I really don't know anything about buying and storing steel. I did look for five year steel prices on line and found these charts from metalprices.com.
I hadn't looked at anything like this before the 'interview,' so I didn't ask Crawford about the fact that while it is true that prices are low now after a recent spike, that spike appears to be an anomaly, at least over the last five years. According to the chart, the end of January 2010 was relatively high not counting the spike.
Or is the spike the future that was simply interrupted by the current economic downturn?
There are a lot of questions I didn't ask and this was a pretty impromptu encounter where Crawford, understandably, kept to an overview.
Below is the heart of HB 8. I don't see any instructions about price ranges. Would the State be obligated to buy the steel even if the price were no longer 'low?'
In any case, Crawford is showing original thinking and is willing to take a risk. Assuming that he's already looked into all the unasked questions and found answers that confirm this proposal, it probably deserves some serious attention. If not, it only proves that he's thinking in broader terms than most, but whether it's a good idea is yet to be demonstrated.
From HB 8:
PIPE FOR A NATURAL GAS PIPELINE.
a) The Department of Transportation and Public Facilities shall, under AS 36.30, enter into a contract for the purchase of pipe suitable for a natural gas pipeline project under AS 43.90(Alaska Gasline Inducement Act) in a quantity sufficient for the portion of the pipeline to be constructed within the state. The department shall store the pipe until it is delivered to a licensee in accord with an agreement entered into under (b) of this
(b) After a license is issued under AS 43.90.190(b), the Department of Revenue shall enter into negotiations for the purchase by the licensee of pipe acquired by the state under (a) 14 of this section. The terms of the purchase may include an exchange by the state of some or all of the pipe for a state interest in the natural gas pipeline to be constructed by the licensee and any other terms that the department considers necessary to protect the interests of the state. The Department of Revenue may enter into an agreement negotiated under this subsection and arrange for the delivery of the pipe to the licensee under that agreement.
Here's another source which shows a peak in mid 2008 and then quickly back to normal ranges. As I say, this is not an area of expertise for me at all. I'm just raising questions.
Steelmaking Raw Material and Input Costs
| Year/ Month | Thermal Coal $/tonne | Coking Coal $/ton | Iron Ore C/dmtu | Natural Gas $/1000m3 | Steel Scrap $/tonne | Electric C/KwH |
| 2007 M1 | 55.0 | 94.3 | 84.7 | 302.0 | 264-270 | 6.09 |
| 2007 M2 | 56.7 | 84.7 | 302.0 | 280-285 | 6.18 | |
| 2007 M3 | 59.3 | 84.7 | 302.0 | 295-310 | 6.16 | |
| 2007 M4 | 60.1 | 94.6 | 84.7 | 281.9 | 315-320 | 6.19 |
| 2007 M5 | 60.0 | 84.7 | 281.9 | 295-305 | 6.20 | |
| 2007 M6 | 66.0 | 84.7 | 281.9 | 295-300 | 6.51 | |
| 2007 M7 | 72.1 | 95.1 | 84.7 | 280.4 | 280-290 | 6.61 |
| 2007 M8 | 74.3 | 84.7 | 280.4 | 275-285 | 6.83 | |
| 2007 M9 | 73.3 | 84.7 | 280.4 | 280-290 | 6.55 | |
| 2007 M10 | 80.2 | 97.8 | 84.7 | 308.2 | 275-280 | 6.44 |
| 2007 M11 | 90.6 | 84.7 | 308.2 | 280-290 | 6.22 | |
| 2007 M12 | 97.5 | 84.7 | 308.2 | 295-310 | 6.25 | |
| 2008 M1 | 98.3 | 106.1 | 140.6 | 369.7 | 385-400 | 6.39 |
| 2008 M2 | 141.4 | 140.6 | 369.7 | 390-405 | 6.38 | |
| 2008 M3 | 126.7 | 140.6 | 369.7 | 490-510 | 6.54 | |
| 2008 M4 | 131.8 | 113.9 | 140.6 | 428.4 | 510-530 | 6.64 |
| 2008 M5 | 142.7 | 140.6 | 428.4 | 570-580 | 6.80 | |
| 2008 M6 | 171.2 | 140.6 | 428.4 | 635-660 | 7.40 | |
| 2008 M7 | 192.9 | 122.0 | 140.6 | 517.0 | 630-640 | 7.78 |
| 2008 M8 | 169.7 | 140.6 | 517.0 | 385-390 | 7.63 | |
| 2008 M9 | 160.7 | 140.6 | 517.0 | 240-245 | 7.35 | |
| 2008 M10 | 115.7 | 129.1 | 140.6 | 576.7 | 220-225 | 7.23 |
| 2008 M11 | 98.8 | 140.6 | 576.7 | 205-210 | 7.04 | |
| 2008 M12 | 84.3 | 140.6 | 576.7 | 230-235 | 6.88 | |
| 2009 M1 | 85.7 | 137.1 | 101.0 | 576.7 | 270-275 | 6.90 |
| 2009 M2 | 80.8 | 101.0 | 520.9 | 200-205 | 6.98 | |
| 2009 M3 | 65.4 | 101.0 | 412.9 | 195-200 | 6.84 | |
| 2009 M4 | 68.1 | 143.4 | 101.0 | 309.6 | 220-230 | 6.78 |
| 2009 M5 | 69.1 | 101.0 | 309.6 | 220-225 | 6.89 | |
| 2009 M6 | 76.5 | 101.0 | 309.6 | 230-235 | 7.18 | |
| 2009 M7 | 79.1 | 151.2 | 101.0 | 244.4 | 245-250 | 7.11 |
| 2009 M8 | 77.7 | 101.0 | 222.5 | 320-325 | 7.17 | |
| 2009 M9 | 72.5 | 101.0 | 222.5 | 285-290 | 6.99 | |
| 2009 M10 | 76.1 | n/a | 101.0 | 232.2 | 260-265 | 6.68 |
| 2009 M11 | 84.4 | 101.0 | 232.2 | 290-300 | n/a | |
| 2009 M12 | 87.9 | 101.0 | 232.2 | 310-320 | n/a |
I was a project manager for DOT for almost 30 years. My area of expertise was public construction procurement and claim avoidance.
ReplyDeletePre-purchasing material is usually referred to as owner-furnished material. It is occasionally done but has many risks attached. The most common risk is that of a future claim. It would go something like this: Years after installation there is a pipe leak that causes millions of dollars of damage. The operator says it is the fault of the pipe. Maybe they will claim it was improperly manufactured. They could also claim it was improperly stored between purchase and installation. The result will be litigation at best, and ownership of the pipe and all its problems at the worst.
A second issue is storage, handling, shipping etc. Where and when does the operator or builder take ownership. These details can be worked out but the risks are high and the benefits are low.
Thanks Anon for your insight. I had a number of questions which I decided not to post since I hadn't asked Rep. Crawford and given him a chance to respond, including things like shipping and storage, etc. I did talk to Crawford's aides today and am convinced that some serious thinking has gone into this. But as you point out, there are more risks than the price of pipe.
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