Sonatrach Awards $1.4 Billion of Contracts for Algerian Gas Pipeline

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Researched by Industrial Info Resources (Sugar Land, Texas)--Sonatrach (Hydra, Algeria), Algeria's state-owned oil and gas firm, awarded engineering, procurement and construction (EPC) contracts worth a total of $1.4 billion to Saipem SpA (BIT:SPM) (Milan, Italy), an engineering services provider in the oil and gas industry, and Petrojet (Cairo, Egypt), a project developer and technical consultant in the petroleum sector, for construction of the 784-kilometer GK3 gas pipeline connecting the Hassi R'Mel gas field with El Kala on the northeastern cost of Algeria.

Petrojet secured the EPC contract for developing the first two sections of the pipeline, covering a distance of 433 kilometers from Hassi R'Mel to Mechtatine. Lot 1 will run a distance of 270 kilometers between Hassi R'Mel and Chaiba, while Lot 2 will run a distance of 163 kilometers between Chaiba and Mechtatine.

Saipem secured an EPC contract worth $580 million to set up the third section of the pipeline, Lot 3, over a distance of 351 kilometers from Mechtatine to Tamoulka, and further to Skikda and El Kala. El Kala will serve as the departure terminal for the Galsi pipeline proposed to run from Algeria to Italy via Sardinia. The GK3 pipeline will have a diameter of 48 inches. Saipem will execute the contract in a period of 26 months.

Several firms submitted bids for the two EPC contracts in May of this year. Bidders that pre-qualified for the tenders include AMEC SPIE Capag (Colombes, France), Bechtel Group Incorporated (San Francisco, California), Entrepose Contracting SA (EPA:ENTC) (Colombes), Petrofac Limited (LSE:PFC) (Jersey, United Kingdom), Punj Lloyd Limited (BSE:532693) (New Delhi), Stroytransgaz OAO (Orel, Russia), Techint SpA (Milan), Willbros Group Incorporated (NYSE:WG) (Panama), a consortium of Dodsal Engineering & Construction Private Limited (Dubai, United Arab Emirates) and Bonatti SpA (Milan), another consortium between Cosider SpA (Alger, Algeria) and Dorsch Group (Berlin, Germany), and a third consortium between Entreprise Nationale de Canalisations (ENAC) (Hydra) and Dorsch Group. AMEC SPIE Capag was earlier part of AMEC plc (LSE:AMEC) (London, United Kingdom) but was acquired by Entrepose Contracting in December 2006. ENAC is affiliated with Sonatrach.

Sonatrach is going to tender two more contracts for the GK3 pipeline project, one pertaining to the development of a gas compressor station in Chaiba, and the other for the construction of a spur line between Ain Djasser and Skikda.

In March this year, Sonatrach awarded an EPC contract valued at $1.8 billion to Saipem to provide gas production and treatment equipment for the Menzel Ledjmet East field in the Berkine basin in Algeria.

Algeria currently has two pipelines, GK1 and GK2, connecting Hassi R'Mel and Skikda. The GK3 pipeline will increase the gas production capacity of the Hassi R'Mel field by 9 billion cubic meters per year. The additional capacity will supply gas to a liquefied natural gas (LNG) terminal in Skikda, the domestic gas network, two power stations in Algeria and the Galsi pipeline. Feasibility studies for the project and basic engineering of the infrastructure were undertaken by SNC-Lavalin Group Incorporated (TSE:SNC) (Montreal, Quebec). The GK3 pipeline project is estimated to cost more than $5 billion and forms a crucial link in the transportation of gas to the Galsi pipeline.

Earlier this month, Algeria's Minister of Energy, Chakib Khelil announced that construction of the Galsi pipeline will commence next year. The 1,490-kilometer pipeline will transport 8 billion cubic meters per year of gas from Algeria through Sardinia to the Mediterranean island of Corsica. The Galsi pipeline will include four sections: a 640-kilometer onshore section from Hassi R'Mel to El Kala, a 280-kilometer offshore section from El Kala to Cagliari, a 300-kilometer onshore section to Olbia in Sardinia and a 270-kilometer offshore section from Olbia to Tuscany.

The Galsi pipeline is being jointly developed by Sonatrach, Edison SpA (BIT:EDN) (Milan), Enel SpA (BIT:ENEL) (Rome, Italy), Snam Rete Gas SpA (BIT:SRG) (Milan), and Hera SpA (BIT:HER) (Bologna, Italy), with stakes of 41.6%, 20.8%, 15.6%, 11.6%, and 10.4%, respectively. The pipeline was originally scheduled to commence operations in 2012 but has been delayed by a year and will now start transportation of gas in 2013. The final investment decision is expected to be made by June 2010. At a maximum depth of 2.84 kilometers under water, it will be the deepest offshore pipeline in the world. France has also expressed interest in receiving gas from the Galsi pipeline by adding a spur line to the 850-kilometer section between El Kala and Tuscany.

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