RUSSIA'S PIPELINE SYSTEM AND OIL AND GAS TRANSPORTATION PROJECTS
SUBJECT COUNTRY: RUSSIA
POST OF ORIGIN: MOSCOW
SERIES: INDUSTRY SECTOR ANALYSIS (ISA)
AUTHOR: NICK MIKHAILOV
DATE OF REPORT (YYMM): 01/31/00
SUMMARY
This market research report focuses on the current state of Russia's vast oil and natural gas pipeline network, along with prospective future needs and priorities for Russian energy transportation. Particular attention is given to future projects (as well as some already planned/or begun) in which United States companies in a wide range of industries (from civil engineering to pumps, turbines and compressors to structural diagnostics, environmental protection technologies and telecommunications) may find commercial opportunities.
As many of these projects are still at the concept stage, as the range of industries and technologies involved is so broad as noted above, and as many of the projects are first-time undertakings unprecedented in Russia, this report does not attempt an industry-by-industry market share analysis. Rather, the focus is on highlighting projects of greatest potential commercial opportunity during the next decade.
In addition to new projects, upgrades and modernization of Russia's massive existing pipeline infrastructure will be required; and so significant attention is paid to the state-owned Transneft monopoly which controls the predominant share of the oil transport system, as well as Gazprom, the Russian natural gas monopoly. With their promise of hard-currency revenues, projects that expand or revitalize export routes are of particular interest to potential foreign suppliers or contractors. Companies will find, however, that financial resource constraints facing Russian companies, along with "buy-Russian" pressures in the market, will confer advantages on companies which team up with local Russian firms as partners, except where no domestic analogues are available for the particular equipment or service in question. End summary.
A. RUSSIA'S OIL TRANSPORTATION SYSTEM:
CURRENT STATUS AND FUTURE DEVELOPMENT
General Overview
Russia's existing national oil trunk pipeline network is a unique technological system. It comprises 46,800 km of trunk pipelines, 395 oil pumping stations, 868 storage facilities with total carrying capacity amounting to 12.7 million cubic meters. The average length of transcontinental routes is 3,500 - 4,000 km. The average pipeline diameter of 860 mm, almost twice as large as the international average, results in higher maintenance costs per kilometer. According to long-range development plans (for the period up to 2010), the length of new oil pipelines in Russia may reach 9,000 km. At the same time, 10,000 km -- over 20 percent of the total existing network -- may require refurbishing to one degree or another.
Transneft - the Key Player
Transneft is the state-owned company that manages, services and is responsible for developing the system. The company is charged with ensuring the transportation of crude oil by appropriate volumes and routes specified in the transportation (export) schedule produced by the Russian Government's Interministerial Commission. The schedule is based on annual transport contracts that producing companies draw up with Transneft specifying the amount and quality of crude to be carried, starting and final points of shipment, route, and terms and schedule of payment. Quarterly and monthly allotments and quotas are calculated using the oil companies' certificates of their own annual production. (Companies dissatisfied with their quotas can apply for additional incremental shipments on a carrying availability basis. Producers who find themselves with surplus capacity can loan, transfer or sell it to whomever they deem appropriate.)
This system and the resulting schedule could well be what Transneft officials cite as their goal -- namely, a system of transparent and fair access rules -- if it were not for certain government-backed programs and all sorts of side deals. The mechanism for these sometimes-obscure transactions involving the Transneft transport network is basically the following. A designated company purchases oil at the domestic price, exports it using Transneft capacities, resells it abroad at the world price and shares the profit with the state accordingly.
Interest in access to export pipelines is of such major concern to Russian oil producers because of the disparity between global and internal Russian market oil prices. For several reasons, mainly lower domestic demand and mandated deliveries to domestic refineries, Russian oil prices remain below global levels, although the gap has closed in the past decade.
In response to the pressures to boost export route access, in September 1999, Transneft's Board of Directors adopted "The Concept for Future Development of Trunk Pipelines in Russia" for the year 2000. The main goal of the program is to create new and further develop existing, economically viable export routes, as well as to attract investment for the development of Russia's oil sector to satisfy demands of Russian and foreign oil producers in carrying crude to export markets. While developing such projects Transneft is considering the following aspects:
- degree of compatibility with existing routes;
- economic feasibility based on current and future developments with the view to bring additional taxes to federal and regional budgets;
- ability to attract investment for future upstream development in Russia.
Company Profile
Transneft is regionally subdivided into several trunkline operating companies:
- The Urals-Siberian Trunk Pipeline Company (TPC)- operates 7,809 km of trunklines in Bashkortostan, Tatarstan, Chelyabinsk, Kurgan, North-Kazakhstan, Omsk, Orenburg and Perm region. It maintains 29 pump stations with 62 line pumps and 9 booster pumps, with a workforce of 5,000.
- The Middle Volga TPC - takes crude from Kuibyshevneft, Orenburgneft, Saratovneftegaz, Nizhnevolzhskneft producers as well as from adjacent inter-regional pipelines and operates a total of 5,702 km of trunklines, including the Kuibyshev-Lisichansk section (1200 mm diameter), the Nizhnevartovsk-Kuibyshev section (1200 mm), the Kuibyshev-Tikhoretsk section (800 mm), and the Guriev-Kuibyshev section (700 mm), as well as 44 storage tanks with capacity of 1,930 cubic meters, and 41 pumping stations.
- The Upper Volga TPC - supplies crude to five of Western Russia's most important refineries (Nizhniy Novgorod, Moscow, Kirishi, Yaroslavl and Ryazan) and operates a total of 4,500 km of trunklines with the project capacity of 210 million tons/year with 39 pumping stations (157 pump units with maximum power up to 5,000 Kw and capacity up to 10,000 cubic meters/hour). The total storage capacity of 49 tanks is 840,000 cubic meters. The company employs 3,000 people.
- The North and Northwest Siberian TPC - operates a total of eight trunklines of about 10,000 km (diameters vary from 500 to 1220 mm) with total storage capacity of 1.5 million cubic meters and 83 pumping stations.
- The Northern TPC - operates two trunklines. One is the 406.6 km-long Usa-Ukhta line (diameter 720 mm) with a storage capacity of 160,000 cubic meters and 4 pumping stations; and the other is the 1,138 km-long Ukhta-Yaroslavl trunkline (820 mm) with the total storage capacity of 240,000 cubic meters and 8 pumping stations. The Northern TPC employs 1,300. This segment is the vital link for transport of oil from crude-rich Komi Republic in Russia's Far Northwest to refineries and markets in more densely populated regions of Russia.
