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Volume 17 Number 8 - August 2017

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Volume 17 Number 8 - August 2017

ContentsWORLD PIPELINES | VOLUME 17 | NUMBER 08 | AUGUST 2017

Specialty Polymer Coatings, Inc. (SPC) is the world leader in specialty coatings. The company has a broad line of coating systems, which are utilised extensively in the

pipeline industry, lining tanks and sewage digesters, and on steel structures, as well as on marine docks and ship applications. Expanding throughout North America and

internationally, SPC is committed to serving these specialised industrial markets with its blend of research, superior products and technical support.

03. CommentTroubling transit.

05. Pipeline newsUpdates on Nord Stream 2, DAPL, TAP and more; regulations, permits and approvals on midstream projects, and the awarding of multiple pipeline contracts.

REGIONAL REPORT

12. Hardship still on the horizon?Ng Weng Hoong considers Central Asia’s oil and gas market and outlines some of the region’s midstream pipeline projects.

COATINGS & LININGS

21. Tackling dentsBrad Whelan, Neptune Research Inc., USA.

26. Making discoveriesDustin Traylor and Charles Zhou, Axalta Coating Systems, USA.

32. Managing operations in GreecePatrizio Sala (Italy) and Adam Kopystynski BSc MSc (UK), Shawcor.

37. Overcoming the elementsMerrick Alpert, EonCoat, USA.

EQUIPMENT SAFETY

41. A spotlight on safetyRobert Linder and Johannes Mayr, LIEBHERR, Austria.

45. Committing to a safety cultureDawn Rivera, PipeLine Machinery International, USA.

41 147

HDD

90. Keeping up with trenchless technologiesAnne Knour, TRACTO-TECHNIK, Germany.

DEEPWATER PIPELINE ENGINEERING

98. A new era approachesEric Fischer (Oceaneering, USA) and Kelci Martinsen (2G Robotics, Canada).

INTELLIGENT PIGS

105. Pipeline DNA, uncoveredJoel Coleman, Christopher De Leon, Simon Slater, Matthew Hadden, Thomas Eiken, Daniel Molenda and Jochen Spalink, The ROSEN Group, Switzerland.

113. Timely defect detectionsVyacheslav Orlov and Alexei Mezhuev, Transneft Diascan, Russia.

119. Improvement through innovationThomas Hennig, NDT Global, Ireland.

124. Hunting new technologiesCallum Jones, i2i Pipelines, UK.

OPTIMISING PIPELINE FLOW

131. The ins and outs of mass balancingWim Volmer, NMi Certin B.V.

135. Go with the flowWerner Botha, PPG Protective and Marine, the Netherlands.

WELDING TECHNOLOGIES

139. Facing up to the challengeJürgen Krüger (Polysoude S.A.S, France) and Alexander Spies (SALWO TRADING Ltd., UAE).

147. Setting the paceD. dos Santos, YXLON Copenhagen, Portugal.

contractors’ directorycontractors’ directory

ONSHORE PIPELINES - OFFSHORE PIPELINES - TURNKEY CONSTRUCTION - HORIZONTAL DIRECTIONAL DRILLING - COMPRESSOR STATIONS - WELDING - F

ONSHORE PIPELINES - OFFSHORE PIPELINES - TURNKEY CONSTRUCTION - HORIZONTAL DIRECTIONAL DRILLING - COMPRESSOR STATIONS - WELDING - F

Welcome to the 2017 Contractors' Directory: our 11th annual report characterising the major pipeline engineering contractors.

The directory provides insight into contractors working all over the world, detailing their capabilities and the services they provide, along with project statistics, updates and onsite photographs concerning recent oil and gas pipeline operations.

STATIONS - WELDING - FINANCE, STRATEGY & ANALYSIS - FEASIBILITY STUDIES - TERMINALS - RESEARCH & DEVELOPMENT - MAINTENANCE - REHAB

STATIONS - WELDING - FINANCE, STRATEGY & ANALYSIS - FEASIBILITY STUDIES - TERMINALS - RESEARCH & DEVELOPMENT - MAINTENANCE - REHAB

®

STANLEYInspection.com I SIinfoUSA@sbdinc.com

contractors’directory

49

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EDITORElizabeth Cornerelizabeth.corner@worldpipelines.com

MANAGING EDITOR

James Littlejames.little@worldpipelines.com

ASSISTANT EDITOR

Stephanie Rokerstephanie.roker@worldpipelines.com

ADVERTISEMENT DIRECTOR

Rod Hardyrod.hardy@worldpipelines.com

ADVERTISEMENT MANAGER

Chris Lethbridgechris.lethbridge@worldpipelines.com

ADVERTISEMENT SALES EXECUTIVE

Will Pownallwill.pownall@worldpipelines.com

PRODUCTION MANAGER

Stephen Northstephen.north@worldpipelines.com

SUBSCRIPTIONS

Laura Whitelaura.white@worldpipelines.com

ADMINISTRATION

Nicola Fullernicola.fuller@worldpipelines.com

WEBSITE MANAGER

Tom Fullertontom.fullerton@worldpipelines.com

DIGITAL ASSISTANT EDITOR

Angharad Lockangharad.lock@worldpipelines.com

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Applicable only to USA & Canada:World Pipelines (ISSN No: 1472-7390, USPS No: 020-988) is published monthly by Palladian Publications Ltd, GBR and distributed in the USA by Asendia USA, 17B S Middlesex Ave, Monroe NJ 08831. Periodicals postage paid New Brunswick, NJ and additional mailing offices. POSTMASTER: send address changes to World Pipelines, 701C Ashland Ave, Folcroft PA 19032

