Pipelines move around two-thirds of the world's oil and gas transported annually. Pipeline & Gas Journal estimates that despite the global economic downturn, 119,938 miles of pipelines are planned and under construction.
There are an estimated 2.5 million miles of oil and gas pipelines in the United States that are increasingly breaking down and causing major disasters for communities as a result of the number one enemy of pipelines: corrosion.
But Abakan Inc. (OTC:ABKI) and its subsidiary, Mesocoat Inc., have attained the holy grail of pipeline integrity by extending the life of such vital energy transmission systems by up to 15 times their current possible design life, according to independent third party tests. With global hydrocarbon reserves trending towards high sulfur content, and hence high corrosivity, the need for improved pipeline life is critical to the economic viability of most of tomorrow's oil and gas projects.
So is Abakan's Mesocoat the high performance pipeline coating that can make catastrophes such as the pipeline leak at Prudhoe Bay in 2006, that cost BP (NYSE:BP) $20 million in fines and removed 400,000 barrels per day of production from the U.S. inventory, a thing of the past?
Mesocoat founder and CEO Andrew Sherman is confident that it is. During a recent interview on Reuters Insider's Midas Letter Money, he said:
Abakan was started with the objective of making our resources go farther. Most of the oil and gas fields being developed right now have high sulfur oil and wet gas, and hence require better materials and surface engineering solutions to de-risk the operations.
We achieve that by combining nanotechnology and advanced materials with a high-volume application process that extends the life of large oil assets. We take large $100 million to $1 billion assets such as an oil drilling rig or oil and gas pipeline, and extend their operating lives while eliminating costly maintenance and downtime.
As with any new disruptive technology, skeptics abound. But nothing silences critics faster than industry validation.
"As the world's need for energy increases, the ingenuity of the energy industry needs to increase as well," said Andy Brown, Shell's chairman for Qatar, heralding the recent workshop on sour gas development attended by the likes of Qatar Petroleum, Gazprom and Qatargas.
With industry adoption by a major explorer and producer now underway, and additional top-5 oil producers in the negotiation and evaluation stage, naysayers and skeptics are incrementally being silenced.
One of the world's leading heavy equipment manufacturers is also in advanced development of product components that utilize Abakan's products, as is the U.S. Army. In fact, an examination of the list of corporate, military, academic and government partners attached to Abakan's Mesocoat reinforces the company's claim that the technology is sound, and shows that it is clearly in the critical phase of commercialization.
What is It?
Abakan's Mesocoat has two main product lines, one of which is cladding, (CermaClad) the other of which is coating (PComP). Both the cladding and the coatings are metallic nanocomposite materials that are fused to the surface of the asset, either with a powerful arc lamp that creates a true metallurgical bond quickly and more cheaply than existing claddings, or by using thermal spray processes.
The result is a long life asset that lasts from six to 15 times longer than those coated with incumbent technologies as verified during independent testing by globally respected Det Norske Veritas (DNV), one of the world's leaders in technology risk assessment.
The bottom line?
Abakan's CermaClad technology can apply thin or thick metallurgical cladding of corrosion and wear resistant materials to the inside or outside of pipes, extending the life of the pipes by at least 6 times longer than their current design life.
CermaClad is 20% cheaper than current cladding technologies, and offers much longer life. Even though it is 40-50% more expensive than the extensively use epoxy based coating systems, it will offer more than 15 times longer design life.
In very challenging applications like oil sands and mining slurry transportation, the entire length of pipeline is replaced almost every year and leads to billions of dollars in lost profits associated with maintenance, repair, and downtime. CermaClad can extend the life of these pipes by 6 to10 times, leading to a significant reduction in capex and opex on cost per barrel of oil over time.
Who Needs It?
The short answer is "everybody." The International Energy Agency (NASDAQ:IEA) estimates that 70% of the world's remaining oil reserves consist of heavy, high sulfur crude. Heavier high sulfur crude means much higher corrosivity, which means higher costs for explorers, producers, refiners and pipeline operators.
About a third of the world's natural gas reserves contain high concentrations of contaminants, and as such, are termed 'sour gas'. The defining chemicals are often hydrogen sulfide (H2S) and carbon dioxide (CO2). In some cases, other sulfur compounds such as carbonyl sulfide (COS) and mercaptans are also found.
Canada's oil sands, having the twin challenges of high sulfur content and low viscosity, are especially expensive to produce, in part because of the short life of pipelines and refining components exposed to such a corrosive environment.
In the U.S., pipeline operators have ramped up spending on pipeline integrity technology to over $1 billion annually.
The same trend is apparent throughout the Middle East, Russia, Asia, and especially South America, where Abakan's technology development partner and Brazilian national oil and gas producer Petroleo Brasileiro SA (NYSE:PBR), commonly known as Petrobras, is developing oil reserves located in very deep waters.
The majority of the huge oil fields off the coast of Brazil are high in sulfur, and that means one thing for Abakan.
"We're going to be a major part of the hydrocarbon transmission infrastructure both in the production phase, and in the transportation phase," says Abakan CEO Robert Miller. "And not just in Brazil. We expect to establish production facilities in Alberta next year, and are in discussion with companies throughout the Middle East, Russia, Asia and the United States."
Abakan expects it will begin construction of its second commercial plant in Rio de Janeiro next year, and is currently seeking to acquire land within Eike Batista's superport, Açu.
Disclosure: I am long OTC:ABKI.