Category description

Metal and steel is a backbone of the oil & gas industry. Perhaps 70% of what we build (structures) is made of steel and other metals. Steel materials, being the bulk of structures, could be stainless steel, duplex steel, carbon steel, alloy steel and forged steel. The list of steel products is expansive and include plates, tubulars (rolled and seamless), joints, bar, beams, columns, bolts & nuts and more. In addition, those products come in various sizes, length and thickness. 

Structural steel (also called major steel or primary steel) is used to build various structures to support oil & gas platforms offshore. Those support structures are commonly called “jacket” and it is a steel structure of 4 to 6 legs made of frame of welded tubulars, with relevant joints to form a truss structure, when required. Topsides of the platforms where the  processing equipment and accommodation is located, and bridges that link platforms together, is another large application area where structural steel is used.

Structural steel come in various grades and with various material and chemical properties.  Understanding technical details and economics in selecting structural steel is very complex and require a specialized expertise in multiple domains. A balance between steel properties such as machinability, weldability, tensile and impact strength, high yield, corrosion properties and price of steel is always required. Achieving this balance is a challenging task, but various simulation software are available to help.

There is a very diverse range of grades of structural steel used in the oil industry with some degree of interchangeability and area of common applications. Organizations and standardization authorities like ASTM, SAE, BSI, API, BSI, CSA, DIN, ISO JIS all set steel standards, grades and coding. It is important to realize that those standards are not equivalent to each other, but rather exist to be compatible and comparable.

Amongst all steel types, carbon steel is perhaps the biggest type of structural steel used to fabricate: steel frames, stairways and walkways, skids, support structures and many more. Carbon steel is not designed to withstand highly corrosive environment, however with the right coating and cathodic protection, generally carbon steel is more economical option than stainless steel.

All structural steel is inspected and tested to comply with certain standards and grades. In many cases, steel producers would produce steel that may comply with a range of grades, so the manufacturing process is more efficient, as opposed to producing in small batches to comply with each and every standard and grade. 

Total Cost of Ownership

Procurement of structural steel could a very challenging task for an organization. By large and traditionally, structural steel has always been part of a bigger scope delivered under EPC / lump sum projects. As a result, the expertise of buying this commodity has always been with EPC companies, which in turn allowed EPC contractors to acquire a large purchasing power, by leveraging on bigger volumes and, is some cases, aligning with steel producers / distributors. 

Because of a diverse range of standards and grades, achieving a balanced production economics of steel is challenging. As such, many steel producers would produce steel that is in demand. Distributors tend to follow a similar pattern, as holding slow moving steel is uneconomical. This fact makes this category volatile when it comes to “meeting the requirements” and may result in buying what is available. In many cases, this approach proved to be effective from cost and delivery standpoint, when steel grades are not of a unique nature. Yet, when the grades of structural steel are higher or certification requirements are more stringent or higher, the issue of achieving balanced production economics makes the procurement process more complex and volatile. 

Strategy

Generally, structural steel falls into a Leverage category of spend, whereby it is high value and high proportion spend, dominant power within buyers’ organization and there are many suppliers available. One of the best procurement strategies of this situation is identify-group-leverage, whereby multilayer and long-term agreements are placed with preferred suppliers, in return for long-term price stability, inventory management, preservation and flexibility.
If purchasing quantities are not significant, it is perhaps more prudent to get an EPC contractor or a fabrication contractor to take the responsibility and procure structural steel.

Spot buying (as-and-when-required) is another procurement strategy option that may work successfully. Under this scenario - time is of the essence, as suppliers generally work on first-come-first-served basis and may not be willing to commit long-time bid validities.

Because of the magnitude of steel grades, it is much more efficient to specify the acceptable range of steel grades according to different standards, at the time of soliciting proposals. Reason being – in many occasions suppliers may offers compatible alternatives and it might take a while to evaluate those alternatives, or may exclude steel grades (and vendors) with good value-for-money proposition.