September 3, 2008

Pipeline & Gas Journal’s 2008 International Pipeline Construction Report

By Tubb, Rita

Wl hile North American construction is at an all time high, international projects reflect a higher number of planned pipeline miles than actual construction. Nevertheless, growing world natural gas demand continues to increase planned pipeline mileage. This is reflected in P&GJ's 2008 international survey figures that indicate 77,314 miles of new and planned pipelines are under construction and planned. Of these, 66,642 miles are projects in the planning phase and 10,672 miles account for pipelines in various stages of construction. The figures show an 8,534-mile increase in new and planned pipeline miles from last year when the international sector accounted for 68,780 miles of new and planned pipelines. Although international pipeline construction has been relatively depressed since 2000, proposed additions in 2009-2010 could see a record number of new miles. Much of the interest in beginning long-planned projects is expected to be driven by higher energy prices, growing energy consumption in developing nations and the strong outlook for LNG's role in developing gas markets.

Supporting strong growth in international energy consumption is the 2008 BP Statistical Review of World Energy. It notes that the Asia-Pacific region accounted for two-thirds of global energy consumption growth in 2007, rising by an above-average 5% although consumption in Japan declined by 0.9%. Chinese growth of 7.7% was the weakest since 2002, though still above the 10-year average (as was China's economic growth). China again accounted for half of global energy consumption growth while India's consumption grew by 6.8%, the third-largest volumetric increment after China and the U.S.

Construction Overview

P&GJ's international report highlights several major international pipeline projects planned and under construction. In defining areas with high levels of activity, the following reflects new and planned pipeline miles in the six basic geopolitical groupings used in this article (see accompanying map): South and Central America and the Caribbean - 16,248; Western Europe and European Union Countries - 4,768; Africa -8,634; Middle East - 5,509; Former Soviet Union and Eastern Europe - 11,782; and the Asia Pacific Region - 30,373. For more detailed information on these and other projects, see P&GJ's sister publication, Pipeline News.

Asia-Pacific Region

The Asia-Pacific is on its way to becoming the world's most significant oil and gas consumer with demand projected to grow 90% by 2030. While nations throughout the region with fast growing energy demands account for a significant number of planned pipelines, actual construction remains low. Much of the downturn is blamed on delays in long-planned transnational natural gas pipelines for China and India with neighboring countries, some of which are unlikely to be built.

One such project is a proposed link from the Russian natural gas grid in Siberia to China, and possibly South Korea, via a pipeline near Irkutsk. Cost is estimated at $12 billion with total planned capacity of 2.9 Bcf/d, of which China would consume 1.9 Bcf/d and Kogas, South Korea's main na/tural gas company, would consume 1 Bcf/ d.

China and Russia plan additional natural gas pipelines from Siberia, including one extending 1,740 miles to China's Xinjiang Uygur region and another to Heilongjiang province. Gazprom has indicated it will build both pipelines but not before 2015.

China National Petroleum Corp. is building the country's first coal-bed methane (CBM) pipeline in the northwest province of Shanxi. The abundant CBM reserves will be piped to China's West-to-East Gas Pipeline and then to downstream markets in east China. Capable of carrying 3 Bcm/y of CBM, the 22-mile line will link the Qinshui Basin in north China with the East-West natural gas pipeline. It will be the first time China has piped CBM via a natural gas trunk line. Project completion is slated for November.

With natural gas use on the rise in China and uncertainties surrounding the potential of piped Russian natural gas, LNG has increasingly been considered by Chinese companies. As many as a dozen LNG terminals are either planned or proposed. Recent LNG price increases have delayed some plans while companies seek longterm LNG- supply agreements.

In Malaysia, a consortium led by Punj Lloyd is building the $500 million Sabah Sarawak gas pipeline for the state-owned Petronas subsidiary, Petronas Caligali Sdn Bdh. The 318-mile, 36-inch onshore pipeline is expected to take 36 months to complete with service starting in March 2011.

A number of import schemes, including LNG and pipeline projects, have either been implemented or considered in India. One proposed project calls for a pipeline connecting India to the Persian Gulf region. The $3.4 billion project is expected to be economical because of the relatively low gas tariff. Proponent South Asia Gas Enterprise (SAGE) said gas is likely to be priced at $1.1-1.8 MMBtu, which is much cheaper than current gas prices for domestic use in India (US$5-67MMBtu).

SAGE plans to develop the subsea pipeline with the Heerema Group and potentially, state gas firms GAIL and Indian Oil Corporation. Located in 11,485 feet of water, the 43-inch pipeline will stretch about 900 miles and transport 56 MMcm/d of gas to India.

