Abstract Residual stresses induced by the fusion arc-welding of steel pipe joints in power generation plants are a concern to the industry. Residual stresses are induced by the process of welding due to the extreme nature of thermal cycles during the process. Welding is essential in the construction of high-grade steel pipelines, used as a conduit for steam at high temperature and pressure. The integrity and endurance of the welded pipes are necessary for the safe operation in power plants, which may be compromised by the presence of residual stresses. The finite element (FE) method is an effective tool for the prediction of residual stresses in such components, as long as the material behaviour can be accurately modelled. This paper reports the FE simulation of residual stresses, due to the arc-welding of a P92 steel pipe mainly using a nickel-based alloy (IN625) as a dissimilar weld material. The structural analysis part of the FE method of determining the residual stress field in the welded pipe is described and the results presented and discussed. Two user-defined subroutines have been used in the FE structural analysis to simulate the way the different phases of steel evolve during welding, including their differing plastic and hardening behaviour, derived from uniaxial tensile material testing carried out over a wide range of temperature. Thermal-expansion, including the effects of solid-state phase transformations in P92, has also been numerically modelled in the two subroutines, one of which prescribes two phases of P92 steel (tempered martensite and austenite) while the other assumes three phases (tempered martensite, austenite and untempered martensite).