The commodity boom has extended to obscure metals and a market is being created for these metals which hasn't been seen in twenty years. This week, we'd like to share with you the oil and gas pipeline and infrastructure issues which are surrounding various commodities but in particular the metal molybdenum. We have discussed molybdenum before, but never with this urgency and powerful documentation that will create only one thing: Demand.
A lot of secondary metals are shrouded in secrecy. Very little is known about the market size, global demand or even the price. Specialty metals in most cases are produced by large companies as by-products of primary metals. This is a great factor which has kept the value of commodities such as molybdenum, indium and germanium under the radar even as they approach historically high prices. The by-product issue is also a reason why no pure-play companies of a large size exist for these types of metals.
Just for a minute don't think about the market or demand for any particular commodity; think about what we need to continue our way of living. Think about how dependant we actually are on essentials such as heating and cooling our homes or driving our cars. Beneath our roads, homes, farms, deserts, malls and stadiums lies a multi-million mile network of aging pipelines which supply our energy needs. These pipelines are our energy transportation system, which we rely on to fuel our cars and power our computers. The corroding of these pipelines is due to hydrogen sulphide, carbon dioxide and common oxygen. How serious is the problem and how much money and demand will be involved? Corrosion costs the U.S. economy over $276 billion a year. This number has no where to go but up.
A very high percentage of energy providing vehicles have aged beyond their original design life span. We are talking about nuclear power plants and the U.S. pipeline network. Over half of the United States' 2.4 million miles of oil and gas pipelines were built in the 1950s and 1960s. These pipelines have deteriorated. Corrosion is a leading cause of pipeline spills or failures. The corrosion leads to leaks and ruptures constantly. We all remember last August when BP had to shut roughly 8% of US oil production. 'Unexpectedly severe corrosion' in their Alaska pipeline was stated. This was the first ever shutdown in America's largest oil fields. Immediately following the corroded pipeline rupture, the industry introduced legislation in an attempt to prevent a recurrence of the disaster. The Pipeline, Inspection, Protection and Enforcement and Safety Act was signed into law. There is much information which can be uncovered in regard to this law, but its purpose and goals have not been realized in many respects.
The pipeline industry took a look at the aging, out dated infrastructure and aimed the legislation towards a low cost solution; the detection of corrosion and bit by bit pipeline replacement. They conveniently forgot to deal with the issues which led to the initial problem. During the 1960's a massive build up phase occurred. During this time the US pipeline infrastructure relied on carbon and low-alloy steels for natural gas and petroleum transportation. As oil fields have aged, so have the pipelines that transport the oil. The risk of pipeline corrosion has never been higher. If the United States is encountering these problems what are the chances countries such as Russia, China and all of Europe will be encountering the same one?..More than probable.
Molybdenum was initially used to harden steel and increase weld ability while reducing the carbon content previously utilized. This metal has played a critical role in the development of oil and gas projects in the artic, sour and sub-sea environments.
Since the 1970s more than two million tons of molybdenum containing HSLA steel for pipelines has been manufactured. Molybdenum is currently worth roughly $35 dollars a pound. The world's largest pipeline manufacturer, Tenaris (NYSE:TS) confirmed that they purchased $65 million worth of ferromolybdenum over the six month period ending January 31, 2007 for use in their new pipeline steels.
Last December, in a worldwide pipeline construction survey compiled by Rita Tubbs some amazing facts were shown. She stated that, "81,593 miles of new and planned oil and gas pipeline was under construction and planned." She also stated that North American pipeline construction plans nearly doubled to 28,314 miles. Tubbs also cited that, "By 2008, contractors expect to see a workload that has not been seen in Canada for nearly three decades." This can only be referred to one thing: The oil sands of Alberta. She stated that, "Both Terasen and Enbridge plan to move oil sands by pipeline." Molybdenum will have to play a large role in this increase as the material which consists of a mixture of sand bitumen and water.
China currently has over 24,000 miles of existing oil and gas pipelines. They are currently adding 15,000 miles to it, aimed to be completed by 2010. Upon this completion the country has reported that it hopes to extend its mileage by nearly 63%. In 2005 they completed a 625 mile pipeline from Kazakhstan, set to import 140 million barrels of oil annually. The world's largest energy consumer by far is the United States. By 2025 the EIA has reported that they expect the US will need 47% more oil and 57% more natural gas. The transportation and distribution lines needed to sustain this growth equates to a 30% increase in current pipelines resulting in roughly 600,000 miles of new pipeline. We are willing to bet the United States will do and pay anything to achieve this.
How much molybdenum will be needed?
Will a junior company mining for molybdenum be revalued sky high if they achieve solid results and prove their resources?
Each pipeline mile could contain between 600 and 1000 pounds of molybdenum. The United States has over 2.4 million miles in pipeline. Roughly one half of their pipelines could call for replacements. That means in the United States alone, to update America's outdated pipelines more than 300 million and up to a possible 1 billion pounds of molybdenum may be required. These are speculative statements, but the facts justify that as these pipelines age 30 or 40 years, they will have to be replaced. Remember that chemical changes in the material passing through the pipelines accelerate erosion. The extraction from artic and sub sea levels add pressure to the pipes, as well as lengthening them which creates the need for more molybdenum. As China brings on new projects, Russian and Europe share in our aging pipeline problem in North America.
The demand for molybdenum is something we believe will only increase. Currently molybdenum is roughly worth $35 per pound and will be rising higher over the coming ten years. We believe that the molybdenum market has not peaked and that demand and absolute necessity of this metal will drive it into the public eye, affecting its value greatly. There will be a select group of junior mining companies who will capitalize perfectly on the demand market for molybdenum which we are just entering. We will be updating our stance on a company next week, operating within this specific commodity market.
All the best with your investments,
Pinnacle Digest
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