Elsewhere in the region, the Indian construction firm Larsen & Toubro Ltd. is constructing the Mangala-Salaya Pipeline for Cairn India. The 200-mile line is India's first cross country, heated crude oil pipeline. It will connect the company's Mangala oil field to Viramgam in Gujarat. From Viramgam, a second 364-mile pipeline will be built to Salaya on the Gujarati coast which will enable the oil to be exported by tanker to coastal refineries. One pipeline will carry crude and the other gas to heat the waxy crude so it can flow through the pipeline. First oil is expected in the second half of 2009.

J P Kenny is expected to begin building a 373-mile pipeline for Cairn India and India's state-owned Oil and Natural Gas Corporation. The pipeline will start at a landfall point 125 miles south of Chennai along India's east coast and end at the PY02 field in the Cauvery Basin.

In the Gulf of Thailand, Chevron's $3.1 billion Platong Gas II project is particularly significant. Scheduled for start-up in early 2011, the development will satisfy 14% of the country's natural gas needs to meet power generation demand.

Also in the Gulf of Thailand, the Australian engineering firm Clough is working to complete a $20 million contract for Chevron that involves the installation of 11 subsea pipelines. The work is part of Chevron's 2008 campaign which involves the installation of 8, 10, 16 and 20-inch pipelines, totaling 115 miles in length, in water depths of approximately 230 feet. Offshore work commenced in late July and is expected to be complete by November.

In Papua New Guinea, Santo Ltd. is involved in what could be the country's largest project. Plans call for the integrated development of the Hides, Angore and Juha gas fields as well as associated gas from the Kutubu, Agogo, Gobe and Moran fields. The gas will be transported to an LNG plant near Port Moresby through more than 435 miles of large-diameter pipe. First LNG cargo is expected to be shipped in 2014.

Australia And New Zealand

Outside North America, the Australia/New Zealand region is projected to see the most rapid expansion of natural gas production among all the world's regions. This, however, is not yet reflected in high levels of pipeline construction activity.

In Victoria, the billion-dollar Kipper project has the potential to be one of the largest gas projects in recent years. ExxonMobil's subsidiary, Esso Australia Resources Pty Ltd., awarded engineering contracts for development of the Bass Strait field using a number of subsea wells with a pipeline linked to existing infrastructure at Longford. First gas to southeast Australia is slated in 2011.

A J Lucas is building the 175-mile high-pressure gas transmission Bonaparte Gas Pipeline from near Wadeye to Ban Ban Springs Station, for the Australian Pipeline Trust (ATP). The pipeline is scheduled to begin delivering 30PJ/y in January.

In New South Wales, work is set to begin on the Queensland Hunter Gas Pipeline (QHGP) that will transport 50 PJ/y of gas for 20 years for the 400-600 MW power station proposed by Queensland Gas, ANZ Infrastructure Services and Toyota Tsusho Corp.

The project will transport coal seam gas collected in Queensland to Newcastle, NSW, through a 510-mile pipeline. It will be the third major gas supply facility into the greater Sydney region. First gas flow is set for 2011.

Other Southeast Asian nations with pipeline construction projects in progress include Indonesia, South Vietnam and East Kalimantan.


P&GJ's latest figures indicate Africa accounts for 1,376 miles of pipeline construction while 4,153 miles of oil and gas pipeline projects are planned. Much of the downturn in activity is blamed on troubles in Nigeria where attacks on pipelines and terminals and the kidnapping of key staff is almost commonplace. As a result, Nigeria has lost its position as Africa's premier oil producer to Angola.

On a brighter note, Africa, along with the Middle East, is expected to be at the forefront of the trend toward LNG: natural gas production in the two regions combined is projected to increase by 21 Tcf between 2005 and 2030, but their combined demand for natural gas increases by only 9.9 Tcf. As to area construction, Total awarded Acergy A. S and Technip a contract for development of the deepwater Pazflor field off Angola. The contract is for $1.8 billion. Engineering will start immediately with offshore installations scheduled in mid-2010.

Other projects include work by Saipem to construct a 130-mile pipeline for Medgaz from Almeria, Spain to the Algerian coast. The company is also building a 308-mile, 24-inch pipeline for Sonatrach to transport LPG from Hasi R-Mel to Acrew on the Mediterranean coast. Several pipelines from North Africa to Europe are under consideration and several LNG export projects are planned from West Africa.

FSU/Eastern Europe

The FSU and Eastern Europe again account for more planned pipeline miles than actual miles under construction. Of the 11,782 miles of new and planned pipeline miles, fewer than 3,787 miles represent work in progress.

Russia continues to plan on its extensive pipeline network reaching into Europe, China and South Korea. In addition, Russia is entering the LNG market. It has traded pipeline gas for Atlantic LNG cargos, has plans to develop LNG export facilities to serve the Atlantic market, and soon will start exporting LNG to Japan, Korea and the North America's West Coast.