- The Black Sea TPC covers transportation of crude to tank parks for export, and to domestic oil refineries. It operates 1,030 km of trunklines (with diameters of 300-800 mm) from Tikhoretsk to Novorossiysk and Tuapse, including 3 line and 7 transfer pumping stations. Sheskharis reloading tank park receives and stores crude and petroleum products for further loading on tankers. It has a total storage capacity of 88,000 tons of crude and products, 7 cargo and 1 buffer berths for tankers with tonnage from 15 to 150 thousand tons. The Zarechiye reloading storage (at Tuapse terminal) has storage capacity of 80,000 tons with 2 cargo berths for tankers with tonnage varying from 30 to 60 thousand tons.
- The Caspian-Caucasus TPC is responsible for transportation of West Siberian and Tatar oil to export terminals and domestic refineries. It operates more than 2,000 km of pipelines (with diameters from 530-1020 mm) and maintains 19 pumping stations with the total flow capacity of about 50 million tons/year.
Transneft classifies its pipelines into three major groups: Export, interregional, and intraregional. Export pipelines are the most loaded. 1998 recorded throughput of export trunklines amounted to 110% of 1997 levels, while export to the CIS countries was 106% as compared with 1997; and these export pipelines were approaching full capacity (the average throughput for export trunklines is as high as 101-103% of capacity). In contrast, the current average load of other (non-export) pipelines operated by Transneft is only about 56% of capacity.
Interregional trunk pipelines are vital for domestic market, with their strategic importance for rerouting crude flows. They include Surgut-Polotsk, Kholmogory-Klin, NKK, Ubkua, Omsk - Irkutsk, Ust - Balyk - Omsk, Druzhba-1, Druzhba-2, Samara - Lisitchansk, Samara - Tikhoretsk, and Andzhero-Sudzhensk - Omsk.
Intraregional networks are important for local producers and refineries. These intraregional pipelines are concentrated mostly (although not exclusively) in the Volga region, within republics such as Bashkortostan and Tatarstan, where large oil deposits have coexisted with fairly large population centers.
The low average operational rate of the whole system today is due in part to the continuing decline of oil production in the traditional oil-producing regions of Russia. Eventually, export route development will depend on the development of new oil fields in the Northern European part of Russia (the Komi Republic and Archangelsk Region), Tyumen Region, and Eastern Siberia. It will also depend on oil transit from Kazakhstan, Azerbaijan, and Turkmenistan via Russia. Another key factor affecting the development of new export routes is the scarcity of marine terminals in Russia.
In 1998 Transneft spent about $250 million commissioning 283 km of new pipelines, including the 161 km-long Ust Balyk - Omsk line, the 35 km-long Samara-Unecha line, and the 20 km-long Usa-Ukhta line. The 1999 plan added a further 289 km of new pipeline construction.
European Cooperation
Transneft is actively cooperating with international financial institutions including the European Bank for Reconstruction and Development (EBRD) and the World Bank Group's. International Bank for Reconstruction and Development (IBRD) and International Finance Corporation (IFC). Plans to further cooperate with the European Union have also been announced. The objective of such cooperation is to join international and export routes to the EC infrastructure. Transneft is participating in the SINERGI and INOGATE programs, Baltic Ring and FARE Programs.
Transneft Optimization Program
Transneft is responsible for the overall maintenance of the system to ensure its operation as well as its profitability. Now, with the current decrease in loading capacity, improving the efficiency of the system and its components is becoming more and more imperative.
The low carrying efficiency of regional pipelines is difficult to improve under present conditions. With continuous flow from the oil fields to refineries it's technically not possible to reduce the number of oil pumping stations; and in the long run it is not necessarily feasibile to reduce the capacity of such regional pipelines. Rather, it is now generally accepted that maintenance and repairs and especially introduction of advanced maintenance technologies that permit continuous operation are closely linked to operational efficiency, cost saving, and environmental safety. This new approach so far has resulted in the decrease of failures in quite a number of categories, from 0.27 per 1,000 km in 1991 to 0.06 per 1,000 km in both 1997 and 1998, the lowest breakdown rate for the past decade.
Transneft is developing both strategic and special programs to maintain its pipelines' current reliability level. The most important is a "Comprehensive Program on Diagnostics, Major Repairs and Reconstruction of Trunk Pipelines".
The company's major concerns are concentrated on the performance of its older pipelines. About 50% of trunklines have been in service for 30 years or longer, often surpassing their projected service life of 33 years. Typically, breakdowns occur due to corrosion (both interior and exterior) or wear-out damages normally caused by the absence or inferior quality of anticorrosion protection, as well as technological, construction or hook-up defects. Transneft specialists now view traditional repair, consisting of sectional pipe replacement, as a low- efficiency, high-cost approach. The company also pays a lot more attention to organizational (personnel) and technological structure improvement. Regional operating subsidiaries are also developing plans to harmonize their existing capacities with load volumes where possible. Specifically, these plans include selective decommissioning of excessive capacities. The objective is to cut maintenance costs and to redirect thus-freed financial resources toward further modernization.
The program is based on the ratio between the projected system load and required system capacity. The total load for the year 2000 is forecast at 304.5 million tons. By 2005 it will reach 305.9 million tons per year. The 2010 projection is 310 million tons per year. These estimates do not include the transit of Tengiz oil (up to 15 million tons), Timan-Pechora region production (up to 12 million tons), and Eastern Siberian projected production of up to 16 million tons per year.
Meanwhile, excess capacities exist on trunklines in the following areas:
Siberia - Far East;
Samara and Unecha to the Western border; and
Transit from Western to Eastern Siberia.
Production trends and locations of remaining exploitable reserves invariably point toward a steady decline of oil production in Western Siberia, and consequently toward lower loads for the UBKUA and NKK pipelines. According to Transneft's optimization program, the capacity of the TON -1 pipeline (Jurgamysh - Subkhankulovo) in the Urals will be decommissioned. Overall decommissioning plans include 4,552 km of trunklines and 430 pumping stations, of which 130 pumping stations are scheduled for decommissioning by the year 2002.