Palladian Publications Ltd, 15 South Street, Farnham, Surrey, GU9 7QU, ENGLANDTel: +44 (0) 1252 718 999 Fax: +44 (0) 1252 718 992 Website: www.worldpipelines.com Email: enquiries@worldpipelines.com

CommentTROUBLING TRANSIT

A total of 13 out of 26 European Union (EU) nations have called for the EU to renegotiate the terms of the Nord Stream 2 pipeline deal,

arguing that the project gives leverage to Russian geopolitical manoeuvrings, that it neglects Ukraine and that it increases European dependence on Russian gas to an unacceptable level. Nord Stream 2 comprises a new 1200 km twin pipeline running the same route as the first Nord Stream line, under the Baltic Sea from Russia to Germany. This additional line is set to add another 55 billion m3/y, which doubles current capacity when combined with the existing Nord Stream pipeline. At present, Russia supplies 34% of European gas; with the addition of Nord Stream 2 this figure will rise to approximately 40%. Gazprom is the sole shareholder of the new extension and the consortium consists of a handful of European energy companies (ENGIE, OMV, Royal Dutch Shell, Uniper and Wintershall).

There are calls from the 13 states for the deal to be renegotiated within the context of the Energy Union: a strategy, set in place in 2014, to build European infrastructure in the interests of diversity and security of supply for Europe. The Energy Union envisages a fully integrated internal energy market, with free flow of energy throughout the EU. Nord Stream 2 is under fire because it doubles access to market for Russian gas, and because Ukraine will lose out on transit revenue if Russian gas no longer needs to traverse the country. The project is criticised for diverting trade and transit revenues away from member states, and for making Ukraine more dependent on EU subsidies.

Germany, the landing point for both the existing Nord Stream pipeline and the expansion line, remains strong in its support for the project. Calls for it to be renegotiated away from German control suggest that Germany’s absolute confidence in the economic justification of the project is not shared by all.

Selected EU states are not alone in their disapproval of the project. The US has been overtly critical – most recently showcased by the inclusion of the project in new sanctions

drawn up against Russia. President Trump finds himself at odds with his own party, as the Republican-majority controlled Senate has moved to pass a bill amendment that imposes sanctions on Russia to combat ‘terrorism and illicit financing’. The amendment states that the US is opposed to Nord Stream 2 on the grounds of its potential detrimental impact to European energy security, to gas market development in central and eastern Europe, and to energy reform in Ukraine. If signed into law, it would provide the government with the authority to penalise companies involved in the Gazprom deal. President Trump would have to impose sanctions on foreign companies that invest in Russian oil and gas projects,

such as shale and Arctic drilling. The new amendment is designed to discourage companies from involvement in Russian energy ventures, thereby diminishing competition for other energy sources, which of course includes US

shale and LNG projects. Washington will not forgive Russia for – among other aggressions – meddling in the recent US presidential election. Trump’s preference for a rekindling of relations between the US and Russia is not going to be easy to bring about.

Which brings me to the recent G20 summit, at which Trump and Russian President Putin met for 2 hrs and 16 min., much longer than scheduled. Official reports state that they discussed sanctions, but Trump denied doing so. Trump spent the conference focusing on domestic concerns and gravitated towards non-democratic states, rather than courting European nations. Before the G20, Trump visited one EU country, Poland, which has also been a fierce opponent of Nord Stream 2.

Speaking after G20, Isabelle Kocher, Chief Executive of Engie, said she hopes that EU leaders had used the forum to demand that the US abandons its sanctions against the pipeline project. Klaus Schafer, Chief Executive of Uniper, said: “The proposed sanctions not only affect Russia, but also Europe and Germany […] I appeal to all parties involved […] to leave the problem of Europe’s energy supply to Europeans.” If only it were that simple.

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AUGUST 2017 / World Pipelines 5

CWC pipes arrive in Finland for Nord Stream 2 project

The first concrete weight coated (CWC) pipes for the planned 1200 km Nord Stream 2 twin pipelines arrived on 17 July by rail at the Port of Koverhar in Hanko (Finland).

Approximately 200 km of CWC pipes will be transported by train to Koverhar between mid July and 3Q17, to be stored in the port until the start of construction in 2018.

These consignments of CWC pipes produced by ChelPipe in Russia are delivered on trains with 63 wagons each carrying three of the 12 m, 24 t pipes. The main CWC pipe deliveries to the Port of Koverhar will be made by sea on vessels transporting the pipes from the coating plant in Kotka operated by Nord Stream 2’s logistics partner Wasco. These deliveries will start in 3Q17.

