Pipeline & Gas Journal's 2003 International Pipeline Construction Report

Pipeline & Gas Journal, August, 2003

Pipeline & Gas Journal's latest international construction survey figures indicate 47,190 miles of oil and gas pipelines are in various stages of construction or planned for construction. Not surprisingly, this year's figures are significantly lower than those reported by P&GJ just a year ago when the international sector accounted for 64,906 miles of new and planned pipeline projects.

This year's low mileage figure points up one of the greatest difficulties involved in reporting on planned pipeline projects. Most often it is easier to determine what will occur than to determine when it will occur.

Factors Impacting Construction

In addition to the cancellations of projects and others being placed on hold, three adverse factors have proven particularly worrisome for pipeline operators since our last report. They are the war in Iraq, continued unrest in the Middle East and political and economic upheaval in Central and South America, and elsewhere. On the positive side, the increased development of liquefied natural gas (LNG) is spurring large investments to add the infrastructure needed to transport that product to markets that are likely to include the United States and Europe. And regulations that prohibit the flaring of natural gas are continuing to lead a boon in African pipeline construction.

But the combined effect of these adverse factors has sharply reduced new construction starts and planned expansion programs. In budgeting and planning during these times of economic uncertainty, pipeline operators are reluctant to commit to costly long term projects. One reason for that is the poor financial condition of American pipeline companies that previously invested in foreign projects. Despite the mitigating events of the recent past, however, key regions in the international sector will require the installation of significant pipeline mileage over the next several years.

Construction Overview

Following is a discussion of some, but not all, of the major projects planned and under construction in the six basic country groupings used in the article, (see area map). To enable readers to keep up with all the international pipeline construction activity, additional information is provided in P&GJ's Pipeline Construction Scorecard on page 59.

EE/FSU

Eastern Europe and the Former Soviet Union (EE/FSU) currently account for some 7,963 miles of new and planned pipelines. One positive trend that seems to be emerging is the improving climate for foreign investment, which is vital to develop the region's gas markets.

The recently released Energy Information Administration's International Energy Outlook 2003 identifies the readiness of major European businesses to invest in Russia's key national gas projects like the Barents Sea Shtokmanovaski offshore gas fields, the Yamal-Europe Pipeline, and the Northern European Pipeline proposal as a positive indicator. In their report, the EIA notes that the Northern European project, calling for a lisle from the Baltic Seat to Germany and on to the UK by 2009, carries a price tag of $5.7 billion. The EIA estimates the combined cost of all three projects to be between $25-30 billion, and notes that Russia does not have the means to complete them without foreign involvement.

As to pipeline construction, one of the most significant of the EE/FSU projects is the $2.9 billion Baku-Tbilisi-Ceyhan (BTC) crude oil export pipeline being built for the Baku-Tbilisi-Ceyhan Company. The 1,097-mile 42/46-inch line will transport crude from Azerbaijan and the Caspian region via Georgia to the Turkish Mediterranean port of Ceyhan. From Ceyhan, the crude will be transported to European and world markets. The political significance of this project has been recognized by Washington, which advocates expanding export routes even further from the region.

BP, as operator of the development, expects to begin carrying crude from the first phase of the Azeri-Chirag-Gunashli development in the Caspian in the first quarter of 2005.

Also significant is the 745-mile Constanta-Omisalj Pipeline proposal to link Romania, Yugoslavia and Croatia. If constructed, the pipeline could open up lucrative trade routes from Central Asia to Western Europe. All three states have signed on to construct the pipeline that has a proposed route from Costanta, Romania, through Yugoslavia to an Adriatic oil terminal near Omisalj, Croatia. There is also potential for the pipeline to be extended to Trieste, Italy, and beyond.

Although financing the $1 billion project may pose a challenge in today's soft economy, the U.S. is reported to be a key supporter of the project and willing to provide $200,000 to fund a study into pipeline routes. Funding is also expected from Interstate Oil and Gas Transport to Europe, (INOGATE) a ten-nation consortium funded by the European Union to develop a pipeline network stretching form Central Asia to Europe.

Every nation along the preliminary route hopes the project will inject new life into its economy. It could also play a role in building Balkan security, as the foreign investment it is expected to attract could strengthen stability and regional relations.