Euro-Asian Pipeline Boom Builds High Capacity Network

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Researched by Industrialinfo.com (Industrial Information Resources Incorporated; Houston, Texas). The pipeline route map in eastern Europe, Turkey, the Mediterranean and the trans-regional central Asian states is growing new arteries and conjunctions with increasing rapidity and it has become necessary to stand back at regular intervals to maintain a perspective on the build-up of joint ventures, international alliances and strategic visions. Upstream and downstream engineering and service suppliers are facing a steady stream of projects, contract opportunities and accompanying problems to be solved.

The international provider of specialized services and engineering solutions in manufacturing, commercial, infrastructure and process industries AMEC (LSE: AMEC) (London, United Kingdom) and its associate French company SPIE SA (46% owned by AMEC) are expanding their activities in the Caspian Sea oilfields and adjacent regions. The strategically important region is estimated to hold 15% of the world's oil reserves.

AMEC has won an initial $17 million contract to analyze and evaluate plans for a part of the vast Azeri, Chirag and Gunashi oil and gas field development with potential for additional work subject to project approvals. On a further phase, an AMEC consortium has been awarded a $200 million contract (AMEC share $50 million) for the project management of a 14,500 ton topside facility. The Azerbaijan International Operating Company (AIOC), which is a consortium of BP (LSE, NYSE:BP) (London, UK), ExxonMobil (NYSE:XOM) (Irving, Texas) and other leading oil and gas producers awarded the contracts.

SPIE has been awarded a $320 million joint venture contract (SPIE share $160 million) for the Baku-Tbilisi-Ceyhan Pipeline Company (BTC), led by BP Exploration (Caspian Sea). The contract covers the engineering and delivery of 248 km of oil pipeline through Georgia in addition to three associated pumping stations (two in Georgia and one in Azerbaijan) and is due for completion in mid-2005. SPIE joint venture partner is Petrofac (United Kingdom). A further option in the contract is for a $130 million gas pipeline with associated compressor stations along the same route.

The pipeline will run from the Azeri capital of Baku via the Georgian capital of Tbilisi to the Turkish port of Ceyhan on the Mediterranean. It will run for a total distance of 1760 kilometers and the highest point along the route is 2 700 meters above sea level. The 42 to 46 inch pipeline will have a capacity of about one million bpd. This will make it the most important export route for crude oil from Azerbaijan and the southern Caspian to the Mediterranean. BTC is starting the design phase and land acquisition for the $2.9 billion line. BP holds 32.6% of the project and the grouping of the Azerbaijan government and State Oil Company of Azerbaijan Republic (SOCAR) holds the remaining 25%.

AMEC's services to the international energy, oil and gas industry currently account for approximately 25% of the company's revenues. Recently AMEC has secured new contracts for a major gas works for Transco in the UK and a $350 million share in a $1.05 billion joint venture contract for increased support services for Shell in the North Sea plus fabrication and integration work for BP Clair. This month the massive 'Bonga' hull will arrive from Korea at AMEC's Tyneside facility in northeaster UK where it will be transformed into the world's second largest oil and gas floating production plant. Once completed it will be stationed offshore in West Africa for Shell (LSE:SHEL) (London, United Kingdom).

AMEC has an option to buy the outstanding shares in the French bases SPIE SA and is likely to exercise this right in November this year and subject to shareholder approval hope to have the business completed by January 2003. The two companies employ over 50,000 people in around 50 countries and generate a turnover of more than $7.7 billion.

In the Caspian's Kashagan field the Agip (XETRA:AGIG) (Milan Italy) led consortium are mulling over differing opinions on how to develop the huge field, which presents a number of difficult technical challenges. Logistical constraints have to be surmounted after the consortium has drilled only four exploration wells.

Kashagan's oil lies at depths of 4,000 to 5,000 meters in shallow water, which freezes in winter. Conditions can be more difficult than drilling in the arctic because the Caspian ice moves rapidly. Other obstacles are the delivery of equipment to the Caspian and then shipping the oil to international markets.

The major problem is the abnormally high pressure in the field, which contains huge volumes of mercaptans and poisonous hydrogen sulphide gas. Chevron Texaco (NYSE:CVX) (San Ramon, California) has spent millions of dollars to offset the problem of hydrogen sulphide at its onshore Tengiz field. Experts say the problem will be much more acute in the ecologically sensitive area of Kashagan.

Despite these problems Agip says that development work is on track and production should start in 2005. The consortium plans to build several artificial islands, a large gas processing plant and storage units for sulfur. It will offset the high pressure by reinjecting gas into the field.

Meanwhile to the northwest Russia's Gazprom, the world's largest gas producer has announced that it will supply the first gas to Turkey in December via its huge pipeline, which runs under the Black Sea.

Gazprom has been developing the $3.5 billion Blue Stream project with Italy's ENI (LSE, MILAN:ENI) (Milan Italy) since 1999 and has postponed the completion date several times due to financial and logistical problems. Gazprom provides Europe with about 25% of its gas and already supplies Turkey with up to 13 billion cubic meters of gas a year via a pipeline crossing Ukraine, Romania and Bulgaria. The Blue Stream, the world's deepest pipeline, will provide Turkey with another 16 billion cubic meters of gas by the end of the decade. Under the agreement between Gazprom and ENI, the latter provided and guaranteed the bulk of the financing, the two firms will share equal capacities of the line when ENI commences with the production of large volumes of natural gas in Russia.