The Port of Koverhar in Hanko will serve as one of the four logistics hubs to be used for the Nord Stream 2 project. Altogether, 30% of the 204 000 pipes needed to construct the pipelines will be stored at Koverhar before being transported to the pipelay vessels during construction. Wasco’s operations will employ up to 50 people for the duration of the project.

The logistics concept for this international energy infrastructure project has been optimised to meet the project’s challenging requirements with respect to available port resources and utilising ecofriendly transportation.

World NewsConstruction commences on Northern Gas pipeline

Construction has officially begun on the 622 km Northern Gas pipeline (Australia), to run from Tennant Creek to Mt Isa, with more than 90 people attending a sod-turning ceremony at the Phillip Creek compressor station.

The AUS$800 million pipeline will connect the Northern Territory (NT) to the national gas grid, and has been touted as a possible solution to the supposed east coast gas shortage.

Michael Pintabona, Spokesman for the company behind the project – Jemena – said the pipeline was being built to transport 90 TJ/d of gas to Mount Isa, but to contribute any more gas than that, the project would need a more consistent supply.

Currently, the gas came from the Black Tip Point reserve, but Pintabona said that if more became available the pipeline could be expanded to transport up to 700 TJ. However, a current moratorium on hydraulic fracturing in the NT was currently limiting that potential.

If the moratorium was lifted and areas such as the Beetalo Basin, which was in exploration phase only, put their hand up to have gas transported, Pintabona said it would be ideal for the pipeline.

“Our initial foundation customer is a domestic customer, and it is about making sure there is more gas available in the whole of the east coast,” he said.

According to Jemena, the project will supply 900 jobs over the construction, with 600 of those jobs earmarked for locals, but it was not entirely clear on how many of those would be ongoing.

The company plans to have first gas by the end of 2018.“Our ambition for 2017 is to build about 200 km of the pipeline here in the

territory and to build all of the pipeline in Queensland, as well as the Phillip Creek compressor station,” Pintabona said.

At a sod-turning ceremony in the NT, Jemena’s Managing Director, Paul Adams, said the 622 km pipeline between Tennant Creek and Mt Isa will play a crucial role in helping to resolve Australia’s gas supply crisis.

Adams said the energy infrastructure company is investigating extending the pipeline south from Mt Isa to the Wallumbilla Gas Hub, to further integrate Territory gas into the east coast gas grid, provided additional gas supplies are made available in the Territory.

“Our modelling suggests that the pipeline can be relatively easily expanded and extended to transport up to, or beyond, 700 TJ/d of gas. This far exceeds gas used on an average day in the New South Wales and Queensland markets,” he said.

British Columbia pipeline setback?

A Federal Court of Appeal judge has ruled that the National Energy Board (NEB) must reconsider whether a proposed TransCanada Corp. natural gas pipeline in British Columbia (B.C.) falls under provincial or federal jurisdiction.

“The board did not ask itself whether an arguable case for federal jurisdiction had been made out,” wrote Judge Donald J. Rennie in his judgement on 19 July, in response to a proceeding launched by Michael Sawyer, who received funding support from the SkeenaWild Conservation Trust.

Sawyer argued that the Prince Rupert gas transmission project – a 900 km proposed pipeline from Hudson’s Hope (B.C.), to a facility on the province’s Lelu Island – required federal and not provincial approvals.

The province has already greenlighted the pipeline project, but it is waiting to receive a final commitment from Pacific NorthWest LNG, which will build and operate the Lelu Island facility, before starting construction.

Pacific NorthWest, whose majority owner is Malaysia-based Petronas, says that it is conducting an internal review of the project and will then table it to the project’s shareholders for a final investment decision.

In September 2016, the federal government approved Pacific NorthWest’s CAN$11 billion facility, part of the total CAN$36 billion pipeline project.

Prior to the legal proceedings, Sawyer had filed an application to the NEB, for the board to hold a hearing to determine what jurisdiction the pipeline project falls under. He argued that while it is located in the province, it will move gas destined to be exported.

The NEB rejected his application, but now must reconsider it due to Rennie’s ruling. TransCanada has 60 days to apply for leave to appeal.

The appeals court ruling comes as a major blow to TransCanada, which even applied to proceed with construction of the North Montney Mainline (NMML) project, contingent on a positive final investment decision on the proposed Pacific Northwest LNG project, which is being developed by Malaysia’s Petronas.

At that time, TransCanada said that: “Subject to regulatory approvals, TransCanada plans to begin construction in the 1H18, with facilities being phased into service over a two year period, beginning in April 2019.”

“The board had put a lot of weight on the fact that the pipeline begins and ends within B.C., but didn’t take into account the jurisdictional consequences of the fact that the purpose of the Prince Rupert pipeline is to bring gas from the northeast of B.C. to Prince Rupert for export – and it’s that ‘for export’ that is a factor pointing to federal jurisdiction,” Sawyer’s lawyer, William Andrews, told press.

6 World Pipelines / AUGUST 2017

IN BRIEF

USAA judge deciding whether to temporarily shut down the disputed Dakota Access oil pipeline said that he will allow North Dakota’s main energy trade group to weigh in.