According to the U.S. Energy Information Administration, Gazprom, which holds a monopoly on all gas exports, intends to invest $20.4 billion in natural gas production and transportation this year. Of this, Gazprom will allocate a little more than $2.7 billion toward construction in the Bovanenkovo field in the Yamal Peninsula, twice as much as in 2007. The bulk of the upstream-targeted funds will go toward maintaining pressure in pipelines that deliver gas from western Siberia. Gazprom expects its investment in maintaining production to increase to $45 billion in 2010.

A notable project is the Eastern SiberiaPacific Ocean (ESPO) oil pipeline being built by Transneft to move Siberian crude to markets in China and Japan. China National Petroleum Corporation reportedly will invest in the construction of the China branch of the ESPO. The first phase will run 1,690 miles with 42- and 48-inch pipe from the eastern Siberian town of Taishnet to Skovorodino near the Chinese border. After this section becomes operational at the end of 2008, a line to the Chinese city of Datsin will be added. The main line will continue another 1,071 miles to the Pacific coast near Vladivostok to enable shipment to other markets. The last stretch is expected to be complete by 2015.

Transneft has also announced plans for an ESPO-2 transportation system. Of the two routes proposed, it finds the 1,120-mile southern route most suitable because it passes close to the Trans-Siberian railroad which would enable using existing infrastructure. As proposed, ESPO-2 will provide for initial transport of 30 MMt/a of crude which will increase when the line reaches full capacity.

Work is under way to pipe gas from Turkmenistan to China. A Chinese-Uzbekistan joint venture has been established to construct and operate the 1,120-mile pipeline from Turkmenistan to the western border of China via Uzbekistan and Kazakhstan. Commissioning of the cross-border pipeline to deliver 30 Bcm/y of natural gas is scheduled in 2009.

Russia also accounts for several major proposed projects, including an extension of the Yamal-Europe I, which carries natural gas from Russia to Poland and Germany via Belarus. The expansion would add 1 Tcf and is expected to be completed by 2010 for $10 billion. Still on the drawing boards is the South Stream project to pipe gas from Russia to Italy. One positive note is that in January 2008, Russia and Serbian leaders finalized a deal giving Russia control of the Serbian oil and gas company NIS, and the right to route South Stream through the country. A short time later, Gazprom announced the route of South Stream, en route to Italy, would also cross Slovenia.

Also in June 2007, Italy's Eni and Gazprom signed a memorandum of understanding on a feasibility study for the first component of South Stream that calls for sending natural gas from the same starting point as the Blue Stream pipeline at Beregovaya for 560 miles under the Black Sea. The second onshore component will cross Bulgaria with two alternatives: one to the northwest, crossing Serbia and Hungary and linking with existing gas pipelines from Russia; and the other directed southwest through Greece and Albania, linking directly to the Italian network. Following an intergovernmental agreement between Russia and Bulgaria in January, Gazprom indicated it was working toward a 2013 completion date.

Saipem has won a contract from Nord Stream AG to lay a portion of the 2 billion euro Nord Stream gas pipeline. The twin natural gas pipeline system will link Vyborg, Russia and Greifswald, Germany across the Baltic Sea. Each line is approximately 760 miles long with a transport capacity of some 27.5 Bcm/y. Overall capacity of about 55 Bcm/y will be reached when both the lines are operational.

Saipem plans to begin construction in early 2010 in order to complete the laying of the first line by the first half of 2011. Laying of the second line is scheduled in 2011-12. Nord Stream AG is an international joint venture whose partners are: Gazprom (51%), BASF/ Wintershall (20%), E.ON Ruhrgas (20%) and N.V Nederlandse Gasunie (9%).

Although still awaiting a construction start, recent activity indicates the long-planned Nabucco Pipeline may soon move forward. The Nabucco Consortium, Nabucco Gaspipeline International (GmbH), awarded a contract to Penspen Limited, a UK-based consultancy, to undertake the role of owner's engineers to assist in setting up and managing local contractors in Austria, Hungary, Romania, Bulgaria and Turkey.

In May, the Nabucco Consortium said it had updated investment expectations for the 2,050-mile pipeline in preparation of an open season. Reinhard Mitschek, managing director of Nabucco Gaspipeline International, indicated that investment cost for Nabucco - which will carry 31 Bern - is expected to reach 7.9 billion euros. The pipeline is due to become operational in 2013.

In the Barents Sea, Gazprom has announced plans to spend 10-25 billion euros to tap reserves estimated at 3.8 Tcf of natural gas and more than 27 million tons of gas condensate in the Shtokman field. Gazprom will require three or four phases for full development and estimates that the total number of wells required will be around 156. The project is expected to require four 42-inch offshore pipelines to pipe the gas to shore. Gas will be transported from Teriberka via Medvezhegorsk - to Vyborg by two onshore pipelines. The 870-mile route will require ten compressor stations. Shtokman is scheduled for an early 2010 start.

