Jordan Blum, editorial director, Hart Energy: We are here at CERAWeek in Houston. I'm joined by Luca Zanotti, the U.S. president for Tenaris.

So just to go back, when you get to a well site, there's a good chance there's a lot of Tenaris product in their OCTG (Oil Country Tubular Goods). I like to say that out loud. It's my favorite acronym. But really, I just wanted to get your thoughts on just how much growth is occurring in the U.S. and the shale trends with more pipe essentially in each well with longer laterals and whatnot.

Luca Zanotti, U.S. president, Tenaris: Yes. I believe that the main trend in the shale today is consolidation. We have gone through a number of consolidations. Recently, most important probably Exxon and Pioneer, which are both our customers by the way. And with consolidation comes additional efficiency. You see that these big operators are moving from a more exploration mode to a manufacturing mode. They are more efficient. I just give you an example. In 2019, we had almost 1000 rigs going, and the consumption of OCTG, by the way, good exercise, I won't repeat. The consumption of OCTG was 4.8 million [tonnes], 4.9 [MMtonne]. In 2023, we had on average less than 700, so a reduction of 25% in rigs, but the consumption was 4.6 million, so 3%, 4%. So the rigs that are operating today are much more efficient of what they were in 2019, and you see this in the lateral length and all the [success] that they are having of extending the laterals. And being able to extend laterals is also one of the reason that is behind this consolidation. So we see an industry that is consolidating, is moving towards a more manufacturing mode, which is very well aligned with our redirect, which is the way we operate our business in the states and the rest of the world.

JB: Very good. Well, if you want to touch on it, it was a few years ago, y'all opened a big Bay City plant outside of Houston.

LZ: Which you visited.

JB: I did, yes. I enjoyed that. If I can get you to touch on just how important that has been in terms of positioning and I guess supply chain management.

LZ: Sure. In Tenaris, we have been historically always proponent of domestic content, domestic manufacturing, short supply chain, and I believe that COVID showed the world how long supply chain are not reliable. So if oil is a matter of national security in the U.S., pipes are a matter of national security too, because there is no other way to extract oil but pipes. So we’ve always been a proponent of this short supply chain, and we have always thought that there are efficiency that can be taken out from the supply chain. So our model is … a model that goes directly to the end user. We envision the model in which the pipe is producing mill, and we take care of the supply chain, eliminating all the redundancy that in many cases we saw. We are synchronizing the drilling programs of the operators with our plan schedule, making sure that we are keeping up with domestic production. So instead of a huge inventory that tends to get obsolete over time, we are connecting directly production with consumption. And by doing this, we unlock supply chain value that before was strapped into different intermediaries and operators that were acting along the supply chain.

JB: Very good. We just touched on it I think a little bit with the supply chain work, but can I get you to elaborate on all the other ways too that y'all are focusing on decarbonization efforts?

LZ: Yeah. The other big effort that Tenaris as a whole has endorsed is decarbonization. So we set our targets and we want to reduce our emission by 30% by 2030, taking as a reference point 2018. We are well advanced into this process. We are already down 20%, but there are two components that are needed for this to happen. You see, many of the other companies are talking about, are reporting Scope 1 and Scope 2, but very few are reporting Scope 3. Our product goes into their Scope 3.

And I believe that we would need two pieces to really push the decarbonization. One is customer awareness of how their decision making can change the path to decarbonization. What I'm saying is, for example, when an operator in the United States decides to run pipes that are coming from South Korea, Japan, the embodied carbon is 2 tonne per tonne of steel. If they … would run domestic pipe, the same carbon will be in the range of 1.1 [tonne], 1.2 [tonne] on average. According to the CAU, 1.2 on average. In our case, it would be 1.1. So there are choices on the purchasing behavior of the customers that can make different effects on the decarbonization. And the second piece that I was talking about is related to policy. In Europe, for example, in 2026, the CBAM [Carbon Border Adjustment Mechanism] will enter into force and this will put a price on embodied carbon of products, steel products in this case, they're going to enter into Europe. Absent some other measure in the United States, there are going to be a lot of very high content products that were previously going to Europe, now being diverted to the United States. And there are two bills that are going through Congress, with the time the deal requires, that are trying to address this asymmetry. But these two components are needed to really push the carbonization faster.

JB: Do you feel relatively optimistic about what's being done in that vein and just kind of the path forward for the industry?

LZ: Well, in the industry? Yeah, absolutely. If you listen to this conference, it looks like that fossil fuels are going to be around for a number of years, and this is what we think. I mean, I believe that here, the topic is not fossil fuel against renewables, but both of them, to cover the energy requirements of the world. The main idea is that we're going to be needing both energies.

JB: All of the above, but not just political rhetoric.

LZ: Well, this is an election year and you know better than myself that during this year there are choices that maybe are not super rational, but longer term I believe that rationality will prevail and the logic of the economy is going to be followed.

JB: Very good. Well, no, thank you so much for joining us here at CERAWeek. Really appreciate it. To read and watch more, please visit online at hartenergy.com.

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