GreeceConstruction of the Trans Adriatic pipeline in Greece continues to progress on time, on track and on budget. Work is now underway in all three northern Greek prefectures to be traversed by the pipeline: eastern Macedonia-Thrace, central Macedonia and – most recently – western Macedonia.

NorwayDeepOcean has been awarded an engineering, procurement, construction and installation contract for performing remote hyperbaric tie-in of the oil export pipeline on the Johan Sverdrup field in the North Sea.

MexicoAs part of a series of ongoing energy reforms, Mexico’s National Centre for Natural Gas Control (CENAGAS) recently conducted the first open season to auction capacity rights on the country’s natural gas pipeline grid.

TunisiaSerinus Energy Inc. has provided an update on its oil and gas operations in Tunisia. Production at the company’s Sabria and Chouech Es Saida fields continues to be temporarily shut-in due to continued social and labour unrest in the southern part of the country. Additionally, continued protests have blocked all oilfield activities in Tunisia’s southern oilfields, and have shut down the major south-north oil export pipeline.

USAEnterprise Products Partners L.P. has announced that the company has prevailed in its appeal against Energy Transfer Partners. This appeal stems from a 2014 Dallas jury verdict in a lawsuit filed by Energy Transfer over a proposed pipeline project, which was cancelled due to a lack of customer support.

World NewsKXL solar panel campaign

Protestors in Nebraska (USA) are attempting to block the Keystone XL pipeline expansion project by installing solar panels along their land where the pipeline route is set to pass through.

TransCanada’s Keystone XL pipeline would transport 800 000 bpd of crude oil from Alberta (Canada) to Nebraska, before connecting to the already operational Keystone pipeline.

The pipeline was previously vetoed by the Obama administration, before being revived in January 2017 by President Trump.

Farm owners and ranchers are installing solar panels on their stretches of land as part of the Solar XL campaign. The campaign attempts to draw attention to renewable energy instead of hydrocarbons.

Nebraska landowner, Bob Allpress, intends to install the panels on this property, arguing that the pipeline is unnecessary. He stated: “The

monetary benefit to the peoples of Nebraska will be gone in seven years, while the risks to our state are for the life of this pipeline. The installation of wind and solar production in Nebraska will provide many good Nebraska jobs and provide years of cheap electricity for everyone in our great state.”

Alpress also argues that the pipeline could be detrimental to the environment and water supplies. “We have five potable water wells that provide water to the cattle and our own drinking water […] If the pipeline breaks, it would take out us and people all the way down to the Missouri River,” he said.

A formal legal hearing on the pipeline project is set to take place on 7 August. The Nebraska Public Service Commission will then determine whether or not to approve the proposed Nebraskan route.

BP considers MLP for pipeline assets

BP is evaluating an initial public offering of an master limited partnership (MLP), which could include crude oil, natural gas and refined petroleum product pipelines in the Midwest and Gulf Coast (USA). The company said it could begin the regulatory process to form BP Midstream Partners by the end of the year.

The potential initial public offering would structure the assets as a MLP; a frequently used corporate structure for pipeline companies. MLPs provide energy infrastructure builders with access to cheap capital and pay out steady dividends to their investors. BP would own the general partner of the MLP, as well as its incentive distribution rights and a majority of its limited partner interests, the company said.

BP said forming an MLP is just one of the options it is considering in its bid to create more value for its shareholders and grow its pipeline business. The plan, first considered about five

years ago, was shelved when oil prices declined sharply in 2014.

Last year, BP approached Enbridge in an effort to sell some of its offshore Gulf of Mexico pipeline network, known as the Mardi Gras transportation system, without success. Royal Dutch Shell held a public offering of its midstream assets in June 2014, raising nearly US$1 billion (£770 million) to pay down debt, just before oil prices collapsed. Shell was the first oil major to use this structure to generate cash from its assets.

Independent refiners, such as Valero Energy, Tesoro and Marathon Petroleum, have previously formed MLPs for their pipeline assets, and independent pipeline companies often use this corporate structure. If successful, the deal would be one of the largest initial public offerings of the year. The proposed spinoff would be called BP Midstream Partners.

Indigenous-led oversight committee appointed to Trans Mountain pipeline

Kinder Morgan’s Trans Mountain pipeline expansion has a new Indigenous-led oversight committee, backed by the Canadian federal government, to monitor the project’s construction which is slated to begin in September.

The Indigenous Advisory and Monitoring Committee includes 13 Indigenous members, representing bands from Alberta to the B.C. coast, and six federal representatives including the National Energy Board, Indigenous leaders announced on 25 July.

“We wanted to have this committee in place so that we would not be left outside the gate looking in,” said committee member and Chief,

Ernie Crey, of the Cheam First Nation in B.C.’s Fraser Valley. “It will begin its work and it needs to start straight away.”

The idea came from Crey and Chief Aaron Sam of the Lower Nicola Indian Band, who pitched the oversight body in a letter to Prime Minister Justin Trudeau and the premiers of B.C. and Alberta last year. Ottawa has pledged CAN$64.7 million over five years to support the work of the committee, which starts meeting in August.

