

“You can’t just keep putting more equipment and more people and more dollars toward projects to do things faster,” Heinen says. “Project owners want work done faster and faster and faster and faster. I think the contractors that apply lean methodology are the ones who are going to have more potential to succeed.” OGPN 

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