Addressing pipeline servicing problems, Transneft has set up a Center for Technical Diagnostics, which is responsible for pipeline exterior and interior monitoring. The current maintenance programs rely on control/monitoring systems for pipelines and tanks and include:
- Pipeline leak detection sensor systems;
- Interior pipe control systems (intelligent pigs, magniscan and ultrascan);
- Physical acoustic equipment;
- X-ray-based technologies.
Pipeline-laying (construction) work as well as defects in hook-up welding considerably downgrade the overall quality and service life of Russia's pipelines. Construction and hook-up work account for the bulk of defects in circular welds, corrugations, dents and scratches. About 27,000 defects were detected along the 1,563 km of trunk pipelines already tested. The following defects were the most common:
- fusion (unwelded pieces, fracture-type defects) - 73%
- edge displacement - 13%
- inclusions or freckles- 4%
- over-welding - 1%
- other defects - 9%
Pipeline diagnostic systems are aimed at monitoring the technical condition of the pipeline system, identifying rates of corrosion, and selecting the most appropriate repair method, and technologies that can help improve efficiency in this area are in demand.
In total, 5,595 km of pipelines were examined between 1994-1997, with priority given to export pipelines. The results of this first systematic inspection of Russia's 40,000 km+ of oil pipelines show 15% manifesting interior corrosion, with depths ranging from 10-40 %. Exterior corrosion defects are unevenly distributed on the total length of the pipeline. The Irtysh-Torgili section examined in October 1996 and again in April 1999 showed that the depth of corrosion defects grew from 1.4 mm to 3 mm during two and half years. The estimated corrosion rate is about 0.43 mm per year. The preliminary forecast is that corrosion defects will continue to develop, reaching critical dimensions on certain sections. Accidents caused by sub-par longitudinal welding rank first among accidents. This requires far more intensive use of interior pipe monitoring, including intelligent pigs, magniscan and ultrascan devices.
This brief overview illustrates the fact that many parts of the Transneft system have entered into the stage impending obsolescence. About 50% of pipelines have reached the end of their service life. The only feasible way to maintain the system consists in establishing continuous monitoring systems capable of detecting critical segments with their final replacement. The information obtained from pipeline monitoring will allow Transneft to draw up optimal repair schedules and cut repair costs; increase future pipeline reliability and safety; and better manage the trunklines' capacities.
The Giprotruboprovod Trunkline Design Institute - (GTP)
GTP is a Russian design institute that ha splayed a key role in major oil transportation projects. A subsidiary of Transneft, GTP is actively developing the following:
ú National and regional trunklines development programs;
ú Trunkline feasibility studies;
ú Standard designs for trunkline facilities;
ú Technical norms and requirements;
ú Technical design norms; and
ú Computerized design systems.
The Institute played the key design role in developing over 70% of the 65,000 km-long trunk pipeline system in the former Soviet Union, including the 5,000 km long Druzhba trunkline and the big 1,020-1,220 mm pipelines in Western Siberia. Recently it has planned a number of projects including “Routing and Development of Pipeline Transportation to 2005” and “Timan-Pechora Fuel and Energy Complex Development,” as well as a pipeline project from the Tengiz oil field via Guriev-Astrakhan-Grozny. Currently GTP is carrying out designs for Trunk Pipelines JSC, another subsidiary of Transneft. This work is connected with refurbishment and repairs of existing Druzhba, Tihoretsk-Novorossiysk, and Baku-Tihoretsk trunklines.
GTP is also engaged in design work for other non-Transneft pipelines for Russia and the NIS, such as the Caspian Pipeline Consortium (CPC). The CPC project, with its 750 km long section crossing Russian territory, is designed to carry oil from Western Kazakhstan's Tengiz oil field to a Black Sea marine terminal in Russia. The feasibility study was completed in 1998. GTP together with U.S. engineering contractor Fluor Daniel continues to carry out the project design work, and construction for the marine terminal near Novorossiysk began in May 1999. GTP is also eyeing the much-discussed Baltic Pipeline System. The BPS project envisages potential joint efforts of companies such as Transneft, KomiTEK, Rosneft, Slavneft, Conoco, BG, Elf Neftegas, Neste Oy, Total, and Williams/IPL, with World Bank or other outside financial support.
Currently, Western Kazakhstan's oil is exported northward via Russia, through the Atyrau-Samara trunkline. Its capacity is 10.2 million tons/year. GTP is considering solutions to increase its capacity by 5 million tons. GTP is also planning research on transportation costs on the territory of Russia, Belarus, Poland and Germany for additional volumes to Polish and German refineries. GTP is studying opportunities to use the port of Gdansk to export Russian oil. Reportedly, Romania has also attracting some attention from Russian producers, CPC partners and the Azerbaijan International Operational Company, regarding construction of a transit pipeline to Romanian territory. Finally, GTP has been conducting a feasibility study for transport of oil from Russia to China. The preliminary results showed high transportation costs, but the project retains some potential, enough so that the studies will continue.
B. FUTURE DEVELOPMENT / PROJECTS
Strategically Transneft is developing four basic export routes:
ú Southern route (Black Sea/Caspian);
ú Northern (Baltic Sea);
ú Central European; and
ú Eastern
Major pipeline projects (either planned or actually begun) are as follows:
- The construction of the Baltic Pipeline System (BPS);
- Timan-Pechora basin pipeline development;
- Modernization and expansion of the Druzhba pipeline;
- The construction of the Burgas - Alexandropoulis pipeline;
- Integration of the Druzhba - Adria pipelines;
- Yamal - Europe project (investment agreements signed for $12 billion);
- The Blue Stream project (gas to Turkey);
- The expansion of the capacity at Muugu port;
- The expansion of Novopolotsk - Mazheiku - Butinge line capacity;
- The Sukhodolnaya - Rodionovskaya pipeline;
- The Western pipeline system;
- The CPC project;
- Atyrau - Samara pipeline upgrade (with Kazakhstani participation) by 5 million tons/year;
- Upgrade of Tikhoretsk - Novorossiysk trunkline by 5 million tons/year;
- Sakhalin - Khabarovsk - Vladivostok lines (as part of an eventyal export trunkline to China, Japan, Korea);
- A Sakhalin - Hokkaido line; and
- Pipeline infrastructure development at the Kovykta field in Eastern Siberia, with a long-term export trunkline to China.
i) Short-/ Medium-Term Oil Pipeline Projects
The above projects can be subdivided into two groups. The first include priority and short-term projects. Recently the Russian government made the decision to build two priority pipelines that would bypass sections in the Chechen Republic and in Ukraine.