In a statement, Trans Mountain said it “welcomes the establishment [of the committee] to represent Indigenous perspectives on safety and the environment.”

8 World Pipelines / AUGUST 2017

Events DIARY

5 - 8 September 2017

SPE Offshore Europe

Aberdeen, Scotlandhttp://www.offshore-europe.co.uk/

11 - 14 September 2017

Turbomachinery & Pump

Symposia (TPS)

Houston, USAhttp://tps.tamu.edu/

17 - 19 September 2017

Pipeline-Pipe-Sewer

Technology Conference and

Exhibition (PPST)

Cairo, Egypthttps://www.pipelinepipesewer.com/

25 - 29 September 2017

IPLOCA 2017 Annual

Convention

Mexico City, Mexicohttp://www.iploca.com

24 - 26 October 2017

LAGCOE 2017

Lafayette, USAhttp://www.lagcoe.com/home-expo

24 - 26 October 2017

Rio Pipeline 2017

Rio de Janeiro, Brazilhttp://wgc2018.com/

8 - 9 November 2017

2017 Pipeline Leadership

Conference

Texas, USAhttp://plconference.com/

13 - 16 November 2017

ADIPEC

Abu Dhabi, UAEhttps://www.adipec.com/

World News

To read more about the articles go towww.worldpipelines.com

News Highlights

➤ Atlantic Coast environmental assessment ‘favourable’

➤ Vaquero Midstream to expand Southern Delaware Basin processing capacity

➤ US House of Representatives want legislation to amend pipeline permitting process

➤ PHMSA solicits proposals for pipeline safety R&D programme research awards

Longhorn pipeline spill contained

No injuries have been reported, and the release of oil from a pipeline in Texas (USA) was contained in a confined area, Magellan Midstream Partners (Magellan) has confirmed.

Repairs to Magellan’s 275 000 bpd Longhorn crude oil pipeline have been completed and the pipeline has resumed normal operation.

Emergency managers in Bastrop County (southeast Texas), said that those living in the 15 residencies who evacuated earlier in the day were allowed to return home, though traffic in the region was limited.

“There are no injuries associated with the incident [...] The oil has been contained in a small area around the pipeline release and no crude oil has reached any water,” the company stated.

Magellan said its preliminary estimate of the size of the release was around 1200 bbls of crude. The company said clean-up and recovery operations were “well under way,” with 100 people on site.

“Actions have been taken to contain the crude oil release to minimise environmental impact and to ensure public safety,” the company said.

Crews have collected all of the free-standing crude oil after about 50 000 gal. (189 000 l) leaked when a contractor using heavy equipment hit the underground pipeline.

Plains to expand Sunrise pipeline

Plains All American will continue to grow its pipeline capacity coming out of west Texas’ prolific Permian Basin, adding 120 000 bpd to a pipeline between Midland and Cushing (Oklahoma).

On 18 July, the company said it has sufficient commitment from shippers to expand the Sunrise pipeline by 180 miles between the Texas towns of Colorado City and Wichita Falls. The pipeline system connects to terminals in Cushing.

Pending regulatory approval, the planned additions are expected to be in use by mid 2019.

In January, Plains All American announced a plan to buy the Alpha Crude Connector pipeline gathering and storage system from Midland-based, Concho Resources, and Dallas private equity firm, Energy Spectrum Capital. Plains also said it will expand its existing BridgeTex and Cactus pipeline systems, which connect west Texas to Houston and Corpus Christi.

Further delays for Rover pipeline

Energy Transfer Partners LP’s Rover pipeline, the biggest natural gas pipeline under construction in the US, has received more bad news after West Virginia told the company to stop some work, citing environmental violations, regulators said on 23 July.

The US$4.2 billion pipeline already faces sanctions for violations in Ohio and a federal ban on drilling activity that has delayed the anticipated start-up of the project’s first phase to the late summer from July.

West Virginia’s Department of Environmental Protection (DEP) issued the order to stop activity in certain areas on 17 July, which was made public on 23 July in a US Federal Energy Regulatory Commission filing. The state, in the filing, noted sediment deposits and improper erosion controls, along with other violations.

ETP said it still expected the second and final phase of the project to start up in November.

“We are complying with the DEP, and have stopped construction at the areas noted in the order. We do not anticipate any changes to our timeline,” ETP spokeswoman Alexis Daniel said.

Construction continues, she said, in West Virginia’s Hancock and Marshall counties.

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10 World Pipelines / AUGUST 2017

Contract NewsM&I wins turnkey pipeline contract

American Electric Technologies, Inc., a leading provider of power delivery solutions for the global energy industry, announced that its M&I Electric business has been awarded a US$4 million contract to provide a turnkey power delivery solution for a new pipeline under construction in Texas (USA).

The company received the award from one of the largest midstream oil and gas companies in the US for a new pipeline being constructed to deliver crude oil from the Permian Basin in west Texas across the state to Nederland, Texas. The new pipeline will provide transportation of up to 100 000 bpd of oil, with an estimated total capacity of up to 300 000 bpd.

