Advanced Manufacturing Shines at Vallourec Star
YOUNGSTOWN, Ohio -- Pipe billets still aglow after being heated to 2,400 degrees bang into place, all choreographed and timed to precision by some of the most sophisticated technology on the market.
Every 30 seconds a billet is pierced to form a pipe, where it's then pushed through a fine quality process, cooled, threaded and finished. And all of it can be accomplished with a handful of employees who operate the equipment throughout the mill.
"We're able to produce 1,000 pieces of pipe per hour," reports Gary Houck, manager of Vallourec Star's rolling mill operations as he guided reporters on a tour of the company's new $1 billion plant Wednesday. "This mill is fully automated and controlled."
To illustrate just how advanced the equipment at the new mill is, Houck gestures to an elevated control room on the far side that overlooks the rolling mill. "The mill is run by six operators," all of them housed inside a windowed cockpit where they monitor this part of the operations via video screens and cameras.
Welcome to Vallourec Star's new Youngstown plant, which company executives say is the most technologically advanced operation of its kind in the world.
"It's the best technologies we're implementing here, the best equipment," remarked Philippe Crouzet, chairman of the management board at Vallourec, parent of Vallourec Star. "We need that, because we need to support our customers in North America."
Crouzet, Skip Herald, managing director for North America of Vallourec's USA Group, and Joel Mastervich, president and chief operating officer of Vallourec Star joined dignitaries, employees and other guests Wednesday for a gala event three years in the making: the long-awaited official opening of Vallourec's one million-square-foot pipe manufacturing plant in Youngstown.
The event attracted not only local media, but also journalists from France, Germany and the United Kingdom.
Unconventional oil and gas exploration in this country's shale plays has changed the entire market for Vallourec, Crouzet said. The French-based company, which has operations all over the world, selected its Youngstown site for expansion since it wanted to take advantage of the growing North American shale market.
Vallourec also recently opened a similar plant with some of the latest equipment in Brazil.
"The reason for choosing North America is our customers," Crouzet said. "The reason for selecting Youngstown was the trust in our employees."
The combination of horizontal drilling with the process of hydraulic fracturing has allowed energy companies to tap into and unlock reserves of oil and gas tightly packed in shale formations 8,000 feet below the surface of the earth.
Shale development in North America requires a certain standard of high-quality pipe used both in exploration and production, and Vallourec Star's Youngstown plant manufactures this product. The company is betting that this segment of the market will grow exponentially over the next 25 years or so.
"There's a lot of excitement," Crouzet said. "This is a great market for us." About 61% of the company's business is with the oil and gas industry.
During a press conference held earlier in the day, Vallourec USA's Herald said that shale gas production in North America is likely to grow significantly over the next 25 years. By 2040, it's projected that production of natural dry gas from shale reserves on the continent could increase to nearly 34 trillion cubic feet per year from about 22 trillion cubic feet produced today.
As these energy companies drill deeper into shale formations, they're going to require smaller- diameter premium pipe that ranges between two inches and seven inches, Herald said.
The market for standard oil country tubular goods, or OCTG, pipe is expected to grow by 3.5% over the next five years, Herald said, but qualified the market for premium OCTG pipe, which is projected to grow by more than 8%.
"The shales and the unconventional reservoirs look to be the future of North America," Herald told reporters at a press conference before the formal dedication and tour Wednesday. "What this means for us is more demand for the products that we make."
Although shale plays such as the Utica shale in eastern Ohio has come under scrutiny lately because of its lack of oil potential, Herald says the advantage of Vallourec's Youngstown plant is that it's not bound to a single region of production.
"Our mill was not built for a particular shale play in general," Herald said. "It was built to serve the U.S. market."
Vallourec's Youngstown mill has such great rail and highway access that it can serve all of the United States. "The key to this market is to be flexible," he said. "It would be nice if the Utica develops as projected. It's in our backyard, but our business model is not dependent upon that."
Initial plans for an expansion at the Youngstown site started in 2009, noted Vallourec Star President Joel Mastervich. In early 2010, the venture was approved by the company's board and announced that February. In June, officials broke ground for the massive new factory.
He said constructing such a complex mill in such a short period of time was no small feat, and the result allows this plant to be one of the most competitive of its kind.
"This is a state-of-the art mill that has all of the latest technology, all of the latest equipment you could ask for in a pipe mill," Mastervich said. "That gives us a big boost over prior generations of mills operating in the United States."
Also, the opportunity to recruit new employees and train them at Vallourec's existing mill in Youngstown allowed for a quick learning curve that helped expedite the ramp-up.
"Three years is a short time period for a facility of this size," he said. "I think we were very good at sorting out our arriving equipment, and our building construction by the trades was done very quickly and very safely."
Since those two pieces of the puzzle remained on schedule, work on the interior equipment in the plant could commence on schedule, Mastervich said.
Vallourec Star's Youngstown operations employ 750, including 350 new workers hired as a result of the expansion, Mastervich said.
Shale development presents a new opportunity in addition to the already strong demand for seamless tube in the oil and gas industry, Mastervich said. "We feel very confident in our market position to move forward," he said.
Construction of a new $57 million threading plant by VAM USA is set to begin next year on the 200-acre site, and Mastervich expresses hope of future ventures here.
"The hopes are still strong. Those are strategic considerations for Vallourec," Mastervich said. "The most important thing for us today is to start earning the payback on the investment here. I think that once we demonstrate that, then the next strategic capital projects will follow."
The goal is to transform Vallourec's Youngstown operation into the first fully integrated complex in the country for premium OCTG pipe.
In the press conference, Mastervich referred to an estimate by the Youngstown/Warren Regional Chamber that placed local economic impact of the Vallourec Star project at roughly $1 billion.
The trickle-down effect of that plant translates into 1,865 spinoff jobs created in other industries, Mastervich said. In 2012, Vallourec spent $250 million for materials and supplies from Ohio companies, paid local income taxes of $2.4 million, created 1,200 contractor jobs during construction of the plant and added 350 permanent employees to payrolls. Of those 350 employees, 96% are residents of the Mahoning and Shenango valleys.
"You can tell that people here are really pumped up," Mastervich said as he motioned toward a crowd of employees at the event. "You can feel the pride of ownership for all the things that are here. It's a big day for us."
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Copyright 2013 The Business Journal, Youngstown, Ohio.
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