The Chechen Republic bypass pipeline
This project has the objective of securing safe transportation of about 7 million tons/year of early Azeri oil by adding a section bypassing the politically unstable territory of Chechnya, en route to the Baku - Tikhoretsk trunkline. The construction has already started and the project is due for completion by mid 2000. The $150-180 million bypass pipeline will transport Caspian crude through Dagestan to the port of Novorossiysk. Transneft is planning to finance the bypass construction using its own resources, with the payback coming from an investment tariff. Currently, Azeri crude travels from Dagestan to Novorossiysk by rail, a costlier alternative for all but short-term transit of relatively low volumes.
Ukraine bypass pipeline
This project has the objective of bypassing Ukrainian territory by adding a 254 km-long Sukhodolnaya - Rodionovskaya section to ensure a cost-effective Southern export route through the Novorossiysk terminal. The Rostov Regional Administration in Russia, together with Transneft, has developed a commercial proposal for the "Sukhodolnaya - Rodionovo - Nesvetayskaya" pipeline construction. For Russia, the imperative for the project has come from what it alleges are uncompensated siphoning of oil (to the tune of as much as $70 million annually) which Russia currently exports through Ukrainian lines. The long-simmering Russia-Ukraine feud on transportation tariffs and oil export duties has showed no signs of abating: As of early December 1999, Russia doubled the export duties to 15 euros per metric ton, which could provoke Ukrainian authorities to raise transit tariffs. Regardless of how the present spat is settled, the project's proponents argue that it will cut transportation costs for Russia by $1.5 per ton to Novorossiysk, avoiding the existing transit costs via Ukraine. As of this writing, Ukraine's transit tariff (for the 350 km-long Sukhodolnaya - Lisichansk - Rodionovskaya section) is $2.35 per ton -- almost 5 times higher than the average Russian oil transport tariff. Currently the only independent export route to Western Europe is through the Tuapse terminal near Novorossiysk (with annual capacity of 7 million tons). All other routes go via CIS countries and the Baltic states. Russia exported 54% of its crude via sea terminals in 1998. About 32 million tons of this went through Novorossiysk via Ukraine, amounting to 29% of the total export and 52% of Russian oil exported through sea terminals.
The estimated project cost for the Ukrainian Bypass segment is $113 million, with estimated completion time of 1 year. The investment pay back will be accrued through the tariff differential, and will take about 8 years. Potential financing may be secured through the Bouyges Group, a French company that is also participating in the CPC project. GTP and Chernomortransneft will likely be carrying out the job. The pipeline, with throughput of 25-40 million tons/year could become operational as soon as 2001.
Bypassing Ukraine from the transportation point of view could nevertheless present some complications for Russia. Ukraine has indicated that it would be interested in offering services and control of its refineries in exchange for guaranteed volumes of crude supplies to keep these refineries working. One of the refineries has already been transferred to Kazakhstan, while the Linos (Lisichansk) refinery's would-be transfer to Russia was put on hold specifically due to lack of guaranteed supplies from the Russian side. A bypass pipeline, while reducing Russia's reliance on higher-cost Ukrainian routes, may not necessarily end up contributing to improving Russia's overall position in neighboring energy markets, if Russian oil producers were to lose Ukrainian downstream customers to competing producers from elsewhere in the CIS. Moreover, after finishing the construction of the "Odessa - Brody" pipeline, Ukraine may be able to attract Azeri, Turkmen and probably Kazakhstani oil to bring it to Western Europe, bypassing Russia. This scenario would affect Russia's ability to deliver crude to West European markets and could make it even more dependent on Ukrainian transit through the cost-unfriendly Druzhba pipeline.
The Baltic Pipeline System (BPS) and the Northern Gateway
Given Russia's transit dependence while exporting to the West, Russian officials view this project as having strategic importance for the country, because it will open up a new export route via the Baltic Sea port of Primorsk. Practically speaking, however, BPS development will be enormously costly. As a result, it probably will have to be made as a joint effort involving oil companies from Russia (e.g., Rosneft, Slavneft, and Lukoil) and international investors, potentially including one or more of Neste, British Gas, Total Conoco and Williams, with IBRD, TACIS or other multilateral financial support (note: the above-named companies are those which are poised to make significant investments in Russia's Timan Pechora Basin, whose production will be needed to make BPS or other routes in Northern Russia economical. Already, the European Bank for Reconstruction and Development has indicated plans to set aside $150 million and to encourage other banks to put up a similar amount. Transneft has been assigned the role of project's general contractor. At this point, Transneft and its regional subsidiaries envision owning 100% of the equity, with plans to retain at least 75% and to sell the remaining 25% to Russian and foreign entities.
The first $500 million stage of BPS envisages creation of a new, 12 million tons/year export route by upgrading the existing Kharyaga-Usinsk-Ukhta-Yaroslavl-Kirishi pipeline, laying down a new pipeline from Kirishi to Primorsk, and building up an oil terminal. The objective of the second stage is to increase the throughput of the 2,700 km-long route to approximately 40 million tons/year by adding additional pipe, and to expand the Primorsk terminal loading capacities.
An alternative to BPS, the so-called Northern Gateway project favored by some of the above-listed Western oil companies, would link Timan-Pechora basin fields with a proposed terminal in the Barents Sea, terminating at a deep-water bay (such as Varandey or other site in the Nenets Autonomous District) where crude could be loaded onto oceangoing tankers. This option may exclude Transneft altogether, but may give potential investors a higher assurance of predictability in transit fees and export access.
Upgrade of the Atyrau - Samara pipeline
This existing transit trunkline may be upgraded to permit additional crude transportation of 5 million tons/year, contributing to a total flow of up to 15 million tons/year. The Kazakhstani firm Kaztransoil is expected to finance the bulk of the project. Kaztransoil has ordered a feasibility study to be carried out by Russia's GTP, but no final decision has been made yet.