The M&I turnkey power delivery system will supply safe, reliable power distribution for three compressor stations and includes M&I’s turnkey power delivery solutions and medium and low voltage conventional switchgear, low voltage and medium voltage motor control centres, and installation and integration of third party 7000 hp variable frequency drives, all integrated into M&I power distribution centres (PDCs).

“M&I Electric continues to make progress with leading oil and gas companies with our turnkey power delivery solutions,” said Troy Coker, Vice President, Sales at M&I. “Large midstream and companies like this understand the benefits of having a fully tested and integrated solution incorporating both switchgear and PDCs built at the same location to reduce costs, meet project schedules and reduce project risk.”

M&I expects delivery of this project to occur in early 2018.

Nord Stream 2 rock placement signing

Nord Stream 2 AG has signed a letter of intent with the Dutch joint venture, Boskalis-Van Oord, to provide rock placement services as part of the construction of the planned twin 1200 km Nord Stream 2 natural gas pipelines through the Baltic Sea.

Contract details are expected to be finalised in the next few weeks. Based on the current scope, the contract amount is expected to be approximately €250 million.

The contract will cover rock placement sourcing rock from the Baltic Sea region and using specialised vessels to place rock that meets specific engineering and environmental criteria. Rock is needed to be placed before and after construction for pipeline’s support at precisely located places along the pipeline route where the seabed is uneven.

Boskalis-Van Oord will join the more than 200 companies from 17 countries to have won contracts to work on this complex international energy infrastructure project. One member of the joint venture, Royal Boskalis Westminster N.V., provided similar rock placement services for the first Nord Stream project, which has been fully operational since 2012. The other member of the joint venture, Van Oord, installed the pipeline landfalls near Vyborg (Russia) for the first Nord Stream project in 2010.

The total value of contracts so far awarded on the Nord Stream 2 project is more than €4 billion. The project is progressing according to schedule.

FEED contract awarded to WorleyParsons

WorleyParsons has been awarded a contract for the project management and front end engineering and design (FEED) services for the offshore oil and gas facilities portion and the onshore upstream and downstream pipelines portion of Saudi Aramco’s Marjan oilfield development programme.

Under the agreement, WorleyParsons will provide project management and FEED services. The services will be executed from WorleyParsons’ office in Al-Khobar in the Kingdom of Saudi Arabia with support from other WorleyParsons offices.

“We are pleased to build on our relationship with Saudi Aramco through this significant contract,” said Andrew Wood, Chief Executive Officer of WorleyParsons.

Hungary signs TurkStream pipeline deal

Hungary has signed a deal with Russia’s Gazprom to link the country with the TurkStream gas pipeline by the end of 2019.

“This will improve Hungary’s energy security a great deal, so it is in our strategic interest for this co-operation to start,” Foreign Minister, Peter Szijjarto, reportedly stated.

Szijjarto told MTI that he had agreed with Gazprom’s CEO, Alexey Miller, to join TurkStream with a link that could enable Hungary to import 8 billion m3/y of gas, close to the country’s total consumption.

Hungary, which relies on Russian imports via Ukraine for nearly all of its gas use, has sought to diversify its imports geographically as well as by supplier for years.

A southern link to Russian pipelines has long been planned, with a previous project, South Stream, cancelled by Russia in 2014 in the wake of the Ukrainian conflict and EU sanctions.

Szijjarto noted that Bulgaria and Serbia had already signed agreements with Gazprom, which stipulate that financing must be cleared by the end of 2017 and permits secured by the end of 2018, in order for the gas link to reach Hungary by 2019.

TurkStream will consist of two branches. The first, with a maximum capacity of 15.75 billion m3, is expected to be finished in 2018 and set to deliver Russian natural gas directly to Turkey. The second branch is supposed to deliver gas to European customers.

Russia accounts for over 75% of oil and 60% of gas consumption in Hungary, which is supplied via Ukraine.

The TurkStream project was signed by Russian President Putin and his Turkish counterpart, Recep Tayyip Erdogan, in October 2016. Its total cost was estimated at €11.4 billion (US$12.9 billion).

Subsea 7 announces Brazilian pipelay contracts

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These extensions have a combined value of approximately US$250 million.

The firm contract periods for the Seven Waves, Seven Rio and Seven Sun will now end respectively in 2Q21, 3Q21 and 2Q22. The extensions have been awarded at the same day rates and on the same commercial terms as the original contracts.

Marcelo Xavier, Vice President for Brazil Region, said: “These contract extensions reflect our long-standing relationship with Petrobras. We are focused on delivering a safe and reliable performance. We have the right capability and capacity in Brazil to meet our clients’ needs.”

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Ng Weng Hoong considers

Central Asia’s oil and gas market

and outlines some of the region’s

midstream pipeline projects.

Hardship still on thep

12

W ith its once high flying economies battered by two years of contraction, Central Asia is now waking to the growing threats of political instability, terrorism and increased superpower

manoeuvring in its backyard.The region has been badly exposed for its heavy economic reliance on commodities, particularly oil and gas, which continue to languish after their spectacular price collapse from mid 2014.