Sakhalin Il Nears Completion

In Russia's Far East, the Shell-led consortium Sakhalin Energy Investment Ltd. is moving ahead with the Sakhalin II development- the world's largest single integrated oil and gas project. Scheduled to begin operations in 2008, the project is nearing completion with around 90% of the work completed.

In June, the Japan Bank for International Cooperation gave strong support to Sakhalin Energy, providing US$3.7 billion in financing. The consortium will contribute an additional $ 1.6 billion. The funds will finance the final stages of construction, testing and commissioning of Sakhalin II, Phase 2, which will soon start delivering LNG to customers in Japan, Korea and the North America's West Coast.

Western Europe And EU Countries

More EU countries are net importers of energy. According to a report published by the European Commission, European Union Energy Outlook to 2020, two-thirds of the EU's total energy requirements will be imported by 2020, which could bode well for future construction activity.

One project expected to go ahead is the Trans-Adriatic Pipeline (TAP) to import natural gas directly into the heart of Europe from the Caspian and Middle East, which so far has never reached Europe through pipelines.

The Swiss-based energy trading company EGL and StatoilHydro have formed a joint venture to build and operate the pipeline. The estimated $1.5 billion gas line will run 325 miles from Greece through Albania and under the Adriatic Sea to connect with the national Italian pipeline grid near Brindisi. The Caspian and Iranian gas will reach Greek territory via an existing network of pipelines that run through Turkey.

The final investment decision on the TAP is expected in 2009 with the pipeline to become operational in 2011. Initial capacity will be 10 Bcm/y, rising eventually to 20 Bcm/y. The deal also holds open the possibility of building gas storage faculties and an LNG terminal in Albania.

Middle East

Countries throughout the region hold vast resources and can easily afford the investments needed to emerge as major players in meeting global energy demands. Among the planned projects is a 1,118 mile cross-country gas pipeline in Iran. Contractors have submitted proposal to build the $5 billion pipeline - which will be the ninth cross-country gas pipeline in Iran - to increase exports to Turkey and Europe from the western region of the country.

Working toward a goal of 10% of global natural gas trades by 2025, Iran has $28 billion worth of LNG projects in the pipeline. Reza Kassaei Zadeh, managing director of the National Iranian Gas Company, said that meant an investment rate of $6 billion a year.

South/Central America and The Caribbean

For several years, the sizeable number of pipeline projects waiting to be implemented in South/Central America and the Caribbean account for a far greater number of miles than actual construction. This year is no different; of the 15,418 miles of new and planned pipelines fewer than 3,000 miles are under construction. This is not likely to change, given that most of the delays are linked to nationalist reforms by Venezuela and Colombia, both of which have experienced decades of political and economic struggles.

The region's most notable construction projects are in Brazil, where Petrobras recently kicked off construction on the third leg of the Gasoducto de Interconexion Sudeste-Nordeste (Gasene) pipeline earlier this year. Comprised of three pipelines, the third and final leg of Gasene, Cabiunas-Vitoria Pipeline (Gascav), is being built by China Petroleum Chemical Corp. (Sinopec). Once completed the 862- mile Gasene system will transport 20 MMcm/d of gas from the Cabiunas terminal in Rio de Janeiro to the State of Bahia.

Petrobras closed a funding deal worth R$2.49 billion, granted by the National Economica and Social Development Bank (BNDES), for the Transportadora UrucuManaus S.A. special purpose company (SPC), in charge of building the 240-mile natural gas transportation pipeline to connect Coari to Manaus, and building distribution branches to supply seven municipalities located along the pipeline's route.

The funds will also be used to build the 175-mile, 10-inch LPG pipeline that will connect the Arara Pole in Urucu to the Solimoes Terminal in Coari, State of Amazonas. The natural gas will be used initially for thermoelectric power generation in the city of Manaus, substituting for the fuel oil generators now used. Later, it will also supply the region's industrial, vehicle, commercial and residential sectors.

Several major projects are planned in Peru to increase natural gas use and reduce reliance on oil and fluctuating hydroelectricity. The Peru LNG project consists of an LNG plant, marine terminal and 255-mile pipeline that will connect to the existing Transportadora de Gas del Peru (TGP) gas pipeline system. The project is being built at Pampa Melchorita on Peru's Pacific coast, 100 miles south of Lima. First LNG is expected to be supplied in mid-2010.

After considering multiple proposals to build LNG receiving terminals, Excelerate Energy recently delivered Argentina's first LNG cargo to a newly built import facility at the port city of Bahia Blanca, 400 miles south of Buenos Aires. The Bahia Blanca GasPort LNG facility is South America's first-ever LNG receiving terminal and the world's second dockside regasification facility.

By Rita Tubb, Managing Editor

Copyright Oildom Publishing Company of Texas, Inc. Aug 2008

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