Upgrade of the Tikhoretsk -Novorossiysk pipeline
The Tikhoretsk -Novorossiyskproject encompasses laying down additional 80 km-long loops and upgrading of pumping stations, to help increase the pipeline's capacity by 5 million tons/year. This would bring total capacity to 37 million tons/year during Phase 1 of the project; 46.5 million tons/year with Phase 2; and 52 million tons/year with Phase 3. It is also planned to build a new terminal in Novorossiysk's port.
The Caspian Pipeline Consortium (CPC) Project
The overall scope of work for the $2.3 billion CPC project includes planning, design aid engineering, financing, construction, commissioning and start-up, and day to day operations of the 1,580 km pipeline transportation system from Tengiz field in Western Kazakhstan to Novorossiysk on Russia's Black Sea coast. The initial design capacity will allow transport of up to 28.2 million tons/year. Capacity will then be increased after four consecutive upgrade stages (as currently proposed) in order to reach the nominal maximum throughput capacity of 67 million tons/year by 2014. The first shipment of oil on the CPC route is scheduled for mid-year 2001. Phase 1 of the Project is slated for October 2001 completion and will provide CPC with the capacity to transport 28.2 million tons of crude per year.
The CPC project includes the following significant components. The Initial Construction Project (ICP) includes the laying of a 480-km long, 40-inch pipeline from Komsomolskaya to Kropotkin and a 258 km-long, 42-inch pipeline from Kropotkin to a new tank farm near Novorossiysk. The tank farm will contain 4 oil storage tanks with the working capacity of 100,000 cubic meters each. The new marine terminal near the existing port of Novorossiysk is to contain two Single Point Moorings (SPMs), with loading capacity of 12,700 cubic meters per hour. There will also be added a facility for smaller auxiliary vessels to support tanker operations on the Black Sea. New pumping stations and maintenance facilities will be built in Kropotkin, Komsomolskaya and Atyrau. In addition, the existing 753 km-long pipeline from Tengiz to Komsomolskaya will undergo testing, inspection, internal diagnostics and refurbishing. The existing Astrakhan and Tengiz pumping stations will be upgraded. Finally, a new fiberoptic communication system and SCADA will be installed.
The construction work on the CPC project is divided into 5 major phases:
ú Refurbishment of existing pipeline and pumping station and construction of a new pumping station in Kazakhstan;
ú Construction of a new pipeline and refurbishment and expansion of the existing pipeline in Russia;
ú Construction of two new pumping stations and refurbishment of existing pumping station in Russia;
ú Construction of marine terminal, tank farm and offshore facilities; and
ú Setting up a supervisory control and data acquisition system (SCADA) for the entire system.
In March 1999, CPC signed a contract with the Russian/French Joint Venture "Starstroy" to build the marine terminal. The consortium includes Bouyges Offshore and Spie Capag (France), Kubanneftegasstroi (Krasnodar, Russia), and Stavropoltruboprovodstroi (Stavropol, Russia). The Starstroy consortium will employ several leading Russian design institutes and construction companies. At the same time CPC selected Single Buoy Moorings, Inc. (SBM) of Switzerland to supply the single point moorings for the marine terminal. Also in March 1999, CPC contracted with Chicago Bridge & Iron and Koksokhimmontazh (Russia) to build four oil storage tanks at the new terminal. In April 1999, CPC signed a contract with Starstroy for the construction of the new pipeline in Russia. The consortium will employ numerous Russian subcontractors. In May 1999, CPC held groundbreaking ceremonies at the new marine terminal tank farm site to mark the start of construction, and also contracted with Siemens to install fiber optic communication facilities, which will be the backbone of the CPC telecom system. In August 1999, CPC contracted FAB GMbH to make new horizontal directionally-drilled river crossings. The development and installation of the CPC SCADA system will be peRussiaormed by a U.S. firm, Valmet.
ii) Long-Term Oil Pipeline Projects
Diversification of Central European Russia's Oil Export Options
Russian planners envision two components: the so-called Northern and Southern routes. The development of the Northern route envisages an increase of crude supply to Polish and German refineries on one hand, and Russian and Kazakhstani oil supply to the Northern European market via Gdansk, on the other. A feasibility study done jointly by GTP and Texaco has argued for the technical viability of the Samara-Gdansk trunkline upgrade.
The development of the Southern route includes linking the Druzhba and Adria trunklines to increase delivery of Russian and Caspian crude to refineries in the Balkans and the Mediterranean via the Omisalj terminal. The consortium created for this project groups companies from Russia, Belarus, Ukraine, Hungary, Slovakia, and Croatia. GTP, together with other transportation companies, is evaluating tariff policy for the route.
An Oil Export Route to China?
As a result of major Russian oil company Yukos' recent negotiations on crude supplies to China, the question of an export pipeline linking East Siberian fields with Chinese refineries has been raised. A $ 1.7 billion Angarsk - Ulan Bator - Beijing pipeline project with maximum throughput of 30 million tons/year, has been discussed. Reportedly, Sinopec and the Chinese Oil and Gas Corporation as well as the Chinese government are encouraging the project.
The development of this project involves additional exploration and field development in Eastern Siberia and the Far East, including vast and expensive infrastructure. Phase one most probably will involve rerouting of some West Siberian crude in an easterly direction with consequent exploration and joint development of East Siberian fields. A basic agreement has been signed between Yukos, Transneft and the Chinese National Oil and Gas Corporation to prepare a feasibility study for the pipeline.
Latvian Export Corridor
There are several proposals to link and expand pipeline systems of the NIS countries to supply oil to Northwestern Europe. The World Bank views the Latvian oil transit corridor via Ventspils as the most economically feasible.
The Latvian oil transit corridor is a multimodular transportation system. It includes a pipeline system, railroad access, oil terminals, and the Ventspils marine terminals, capable of servicing tankers of up to 120,000 tons. Ventspils is probably the best transshipment center for the Baltic area due to its geographic location and modern technological capacities. Transit through this ice-free port is also one of the shortest routes to Western markets. Ventspils' terminals now allow transshipment of up to 55 million tons of oil and petroleum products annually.
Currently one of the major constraints for Russian crude delivery via Ventspils remains the existing pipeline's low capacity. The construction of a new pipeline is generally viewed as a better solution compared to plans to upgrade the existing segment. The Polotsk-Ventspils route may be the most viable so far.
