$300 Million Fix for Methane Leaking Siberian Pipeline a Kyoto Win for Project Team

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Researched by Industrialinfo.com (Industrial Information Resources, Incorporated; Houston, Texas). A $300 million repair job on the Siberian pipeline of Gazprom (Moscow, Russia) (OGZFP.PK), Russia's major natural gas utility, is said to be planned for a start in 2008. Japan's Nippon Steel (TOKYO:5401) (Tokyo, Japan) and Sumitomo Corporation (TOKYO:8592) (Tokyo, Japan) will form a team with Gazprom to tackle the project on the ageing and degrading pipeline system.

The three companies are expected to obtain the equivalent of five million tons in CO2 emission rights per annum through participation in the project. If the rights are assumed to be priced at $4.74 per ton a total profit of around $118 million can be expected over a five-year period. It is estimated that five million tons of CO2 would account for eight percent of Nippon Steel's annual emissions.

The repairs are intended to prevent the leakage of methane, reports Nihon Keizai Shimbun. Methane has 21 times the global warming effect compared to that of CO2. The companies will gain their greenhouse gas emission rights under the rules of the Kyoto Protocol, which requires industrialized nations to cut back on greenhouse gas emissions.

A 600-kilometer section of the pipeline running through western Siberia will be the focus of the repair project. Gazprom has a total network 150,0000 kilometers of pipeline. The project team believes that they can prevent around 70% of the leaks by replacing steel pipes and reinforcing joints. The pipeline, completed 30 years ago, is leaking methane and even rupturing at many joints, said the report.

The three companies are reported to be planning to solicit the participation of other steel makers and trading houses in the project.

Engineers have been sent to western Siberia to investigate the points and volume of the leakage. Japan's NEDO (The New Energy and Industrial Development Organization) will cover the expenses for this study.

NEDO was established in Japan in 1980, immediately after the second oil crisis. It is a semi-governmental organization under the Ministry of Economy (METI). NEDO works to coordinate funds, personnel and technological strengths of both the public and private sectors in Japan. It covers the promotion of new energy and conservation technologies including direct R&D, management of industrial technology research and development projects, restructuring of Japan's domestic coal mining industry, production of industrial alcohol and restoration of damaged coal mining areas. It also promotes international cooperation involving R&D and information exchange. In 2001 it had a capital base of around $4.5 billion.