Pipe Dream

By Coeli Carr

Annoyed with that smidgen of rust in your car's wheel well? Then put yourself in the shoes of the nation's oil and natural gas pipeline operators, who monitor nearly 600,000 miles of high-pressure steel pipelines--every square inch susceptible to corrosion-induced failures, the kind that can lead to leaks or explosions. And very ugly ENVIRONMENTAL DISASTER headlines. Not everyone's complaining, though. The industry's nightmare has been a boon to companies that prevent and repair pipeline rust, typically through a process called cathodic protection.

The process is a no-brainer. Corrosion happens as a result of a pipeline throwing off a naturally occurring electrical charge. But cathodic protection creates a countercurrent, which flows from an anode placed near the pipeline, through the soil and directly onto the pipeline itself, effectively zapping the initial corrosion-making charge. As long as the new force field is operational, corrosion can be kept at bay indefinitely. That's good news. In 2002 a congressionally mandated study, titled "Corrosion Costs and Preventive Strategies in the United States," estimated that the annual cost of corrosion on large-diameter highpressure pipelines was about $7 billion, representing lost capital, repair and the cost of operating anticorrosion maintenance systems.

The application process, however, is highly technical and creating a very hot niche. One company turning rust into gold is Matcor, a corrosion-engineering firm in Doylestown, Pa. Specializing in cathodic protection, Matcor posted revenues of about $10 million in 2006 and annual growth from 25% to 30% over the past five years. U.S. government regulations with strict compliance measures require all newly laid oil and natural gas pipelines to have cathodic protection, says William Schutt, Matcor's president. But even more significant, he says, is the country's aging infrastructure--many pipelines were installed with more primitive cathodic protection a half-century ago. These older pipelines need to be checked for corrosion on a regular basis. And compliance doesn't come cheap. Schutt says installing cathodic protection on a new pipeline with a fresh protective outer coating may require an anode installation every 20 miles, at a cost of about $1,000 a mile. However, an older pipeline whose coating has worn away might require a more drastic approach--a continuous anode running parallel to the pipeline, which could cost as much as $75,000 a mile. Pipeline companies may not be happy with repair expenses, he concedes, but the alternatives are much worse. "The cost of replacing a pipeline--literally digging it up--is very high, and it might take years for the necessary permits to be issued," says Schutt. "And shutting a pipeline down is also extremely expensive, because there's loss of revenue from not being able to ship through that pipeline."

Matcor's U.S. projects include designing and installing a corrosion-protection system for a plant in Louisiana owned by Sempra Energy, an energy utility company headquartered in San Diego. The pipeline runs for 50 miles and ties into a much larger pipeline grid heading up the East Coast. And in Hugoton, Kans., Schutt's team recently completed a job it had begun two years ago for BP. "The pipelines weren't damaged, but there wasn't enough of a force field on them," he says. Currently, Matcor's work is about 75% domestic, but it's looking to grow globally. One client is a Chilean company that distributes natural gas throughout Santiago. "They had us do an American-style integrity-management review of their pipeline, because they want to adopt the same standards that we have here," says Schutt. Green concerns are also a strong motivator to protect pipelines, as was the case with a recently completed project in Russian-owned Sakhalin Island, which "is a huge environmental reserve with a lot of beautiful wildlife," he says.

Despite the demand for anticorrosion expertise, Schutt says the barriers to entering the field are rising because of clients' requirements for insurance, operator qualifications, strict quality control and a documented safety program. It's not surprising, then, that companies wanting to enter the fray see acquisition as a viable option. In early 2005, Det Norske Veritas (DNV), an independent Norwegian foundation that's a global provider of risk management, acquired CC Technologies (CCT), a corrosion-engineering company with a strong research division, based in Dublin, Ohio. With 2006 revenues of $20.6 million--a $10 million increase over its 2003 sales--CCT had been courted by several suitors. DNV communications manager Svein Inge Leirgulen describes the deal as having "huge business potential." Neil Thompson--now CCT's chairman and chief officer, and a co-owner prior to the acquisition--suggests the allure was that CCT's onshore expertise would complement DNV's offshore business. Matcor's Schutt is also in the market to buy. "I look at a couple of companies a year, but the experience is not there, and they don't have the capability," he says.

No wonder there's a catch-up movement afoot, with training being a focal point. "It's a very good area for someone to get into," says Cliff Johnson, director of public affairs for NACE International, an 18,000-member group that helps set standards within the industry. NACE also offers corrosion courses in the U.S. and in more than 80 foreign countries. A more traditional program is in the development stage at Ohio's University of Akron, which is planning to offer the country's first corrosion-engineering bachelor's degree program. Luis Proenza, president of the university, says the program's first students could be admitted as early as fall 2009. The demand is coming from both sides--the pipeline owners and operators, and the corrosion-prevention-service companies. "This market is going to grow exponentially," Proenza says. Rust, you have been warned.