Huge West German pipeline order to move Soviet gas is in pipeline

Mannesmann will get an $8.5 billion chunk of the biggest Western contract ever signed with the Soviet Union if the deal goes through -- and nobody seems to doubt that it will.

Mannesmann would install some 3,000 miles of steel pipe -- most of it built for a standard 75 atmospheres of pressure, but some of it possibly able to withstand an unprecedented 100 atmospheres of pressure -- from western Siberia to Western Europe. Through this pipe would flow an annual 40 billion cubic meters of gas from 1984 to a Western European consortium led by RuhrGas. The Soviet aim is to have everything signed by the start of the new 1981-85 five-year plan. That plan is expected to be unveiled at the Communist Party Congress in February 1981.

Ten billion cubic meters would go to RuhrGas, Thyssen Gas, and BEB, doubling West Germany's present 10 billion cubic meters of imports from the Soviet Union for an ultimate 30 percent dependence on Soviet gas in total West German gas consumption. The remaining 30 billion cubic meters of new Soviet gas would go to the Austrian, French, Dutch, Italian, and Belgian national gas importers.

West Germany currently uses a total annual 60 billion cubic meters of gas, for 16 percent of its primary energy. Given the domestic antinuclear movement and the expense of developing commercial coal gasification, however, there is a tacit hope that natural gas could provide a major share of West Germany's energy increment between now and the year 2000.

A Mannesmann spokesman, Klaus Germann, declined to answer any questions about the ongoing negotiation with the Soviet Union. But the broad outlines have been public knowledge ever since Soviet officials approved the exchange in principle last summer. The bargaining is exceedingly complex, involving pricing of the pipe and the gas, the degree of Western management participation, interest rates , and coordination of the overall 15 billion deutsche mark ($8.5 billion US) credit for pipes and 5 billion DM ($3 billion US) credit for compressors and cooling systems through more than 20 West German and other Western banks.

The order would give a needed boost to Mannesmann. The mid-'70s boom years that gave the Mannesmann holding company 600 million DM net profits in 1975 gave way to a slackened market that yielded only 155 million DM net profits -- after a steel tube mill loss of 47 million DM -- in 1979. This drop resulted partly from a 1978-79 strike, but it resulted primarily from decelerating demand and fierce competition from Japanese (and also French and Italian) steel pipe exporters.

The Soviet union, a major customer of Mannesmann, bought only 1 billion DM worth of pipe from the company last year, a drop of 28 percent from 1978. In the first quarter of this year the firm's tube production dropped 29 percent from the previous year.

According to Mannesmann figures, worldwide steel pipe production rose 3.5 percent in 1979, to 68.5 million tons.

The Soviet Union was the top producer, with 18 million tons, but it can't produce domestically the high-quality pipe it needs for Siberian oil and gas transportation.

Japan was the world's second-largest producer, with 12 million tons. The European Community turned out 13 million tons, with West Germany accounting for 5 million of these (and Mannesmann providing 2.8 million tons, or 56 percent of West German production).

Worldwide steel tube exports in 1979 dropped 0.5 percent from the previous year, in contrast to their 18 percent expansion from 1977 to 1978. A weaker yen in relation to the dollar helped boost Japan's steel tube exports 2.2 percent in 1979 to 6 million tons, or a third of total world exports. West German exports in the same year fell 4.3 percent, to 3.3 million tons. Some 66 percent of total West German production was exported, as compared with 71 percent in 1978. Mannesmann exported 2 million tons of pipes, 72 percent of its production, or less than in 1978.

The West German domestic steel pipe market recovered somewhat in the first months of 1980, especially in demand for seamless pipe.