Massive reserves drive pipeline investments

Paul Boughton
Multi-billion dollar investments in pipelines are being announced as major reserves begin to come online.

Gazprom has signed the final investment agreement with its European partners Eni, EDF and BASF for the new South Stream pipeline.

Estimated to cost up to US$20 billion (EUR15.2 billion), the pipeline will run under the Black Sea from the Russkaya compressor station to the Bulgarian coast. The total length of the Black Sea section will exceed 900km with a maximum depth of more than 2km. Its design capacity is 63 billion m3/y, with start-up planned for 2015.

"South Stream's contribution into providing Europe with energy security is very significant. It allows us to create alternative and secure natural gas supply routes to our consumers," Gazprom's chief executive Alexei Miller said.[Page Break]

The pipeline will go from Russia to reach Bulgaria, Serbia, Hungary, Slovenia, Austria and Italy in one leg, and Croatia and Greece in a second.

Gazprom has also announced that the second stage of Yakutia - Khabarovsk - Vladivostok gas pipeline- part of the Eastern Gas programme - will be constructed by the end of 2017. The project involves constructing new gas production centres in Yakutia and Irkutsk.

The Chayandinskoye field is the cornerstone of the Yakutia gas production centre (Fig. 1). Gas reserves of the Chayandinskoye oil, gas and condensate field make up 1.2 trillion m3 - almost twice the entire production of Russia in 2011. Recoverable oil and condensate reserves are estimated at 79.1 million tonnes.

"Having started operations at the Chayandinskoye field, we are planning to construct a gas pipeline from Yakutia to Vladivostok via Khabarovsk (the gas pipeline length will be 3200km).[Page Break]

After that, along with the Kovyktinskoye field pre-development, we are planning to start construction of a gas pipeline that will serve as the second part of an 800km gas pipeline from Yakutia," added Miller.

A provision is also made for gas supply from the Irkutsk gas production centre to the west. With this, eastern Russia will be connected to western Siberia, the main gas-consuming centre, so that the unified gas supply system will cover the whole country.

"We could also mention the LNG plant construction near Vladivostok, because even though we give priority to the domestic market, we are seriously considering creation of a new centre for Russian gas export to Asia-Pacific," noted Miller.

Gazprom is planning to supply pipeline gas to Asia-Pacific on a second-priority basis after finishing the LNG plant construction and signing long-term contracts for LNG export from Russia.[Page Break]

Spurred on by strong drilling

Meanwhile Calgary-based Pembina is to significantly expand the natural gas liquids (NGL) and crude oil and condensate throughput capacity on its Peace and Northern pipeline systems by an additional 108,000 bbl/d.

The expansions are expected to accommodate increased volumes associated with higher customer demand due to strong drilling results and increased field liquids extraction by area producers. The total cost of the projects is anticipated to be approximately US$545 million (EUR416 million) plus approximately US$125 million (EUR95 million) of additional capital to tie in producers to both the expanded systems.

Expansion plans include increasing capacity on Pembina's Peace pipeline system by 55,000 bbl/d by mid to late-2014 and its Northern NGL system by 53,000 bbl/d by early to mid-2015. The latter comes about as a result of increased producer activities in the Dawson Creek, Grande Prairie and Kaybob/Fox Creek areas.

Pembina also plans to further expand its Northern NGL System. This phase will require the company to install four new pump stations, upgrade three existing pump stations, and add additional operational storage.

The company will also reconfigure existing pipelines and build 94 km of new pipeline: 50 km of pipeline from Judy Creek to Whitecourt; 32 km of pipeline from Namao to Fort Saskatchewan; and 12 km of pipeline from Doe Creek to Spirit River.[Page Break]

"With the amount of development of crude oil and NGL-rich resource plays we're seeing by producers near our pipelines in the Western Canadian sedimentary basin, there is a strong demand for this next phase of our growth strategy," said Mick Dilger, Pembina's president and ceo. "Our pipeline expansions will allow us to enhance the services we provide customers while adding value to our shareholders. This expansion is directly aligned with our goal of meeting our customers' needs through a truly integrated approach across the value chain."

Pembina is currently in the process of completing phase one of an NGL expansion of 52,000 bbl/d, which was announced in November 2011, and phase one of a crude oil and condensate expansion on the Peace pipeline system of 40,000 bbl/d, which was announced in December 2011.[Page Break]

US investments

Spectra Energy has reached an agreement in principle to acquire a one-third interest in the Sand Hills and Southern Hills pipelines, both of which currently are under construction by DCP Midstream, a 50/50 joint venture between Spectra Energy and Phillips 66.

Once the deal is approved, Spectra Energy, Phillips 66, and DCP Midstream each will own a one-third interest in the two pipelines - and will equally fund the remaining capital expenditures through completion of the pipelines. The aggregate investment by Spectra Energy in the two pipeline projects is expected to be between US$700-800 million (EUR534-611million).

The Sand Hills pipeline is designed to provide NGL transportation from the Permian Basin and Eagle Ford region to the premium NGL markets on the Gulf coast. Sand Hills, which will have an initial capacity of 200,000 bbl/d and will be expandable to 350,000 bbl/d, is being phased into service with the first phase of the project recently coming online and providing service from the Eagle Ford. Direct connection to Mont Belvieu is expected shortly. The timing of Sand Hills' second phase, which is the Permian portion of the pipeline, has advanced and is now due to be in service in the second quarter of 2013.

Southern Hills will provide 150,000 bbl/d, expandable to 175,000 bbl/d, of NGL transportation from the mid-continent to Mont Belvieu, and has a targeted in-service date of mid-2013

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