Russia

Russia

The Russian market remains a key region for TMK, as sales in Russia in 2010 amounted to 62% of the Company’s total revenue. The Russian market for steel pipes grew in 2010 by 48% and reached a record 9.2 million tonnes amid rising industrial production, the implementation of major pipeline projects and increased demand for OCTG and line pipe by major Russian oil and gas companies.

Investment activity by Russian oil and gas companies in 2010 was primarily focused on the intensification of production at existing fields. Standard drilling conditions, typical for traditional production regions, required less high-tech pipes and joints, which determined the structure of TMK’s sales in Russia. At the same time, declining production in already developed regions has meant a shift in customer demand toward an increased share of high-tech products. In 2010, the Company’s biggest customers, such as Lukoil and TNK-BP, served as an example of the beginning of the Russian oil and gas industry’s shift to directional and horizontal drilling.

TMK remains focused on supplying a wide range of products to the oil and gas industry, which in 2010 contributed to approximately 75% of the Company’s total sales

The Company estimates that the size of the Russian market for oil and gas pipes in 2010 was 5,600 million tonnes. Against the backdrop of the largest Russian oil and companies’ investment budgets increasing by an average of 25%, the markets for OCTG and line pipe in Russia grew by 18% and 37%, respectively. TMK’s sales of seamless OCTG and line pipe at the same time increased by 10% and 60%. TMK’s share of the Russian market for seamless pipes, a key segment for the Company, reached 53% over the past year, and the market share of seamless OCTG pipes was 60%.

To a large extent the Russian market for large diameter pipes provided the sales growth for TMK in 2010. Thanks to active implementation of large pipeline projects in the Russian market in 2010 the market for large diameter pipes has more than doubled to reach 3.3 million tonnes. Following this growth, TMK increased sales of large diameter pipes more than twofold and has strengthened its stake in the Russian market to 20% compared with 15% in 2009. The Company continued to supply longitudinally welded pipes with a diameter of 1,020-1,420 mm for the Sakhalin-Khabarovsk-Vladivostok, Bovanenkovo-Ukhta, and Pochinki-Gryazovets pipeline projects being implemented by Gazprom, as well as to the ESPO- 2 and BTC projects being implemented by Transneft. In April 2010, the Company began to supply longitudinally welded pipes for the Purpe-Samotlor pipeline connecting the Vankor field with oil refining points and the unified oil transport system. Significant growth in consumption of pipes for maintenance purposes provided additional demand for TMK’s spirally welded large diameter pipes whose shipments to Russian and CIS markets grew to 263 thousand tonnes in 2010.

Thus, in the past year, TMK has maintained a leading position in the Russian market thanks to a substantial increase in the production and sale of oil and gas pipes. Production of less profitable pipes for industrial use grew at a slower pace. As a result, the Company’s share in the market for steel pipes in Russia for the year amounted to 27%, as compared to 30% in 2009.

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