According to the World Bank, the combined economies of Armenia, Azerbaijan, Georgia,

Kazakhstan, Kyrgyzstan, Tajikistan, Turkmenistan and Uzbekistan grew by an annual average of nearly 19% between 2000 and 2013. In the giddy period when

crude oil surged from under US$30/bbl, to well over US$120/bbl, Central Asia was easily

the world’s fastest growing economic block. However, those stunning

numbers and stories of sudden

13

wealth also masked the region’s vulnerabilities as a result of its resource dependency and the legacy of authoritarianism from the previous Soviet regime that once dominated Central Asia.

The collapse of the old order began in 2014, when the Brent crude price plunged from US$110/bbl, to US$60/bbl over the course of the year. From explosive double digit growth rates, Central Asia’s nominal gross domestic product (GDP) reversed sharply to contract by 0.6% in 2014, according to the World Bank. The following year, as Brent crude fell further into the US$40s, the combined nominal GDP of the eight countries reduced by 15.3%.

This was hardly surprising given that the region’s four oil and gas producers (Kazakhstan, Azerbaijan, Turkmenistan and Uzbekistan) account for nearly 90% of its economy. The two largest economies (Kazakhstan and Azerbaijan) were also the hardest hit.

Experts warn that the region now faces more than just economic hardship. “Central Asia is slowly destabilising,” political analyst George Friedman declared in his book, The

World Explained in Maps. Sandwiched between Russia, China, the Middle East, South Asia and Europe, Central Asia’s fate is once again in the hands of larger external forces as it had been for centuries.

In the decade prior to 2008 when energy prices were surging to record highs, Central Asia’s wily leaders successfully pitted the US, Russia, China and various regional powers against each other as they competed for the region’s hydrocarbon reserves and strategic location. Now, minus the cloak of economic strength, the region’s leaders have been cut down to size in a much bigger global geopolitical game.

Table 1. Central Asia’s nominal GDP (Source: World Bank)

GDP % per year for 2000 - 2013

GDP % 2015/2014

Population in millions (2015)

Kazakhstan 21.77% -16.72% 17.54

Azerbaijan 22.47% -29.45% 9.65

Uzbekistan 11.16% 6.53% 31.3

Turkmenistan 22.16% -17.6% 5.37

Georgia 13.65% -15.41% 3.72

Kyrgyzstan 13.78% -12.01% 5.96

Tajikistan 19.27% -14.97% 8.48

Armenia 14.5% -0.93% 3.02

TOTAL 18.9% -15.35% 85.04

Table 2. Central Asia’s oil and gas data (Source: BP)

Oil reserves in billion bbls

Gas reserves in billion m3

Kazakhstan 30 900

Azerbaijan 7 1100

Uzbekistan 0.6 1100

Turkmenistan 0.6 1100

TOTAL 38.2 20 600

Sharing borders with Turkmenistan, Uzbekistan and Tajikistan, Azerbaijan has emerged as a growing security threat while Syria’s war zones have become a key location for Islamic State (ISIS) recruits in Central Asia.

As Afghanistan returns to its factional roots, Friedman noted that its government is struggling to contain the country’s rapidly expanding Taliban and ISIS insurgencies. “These militants could receive training and access to arms that could later be put to use inside Central Asia. Central Asian militants are already fighting alongside ISIS and other groups in Syria and Iraq and threaten to ultimately impact security within their home states,” he observed.

Fearful of Central Asia’s collapse and growing attraction for ISIS operatives, neighbouring powers are expanding their influence in the region.

Iran’s Foreign Minister, Mohammad Javad Zarif, recently proclaimed that the country is building a “new chapter” in strengthening ties with Turkmenistan, while Israel is working on its political, economic and security ties with Azerbaijan, Kazakhstan and the UAE.

China, worried about the spread of radical Islam through its western region, is stepping up efforts to “use Xinjiang’s geographic advantages […] to deepen communication and co-operation with Central, South and West Asian countries.” Meanwhile, Russia is seeking to re-assert its influence over Kazakhstan, Kyrgyzstan, Tajikistan, Uzbekistan and Turkmenistan, all of which were once part of the Soviet Union.

Weak economies despite rising crude priceDespite a near doubling in crude oil prices over the past year, Central Asia’s economies are nowhere near a full recovery, according to the World Bank and Asian Development Bank (ADB).

In separate reports, the two agencies said the region’s eight countries have just come off from probably their worst economic slump since the collapse of the former Soviet Union in the early 1990s. Collectively, their economies were able to eke out growth of 1.5% last year. With Kazakhstan and Azerbaijan dragging down the region’s US$381 billion economy, the agencies expect Central Asia to continue struggling in the near term. The two energy rich countries together account for 65% of the region’s GDP.

With Azerbaijan’s economy shrinking by 3% and Kazakhstan’s managing an expansion of just 1.2% last year, they were the region’s two worst performers. Meanwhile, Turkmenistan and Uzbekistan, Central Asia’s two other energy producing countries, reported robust growth of 6.2% and 7.3% respectively.

“Growth in the sub-region’s energy exporters – Azerbaijan, Kazakhstan, Turkmenistan and Uzbekistan – suffers as lower revenues from hydrocarbon exports squeeze public budgets, leaving no room for significant increases in public investment,” said the ADB.

