February 5, 2019 / 1:13 PM / a year ago

UPDATE 1-Tenaris, Severstal team up for oil pipe production in Siberia

* Tenaris, Severstal to invest $240 mln in JV in Russia

* Their welded pipe plant to start production in 2021

* Seen reaching production capacity in 2024 (Adds details, quotes, context)

MOSCOW, Feb 5 (Reuters) - Steel pipe maker Tenaris will team up with Severstal, one of Russia’s largest steel producers, to make steel pipes in the heart of Russia’s oil and gas sector in Siberia, they said on Tuesday.

New industrial projects with Western partners have been rare in Russia in the last five years because of sanctions imposed on Moscow, but the venture between Tenaris and Severstal relies on the main source of Russia’s budget revenue - oil and gas exports.

“The production will be located in close proximity to the main oil and gas companies which will ensure cost efficiency both for us and our customers’ operations,” Alexey Mordashov, Severstal’s board chairman, said in the statement.

Tenaris and Severstal aim to serve the market for welded OCTG pipe products in Russia and neighbouring countries. OCTG stands for Oil Country Tubular Goods, which are tubes that are used in oil and gas production.

The OCTG market is dominated by seamless pipes, but welded pipes are cheaper, and the partners hope to turn this factor to their competitive advantage, Mordashov told a briefing in Moscow.

Their joint venture will build a welded pipe plant to produce OCTG products in Siberia’s Surgut area. The plant with annual production capacity of 300,000 tonnes will require an investment of $240 million.

Severstal will obtain a 51 percent interest in the joint venture with Tenaris owning the remaining 49 percent. Partners plan to share the investment on the same basis, and do not expect to borrow funds for it.

The plant will launch production in 2021 but will reach full capacity only in 2024. “We will need time to reach the required level of quality and build mutual relationship with customers. At the same time, of course, we will try to make it faster,” Mordashov said.

Once running at full capacity, the plant will supply between 15 and 20 percent of Russian OCTG market, Paolo Rocca, Tenaris’ chief executive, told the same briefing.

The final market share will depend on demand for welded pipes and services which the partners plan to offer to the market, Mordashov said.

“Today, we see that oil companies have to conduct production at more complex fields... All this may cause additional growth in demand for such products. We just expect that our production in Surgut will be the answer to those challenges that oil companies may encounter,” he added. (Reporting by Polina Devitt; Editing by Mark Potter and Louise Heavens)

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