Energy security fears drives demand for high-performance alloys, explains Rodney Rice.
With unprecedented demand over the past 12months, stock and availability of the alloys used across the oil & gas sector has become problematic.
Nickel-based alloys such as 718 and 925 provide high-strength, resistance to aggressive conditions and a wide operating temperature range. Alloy 718 has been the default alloy for aerospace and downhole oil & gas applications for many years. Alloy 925 has been increasingly specified for downhole applications where it can offer an important cost saving over Alloy 718.
As the market emerged slowly from the pandemic, the supply chain was hit with volatile alloy surcharges arising from a disturbance at the London Metal Exchange – over two days in March 2022, the traded price of nickel rose from US$30,000 to over US$100,000 per tonne. Following a two-week halt, trading resumed but producing mills were nervous to offer prices and accept orders. This was particularly true for the high-performance alloys used in downhole applications that contain more than 40% nickel content.
The invasion of Ukraine shortly beforehand appeared to change attitudes towards energy security. Previously shuttered projects came forward, and enquiry levels rose considerably. Air travel had started to recover post-pandemic, with production of jets restarting against record order backlogs. However, with the alloys used in aerospace applications being similar in composition and production route with those for oil & gas, producing mills had the double-hit of a spike in demand from two of their largest market sectors.
Mill production lead times went out, well beyond 12 months, sometimes up to 18 months, and in the worst case, not even wanting to acknowledge new orders. Other distributors had allowed their stocks to naturally run down during Covid, and the uncertain market conditions didn’t encourage re-stocking. All of a sudden, Langley Alloys was receiving enquiries from customers it had not previously dealt with. Maintaining the company’s stocks through Covid represented a business risk, which very quickly became a business opportunity.
A risk that paid off
Entering the market for Alloy 925 felt misplaced during Covid, but it has now provided many openings. Most current applications for this alloy are tubular in form, so a good fit for Langley Alloys as the company operates its own deep hole borer – putting a bore through a solid bar in minutes. It has the possibility of stocking hollow bar, which could save end users even more again. However, reconciling variable dimensional requirements, short-term needs and smaller quantities makes it difficult to land without a commitment from end users. In any case, the company always recommends speaking with its team well in advance of future projects to provide the best solution.
There appears to be no significant drop in activity and demand, despite oil & gas prices returning to their longer-run average levels. Sourcing sufficient high-performance alloys in a reasonable timescale will remain a challenge. New suppliers may enter the market, but still require end user approvals. Therefore, collaboration along the supply chain will be increasingly relevant to navigate these challenges.
Rodney Rice is director of Langley Alloys.