C. DIVERSIFICATION OF NATURAL GAS EXPORT ROUTES
1999 estimates were that Russia's total natural gas exports would grow by 4%, reaching about 126 billion cubic meters (BCM) for the year. Year 2000 estimates foresee an additional 4 BCM increase. By then, an expected price increase of up to $80 per 1,000 cubic meters will bring Gazprom record revenues of $9.2 billion.
Gazprom is steadily raising its gas supplies to Europe, its most lucrative market. Current consumption levels in Europe of approximately 340 BCM per year are projected to increase to 410-450 BCM annually in the next ten years. The share of Russian gas is estimated at 25% of the total gas consumption in the European market.
However, European consumers are not planning to sign additional contracts in the nearest future. Moreover, it is becoming more and more evident that in the long run other markets will attract Gazprom's attention. Shipments to the Balkan countries as well as to Greece and Turkey are expected to grow from about 22 BCM in 1998 to an estimate 58 BCM by 2010. (For reference, Russia's total proven reserves currently amount to 32.3 trillion cubic meters).
At the same time the share of natural gas from distant and difficult-to-access fields will grow, putting upward pressure on production costs. Recent low prices ($60 per 1,000 cubic meters) of gas in Europe have reduced Russia's gas export revenues by 6%, although the volumes of export to Western and Central Europe has grown somewhat. And in 1998, for the first time, Gazprom's peRussiaormance showed a negative balance. The company was forced to cut its overall investment program by 60% and to concentrate on the most important projects.
During the last few years Gazprom experienced difficulties exporting gas during the winter season. Recent irregularities in gas supply to Turkey again led Gazprom blame Ukraine for lack of reliability in its transit responsibilities and continuous unauthorized siphoning of gas by the Ukrainian consumers. Almost 90% of Russia's gas exports now transit Ukraine.
Therefore, as with crude exports, Russia is looking for opportunities to bypass Ukraine in order to reduce losses. The Yamal-Europe project poses an important alternative route to Germany and Austria via Belarus and Poland. A few months ago the first trunkline was commissioned. The Yamal system ultimately will have a capacity of 60 BCM per year and will cost at least $30 billion. Commissioning of the second trunkline of the Yamal-Western Europe export route via Belarus and Poland, an underwater crossing of the Baltic Sea, as well as the Blue Stream project crossing the Black Sea, could leave Ukraine transit responsible for only 30% of Russia's export flow.
Alternative Routes to the Balkans and Turkey
In December 1997 in accordance with an accord between Russia and Turkey, Gazprom and Botas signed an agreement for Russian gas supplies. The agreement projects supply of up to 30 BCM annually by 2010. Gas is to be supplied by two routes: Via extending of the existing gas pipeline network in Ukraine, Rumania and Bulgaria; and via the new "Blue Stream" Black Sea undersea crossing.
The "Blue Stream" Project
By 2010, "Blue Stream" is envisioned as the conduit for 16 BCM of gas supply annually to Turkey. It will provide direct access to the Turkish market, avoiding transit via third countries. In the long run there may appear opportunities for extension to access Middle Eastern countries. The 600 mm pipe, with wall thickness of 35 mm and working pressure of 22-25 Mpa, will be laid at a depth of 2,000 meters and pump gas without intermediate compressor stations. Poland's Petergas drew the feasibility study together with design and engineering companies from Russia and elsewhere in Europe. The construction of the subsea gas pipeline and Beregovaya compressor station in Russia will be accomplished in cooperation with Italy's ENI. Construction is slated to take place during 2000-2005. Gazprom is actively pursuing this and other major projects, having already successfully lobbied the Russian Parliament for tax breaks for Blue Stream.
Diversification of the Northern European Route
This project envisages an additional gas supply route to Northern Germany via Finland and further through the Baltic Sea reaching Greifswald, Germany. For this purpose, Nord Transgas company, set up by Gazprom and Finnish company Neste Oy, has completed a feasibility study. The project proposes to supply an estimated 45 BCM of gas to the Nordic and European markets by the year 2005.
Far East Gas System Development
Despite of the extensive energy resources in the Russia's Far East, the region has always been and still is dependent on gas supplies from Eastern and Western Siberia. Consequent high transportation costs have a negative impact on local electricity production and affect a range of end-users from industrial to residential. With this in mind, the Russian Government is currently studying plans to create an overall gas supply system in the Far East. These plans may start materializing as early as 2000. The key role in such a development will most likely lie with Rosneft. For this purpose, Dalneftegaz Joint Stock Company has been set up. Its major shareholder (51%) is Rosneft (through its subsidiary, Sakhalinmorneftegaz), while the rest will be equally shared by Rosgazifikatsiya (a pipeline construction subcontractor) as well as the Sakhalin, Khabarovsk and Primorsky Krai Administrations.
Although oil and gas development in Sakhalin first began in the late 1940s, the region could not attract necessary investments until relatively recently, when international consortia got involved. Japanese companies began work under the Sakhalin-1 consortium as far back as the 1970s. Western partners' perceptions of an inadequate legal framework for such multi-billion dollar investments have delayed implementation, however, and only the Sakhalin-2 project has begun commercial operations (with fist oil production realized in July 1999), with several other projects still at the exploratory stage. Rosneft, as a participant in almost all of the Sakhalin offshore development projects, still needs to bolster its financial credibility (the Russian Government has suspended its privatization plans for the company, postponing the planned sell-off of a 25% Rosneft's stock originally scheduled for 1998 in the face of lack of interest among prospective bidders). This perception of financial weakness creates additional problems for the company in attracting investment, and for financing its share in the Sakhalin projects, especially Sakhalin-1. Rosneft, however, is nevertheless planning its first $10 million exploratory drilling within the framework of the Rosneft/ARCO Sakhalin-4 project (Astrakhanovsky block) in July 2000. It has also secured Sakhalin Oblast Governor Farkhutdinov's support for the inclusion of Sakhalin-3 (Ayashsky and East Odoptu blocks) and Sakhalin-5 onto draft Duma lists for eligibility for development under Production Sharing Agreement terms. These projects, in which Rosneft holds 33.3% and 51% stakes, are to be developed jointly with Exxon and BP Amoco, respectively.
