Caspian Pipeline Consortium: History, Reality and Future
Ian MacDonald, General Director, CPC
The CPC crude pipeline system is the largest infrastructure investment project with foreign participation on the territory of the former USSR. The cost of the first phase of construction amounted to US$2.6 billion. The project was financed by the private companies-shareholders including the rehabilitation of existing assets, transferred to CPC by the governments of Russia and Kazakhstan.
CPC is unique to the region, in that it is a shipper owned pipeline – financed and constructed on behalf of a group of shareholders who have or expect to have oil to transport.
CPC tariffs are defined on the basis of the agreement between the Shareholders, and not by way of regulation and presently amount to US$28.33 per ton for Caspian Origin Oil. CPC is governed by a comprehensive shareholder agreement, which defines the contractual obligations of all parties.
By introducing the oil quality bank, unique to Russia and Kazakhstan, CPC has established a truly free market mechanism, which allows every shipper to realize the real market value of its oil, and ultimately greater returns for all of CPC’s public and private shareholders.
Unique Technical Solutions
According to industry experts, CPC’s crude oil pipeline system is one of the most technologically advanced and safest in the world. This achievement is due to a sophisticated project design approach, based on the modern but already proven technical solutions.
Around the clock safe operations of the pipeline are CPC’s number one priority. CPC is a fully automated system. Valves are opened and closed by computer commands in the Control Center at the Marine Terminal. Operation pressure, oil receipt in the system and loading systems are centrally managed. Some of the most prominent examples of the technology used by CPC include:
· Oil tanks at the Marine Terminal with storage capacities of 100,000 cubic meters each, equipped with floating roofs.
· For major river crossings CPC applied an environmentally safe horizontal drilling technologies never before used in the region. Twelve river crossings, including the largest Volga and Kuban crossings were implemented using HDD technology. The Volga crossing is the longest in the world for pipes of such a big diameter (1,016 mm).
· Single point mooring buoys, which are safer than land docks and more reliable and weather-resistant.
· The Supervisory Control and Data Acquisition system: a high speed fiber optic cable laid along the pipeline permits the system to monitor nearly 30,000 data points on an instantaneous basis.
· A closed-type crude oil pipeline system versus the crude batch pumping systems commonly used in the former Soviet Union.
CPC today consists of 1,510 kilometers of pipeline, 5 pump stations, a tank farm with four 100,000 cubic meter tanks, a shore base and 2 off-shore loading buoys.
CPC employs over 600 staff and has a contract work force of a further 1,300 people. Head Office is in Novorossiisk with regional offices in Krasnodar, Astrakhan and Atyrau plus a Branch Office in Moscow.
Since May 2004, CPC has been operating at or above its design capacity from the Caspian Region. CPC is designed to ship 1.8 million tons a month or 460,000 bpd from the Caspian; in fact, with chemical flow improvers, by October 2004 CPC was shipping 2.17 million tons per month from Atyrau.
Meantime, in Russia, work was completed in November 2004 of a rail off-loading facility near Kropotkin in Krasnodar Krai allowing Russian oil to enter the CPC system. Volumes here have quickly built up to 6 million tons a year, which corresponds the projected capacity of the facility. In total CPC plans to ship in 2005 over 30 million tons of crude oil.
CPC is the principal export route for Caspian region oil and will remain so for the foreseeable future. Our Kazakhstan customers today include Tengizchevroil, Karachaganak, LUKoil-Kumkol, CNPC-Aktobe, Kazmunaigaz-Aktobe, EmbaMunaigas, and Oryx-Arman. Our shareholders include some of the region’s largest oil field developers, KazMunaiGaz, ChevronTexaco, LUKoil, Eni, ExxonMobil, Shell, Rosneft, BG, BP, and of course the Russian Government. In Russia, CPC is shipping oil from several of Russia’s major oil companies through the quota of the Russian Government as well as Shareholder Oil from Russian Producing Companies, LUKArco and Rosneft-Shell.
Collectively, our shareholders are participants in all of the Caspian Region’s largest oil field developments and CPC’s capacity is driven by our shareholders’ forecasts of future production. Not only does this include existing producing fields with major expansion projects underway, but also the giant Kashagan field.
As it was already said, CPC is operating well beyond its initial intended capacity and, therefore, must expand its capacity in order to meet the forecasted demands of our shareholder shippers from 2007 and beyond. Caspian developments in both the Russian and Kazakh sectors will see demand for CPC capacity from the Caspian rising to well over 50 million tons a year.
The CPC Shareholder Agreement makes clear that "If pursuant to such volume forecasts the existing capacity is reasonably projected to be oversubscribed such that capacity increases are required, it is agreed by the Parties that construction and financing of the necessary future expansions by CPC-R and CPC-K shall be carried out."
CPC’s shareholders have made it clear that they are ready to proceed and in 2004 authorized the award of a contract for Front End Engineering and Design to a consortium of contractors from Kazakhstan, Russia, the USA and UK. The contractor has been charged with designing a full build out of the system and provide CPC with options for sequencing construction of these facilities to meet the timing of the production requirements of our shippers.
CPC’s expansion is a substantial project in and of itself, representing a very substantial investment comparable to cost of a new pipeline system. Over the next 5 years, CPC will be designing and constructing the following:
· 10 new pump stations – trebling the existing number;
· 6 new giant storage tanks to provide an additional 640,000 tons of storage – again, trebling existing capacity;
· Replacement of pipeline in Kazakhstan;
· Adding a third offshore mooring buoy;
· Additional pumps at existing pump stations.
To get to where we want to be, we anticipate additional capacity coming on line in three stages. Additional pumps at existing pump stations will add some 10 million tons of capacity. This can be brought on line as early as the first half of 2007. A year later, first 4 of the 10 new pump stations will be complete adding a further 10 million tons of capacity and taking the line to over 50 million tons a year. Full build out will be complete 12 months later.
CPC serves as an important example of international partnership between Russian, Kazakhstan, and foreign oil companies. Eleven companies from seven different countries are demonstrating the ability to complete a world-class investment project in Russia and Kazakhstan and build successful partnerships between governments and the private sector.
CPC is often seen as a Bellwether project for the Caspian region – involving as it does so many shareholders from so many countries. The investment in CPC was made on the basis of commitments and guarantees given at the highest levels of the hosting governments.
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