Dalneftegaz is currently finalizing the feasibility study for the project. It will undertake to assure the delivery of 7 BCM of gas to Primorsky Krai (the Russian Far East's most populous region, including the port of Vladivostok), the same amount to Khabarovsk, and 5 BCM to Sakhalin. The gas supplies will come from the Sakhalin-1, 2 and 3 as well as from Anivskoye field being developed by Sakhalin Oil Company. Two important trunklines will be laid to accomplish this: a 1,000 km-long line to connect Sakhalin Island with the Russian mainland, and a 700 km-long line across the island itself, plus access lines which finally will envisage some sort of sharing of the resulting gas transport infrastructure.
Looking beyond supply of gas to Russia's eastern regions, Sakhalin pipeline development is also important from an export standpoint, and may be followed by prospective pipeline projects linking the Sakhalin shelf with Japan (through Hokkaido), China and Korea. Plans to deliver Sakhalin gas to China's Guangdong province are taking root. The LNG plant to be built in Prigorodnoye under auspices of the Sakhalin-2 project may be able to start deliveries in 2001 or 2002 at a rate of 4 million tons per year, with prospects to double this rate by 2003. Interested Chinese players have reportedly made up their minds to start building an import terminal for the LNG supplies this year.
The East Siberian Kovykta gas project development led by BP Amoco is also targeting China's gas market. It is unclear, however, whether the proven Kovykta resources will be sufficient to provide the flow of about 25 BCM needed to make a $2 billion-plus, 5,000 km gas trunkline to Central China economically viable. The Russian bureaucracy is closely eyeing the project, with the Duma having labeled it as "strategic," and having urged Gazprom to assume a key role in it. Further to the south, Asian markets also emerge as a long-term opportunity for future development. Furthest out of such proposals are gas pipeline across Central Asia and Afghanistan to Pakistan and India.
D. CONTACTS
For contacts and further information, please contact the U.S. Department of Commerce and/or the U.S. & Foreign Commercial Service in Russia:
U.S. & Foreign Commercial Service, U.S. Embassy, Moscow
23/38 Bolshaya. Molchanovka St., Bldg. 2, 121019 Moscow, Russia
Tel. 7-095-737-5030, Fax: 7-095-737-5033
E-mail: Moscow.Office.Box@mail.doc.gov
Contacts: Matthew Edwards, Commercial Officer
Nick Mikhailov, Commercial Specialist
U.S. & Foreign Commercial Service, U.S. Consulate, St. Petersburg
Nevsky Prospekt 25, Office 318B, 191186 St. Petersburg, Russia
Tel. 7-812-326-2560, Fax: 7-812-326-2561
E-mail: StPetersburg.Office.Box@mail.doc.gov
Contacts: Michael Richardson, Principal Commercial Officer
Alexander Kansky, Commercial Specialist
U.S. & Foreign Commercial Service, U.S. Consulate, Vladivostok
32 Pushkinskaya St., 690001 Vladivostok, Russia
Tel. 7-4232-30-0093, Fax: 7-4232-30-0092
E-mail: Vladivostok.Office.Box@mail.doc.gov
Contacts: Richard Steffens, Principal Commercial Officer
Yana Tselikova, Commercial Assistant
U.S. & Foreign Commercial Service, U.S. Consulate, Yekaterinburg
15 Gogolia St., 626450 Yekaterinburg, Russia
Tel. 7-3432-56-4691/4619/4513, Fax: 7-3432-56-4515
E-mail: Alexander.Deyanov@mail.doc.gov
Contacts: Alexander Deyanov, Commercial Specialist
BISNIS
(Business Information Service for the New Independent States)
(BISNIS’ website contains a wealth of information and contacts useful for companies pursuing business in Russia and other countries of the former Soviet Union).
U.S. Department of Commerce, Room 7413
14th Street at Constitution Avenue, N.W., Washington, D.C. 20230
Tel. 1-202-482-4655
Fax: 1-202-482-2293
E-mail: bisnis@usita.gov
BISNIS Fax Retrieval System:
1-800-USA-TRADE
Internet: www.mac.doc.gov/BISNIS
American Chamber of Commerce in Russia (AmCham)
(Amcham is the private-sector association of United States companies present in Russia. In 1998, Amcham opened a chapter in St. Petersburg, in addition to its Moscow).
Scott M. Blacklin, President
Kosmodamianskaya Nab. 52, Building 1, 8th floor, Moscow
Tel. 7-095-961-2141
Fax: 7-095-961-2142
Energy Transportation Companies and Contractors: Note -- the following Russian and foreign companies have been active in oil or gas transportation projects in Russia in recent years. This is not an exhaustive list of such companies; nor does a company's appearance on this list constitute an endorsement by the U.S. government. However, these companies may be helpful as contacts to other U.S. firms seeking partnering opportunities in search of business in this sector in Russia.
Transneft
57 Bolshaya Polyanka, Moscow 109180, RUSSIA
Tel: (7-095) 239-8652/8244/953-8710
Fax: (7-095) 953-5525
Semion Vainshtok, President
Russian Joint Stock Company (RAO) Gazprom
Namiotkina 16 A, Moscow 117884, RUSSIA
Tel. (7-095) 719-8281/719-2941
Fax: (7-095) 719-4323
-- transportation of gas and condensates;
-- underground storage of gas;
-- supervision and operation of the gas trunkline network
-- export of gas;
--Gazprom / Department of Gas Transportation, Gas Condensate and Underground Gas Storage
Bogdan Budzuliak, Director
Tel: 719-8130
--Gazprom / Department of Future Development
Vladimir Rezunenko, Director
Tel: 719-8018/2241/8030/2914
--Gazprom / Department of Major Construction and Investment
Yuri Goryainov, Director
Tel: 125-4191
--Gazprom / Department of sale of liquid hydrocarbons and other products
Vasily Fadeyev, Director
Tel: 719-2731
Giprotruboprovod
Dobrolyubova 16-4, Moscow 127254, RUSSIA
Tel. (7-095) 289-9132/289-7582/174-2516
Fax: (7-095) 219-8279
E-mail: gtp@gtp-jsc.ru
Vladimir Kurochkin, General Director
Gerasim Vdovin, First Deputy General Director/Chief Engineer
(overall design/engineering of trunk pipelines and facilities)
Bechtel
(Engineering & construction company)
52 Kosmodamianskaya Nab., Bld.3
113054 Moscow, RUSSIA
Phone: (7-095) 961-3020
Fax: (7-095) 961-3015
Mr. Carol Anderson, General Manager
Knugaeva@bechtel.com
Fluor Daniel Eurasia, Inc.
(Project management, engineering and construction service company)
Leninsky Pr. 113/1, office E103, Moscow, RUSSIA
Illarion Kiseliov, Head of Representation
Illarion.kisselev@fluordaniel.com
Phone: (7-095) 956-5165
Fax: (7-095) 956-5166
Gaspex S.A.
(engineering and construction of gas pipelines)
Tel/Fax: (7-095) 974-8090 (Moscow)
(3632) 518506 (Ashgabat)
(371) 245-6247 (Tashkent)
Asam Aslanov, President
Sviaztransneft
(telecommunications for pipeline networks)
6 Lyublinskaya Str., Moscow 109390, RUSSIA
Tel: (7-095) 178-0017
Fax: (7-095) 179-6318
Aftandil Mamedkhanov, General Director
Caspian Pipeline Consortium
2 Berezhkovskaya Nab., Moscow 121059, RUSSIA
Tel. (7-095) 745-8770
Fax: (7-095) 745-8772
Victor Fedotov, General Director
Frederick D. Nelson, Deputy General Director, Projects
ITERA
(transportation and sales of natural gas)
Tel. (7-095) 258-4377/78
Fax: (7-095) 258-4365/67
E-mail: post@iteragroup.com
Internet: www.iteragroup.com
Russian Pipe Manufacturers:
Pervouralskiy Novotrubniy Plant
Ul. Torgovaya, 1
623112 Pervouralsk
Sverdlovskaya oblast, RUSSIA
Tel: (7-34392) 75656
Fax: (7-34392) 24478
Arkadiy Shmeliov, General Director
Severskiy Pipe Plant
Ul. Proletarskaya, 7
624090 Polevskoy
Sverdlovskaya oblast, RUSSIA
Tel: (7-34350) 3-21-01, 3-21-00
Fax: (7-34350) 3-41-97
Aleksey Degay, General Director
Sinarsky Pipe Plant
1 Zavodskoy Pr., Kamensk-Uralsky
Sverdlovskaya oblast 623401, RUSSIA
Tel: (7-34378) 63030/63252/63403
Fax: (7-34378) 30283
Anatoly Brizhan,General Director
Chelyabinsky Pipe Plant
27 Mashinostroiteley Str., Cheliabinsk 454129, RUSSIA
Tel. (7-3512) 557131/533464/530420
Fax: (7-3512) 534418
Alexander Fiodorov, General Director
Volzhsky Pipe Plant
Volzhsky, Volgograd Region 404119, RUSSIA
Tel. (7-8443) 222171
Fax: (7-8443) 256902/257642
Vitaly V. Sadykov, General Director
Vyksunsky Metallurgical Works
Lenina 1, Vyksa, Nizhegorodskaya Oblast 607030, RUSSIA
Tel. (7-83177) 93447/93085
Fax: (7-83177) 37605/35961
Anatoly M. Sedykh, Acting General Director
Novolipetsky Metallurgical Works (Lipetsk)
Tel. (7-0742) 444006/444570
Fax: (7-0742) 432541
Ivan Frantseniuk, General Director
Taganrogsky Metallurgical Works
1 Zavodskaya, Taganrog, Rostovskaya Oblast 347928, RUSSIA
Tel. (7-86344) 50304/50348
Fax: (7-86344) 24305
Vladimir Shanilov, General Director
Industry Media and Information Resources:
Petroleum Argus - FSU Energy
20, Pechatnikov Pereulok
129110, Moscow, RUSSIA
Tel. (7-095) 232-1361
Fax: (7-095) 956-2611
(weekly English-language newsletter covering the Russian and CIS petroleum industries)
Russian Petroleum Investor
Published by WorldTrade Executive, Inc.
PO Box 761, Concord, MA 017442
Tel. 978-287-0301
Fax: 978-287-0302
E-mail: info@wtexec.com
Internet: www.wtexec.com
(monthly English-language analytical journal covering the petroleum industry in the NIS region)
INFO-TEK
7 Kitaigorodsky Pr., 103074 Moscow, RUSSIA
Natalia Shuliar, General Director
Tel. (7-095) 929-1579/755-4790
Fax: (7-095) 220-5495
(monthly Russian-language journal covering petroleum industries in Russia and the CIS)
InterFax Russia Oil and Gas Report
2, First Tverskaya-Yamskaya Str.,
103006 Moscow, RUSSIA
Tel. (7-095) 250-9285
Fax: (7-095) 250-8994
(weekly newsletter covering the Russian and CIS petroleum industries, in English or Russian)
The Adam Smith Institute
Business Seminars International
Sussex House, High Street, Battle
East Sussex, TN33 OAL
Tel. 44-171-490-3774
Fax: 44-1424-773334
(Organizes frequent business conferences on the Russian and CIS petroleum industries)
Oil & Gas Industry Trade Exhibitions in Russia:
Neftegaz-2000
8th International Exhibition
June 19-23, 2000, Moscow
Organizer: Expocenter/Messe Dusseldorf Russia
Moscow International Oil & gas Exhibition (MIOGE) 2001
May 2001, Moscow
Organizer: ITE/Expocenter (see contact information below)
CIS Offshore
8th International Show
Production, processing and transportation of oil and gas
July, 2001, St. Petersburg
Organizer: Restec (see contact information below)
Exhibition Organizers’ Contact Information:
Expocenter/Mezhvystavka JSC
Tel. (7-095) 255-3739/33
Fax: (7-095) 205-6055
Internet: www.expocentr.ru
E-mail: mezhvyst@expocentr.ru
International Trade & Exhibitions Group (ITE) PLC
Tel. +44 (0)171-286-9720
Fax: +44 (0)171-286-0177
Internet: www.ite-exhibitions.com
E-mail: oilgas@ite-exhibitions.com
Restec Exhibition Company
Tel. (7-812) 112-1049
Fax: (7-812) 112-2348
Internet: www.restec.ru
E-mail: root@restec.spb.su
INDUSTRY SECTOR ANALYSIS (ISA) CUSTOMER SATISFACTION SURVEY
U.S. Department of Commerce
International Trade Administration
The Commercial Service
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