These four countries traditionally channel oil and gas revenues into public investment, mostly construction, which has contributed to their growth.

“While hydrocarbon exports remained virtually unchanged by volume during 2011 - 2015, averaging 3.1 million bpd, the

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average Brent crude oil price fell from 2014 - 2015 by 47%, and the World Bank’s natural gas price index by 34%,” said the ADB.

As a result, Azerbaijan’s state capital expenditure fell from 10.5% of GDP in 2014 to 9.2% in 2015. Kazakhstan’s was down from 2.6% to 2% and Turkmenistan’s was off by 1.1 percentage points to 6.6%. These cuts in investment have slashed the medium term growth prospects of these hydrocarbon rich countries, said the ADB. Governments have adjusted their budgets to accommodate the effects of sustained weak oil and gas prices by reducing public investment and allowing for higher budget deficits to maintain social expenditures.

Kazakhstan’s government raised its 2016 expenditure by 7.8% over its original budget, while Turkmenistan has widened its fiscal deficit to 2% of GDP to boost social spending. Uzbek’s government implemented development programmes worth US$1.9 billion in 1H16 to boost economic growth.

The energy poor countries Of the region’s four energy deficient countries, Georgia, has the largest economy, at only one third of the size of Turkmenistan’s. Without their own energy resources, Georgia, Armenia, Tajikistan and Kyrgyzstan account for just 10% of the region’s economy, combined.

Traditionally, these countries have relied on remittances of their citizens working in Russia to provide hard currency earnings for their impoverished economies. Agriculture and construction partly fuelled by public spending have also helped keep them afloat.

Runaway inflationCentral Asian governments will have to further contend with the threat of rising cost in stirring social discontent. With debt-driven domestic spending used to offset the decline in oil and gas export revenues, Central Asia has been hit by strong inflation at a time of economic stagnation.

The ADB estimates that the region’s 2016 inflation rate of 11.5% was fuelled mostly by sharp price increases in Kazakhstan and Azerbaijan.

Faced with worsening fiscal and current account deficits, both countries devalued their currencies last year, which sparked a new round of inflation. The Azerbaijan manat lost

38% of its value against the US dollar while the Kazakh tenge fell by 42%.

The ADB expects weak food and stable fuel prices to help slow the region’s inflation rate to 6.4% this year.

China’s delayed gas pipeline expansion Central Asia’s weakening economic confidence has been dealt a new blow by reports that China has again delayed plans for the expansion of a major pipeline network to import natural gas from the region.

According to various news reports, Beijing is holding off building the fourth and largest branch (‘Line D’) of the eight year old pipeline network that supplies natural gas from Turkmenistan, Uzbekistan and Kazakhstan to China. The 1000 km Line D, which was proposed to pass through Kyrgyzstan, and Tajikistan, was designed to add 30 billion m3/y to the network’s existing 55 billion m3/y capacity. Both countries had been counting on the project’s construction to provide both employment and a stable source of income.

Construction was supposed to start shortly after Chinese President Xi Jinping and his Tajikistan counterpart, Emomali Rahmon, held a ceremony for the project’s launch in September 2014. This ceremony took place four months after oil and gas prices began collapsing. Like many project developers around the world, Line D’s proponents have been caught out by the severity of the prolonged price rout.

Despite China’s assurance that the project is vital to both its energy security and Central Asia policy, the continuing weakness of oil and gas prices has undermined the project’s viability. Beijing has made at least three postponements to the project’s startup.

Line D’s prospects were further set back by the recent visit to Beijing by Saudi Arabia’s King Salman. Supported by a large entourage, including state energy firm Aramco, the king underlined his government’s eagerness to meet China’s long term energy demand at the expense of rival oil and gas suppliers in the Middle East and Central Asia. Aware of the competing supply threats from Saudi Arabia and other countries, Turkmenistan, Uzbekistan, Kyrgyzstan and Tajikistan have been pushing China to start Line D’s construction.

With the world’s fourth largest natural gas reserves, Turkmenistan catalysed the Central Asia-China gas connection by starting the first export pipeline in late 2009. The pipeline’s impact on the Turkmen economy was immediate and stunning: growth surged 11.7% in 2010, 29.4% in 2011 and 20.3% in 2012, according to the World Bank. By 2014, when oil and gas prices began to slide, Turkmenistan’s GDP had reached US$35 billion to almost double its 2008 size.

New oil and gas infrastructure in KazakhstanDespite Line D’s delay, China will remain an important market for Kazakhstan’s oil and natural gas industry, thanks to the recent launch of other supply links between the two countries.

In April, state-owned China National Petroleum Corp. (CNPC) announced the startup of a 1454 km pipeline to import natural gas from southern Kazakhstan. CNPC subsidiary, Trans-Asia Pipeline Co Ltd, and Kazakhstan’s KazTransGaz (KTG) are equal owners of the pipeline, which has the capacity to deliver

Table 3. Central Asia’s economies: projected growth and size

2017 2018 2019 US$ million (2015)

Energy rich countries

Kazakhstan 2.2% 3.7 4 186 260

Azerbaijan 1.2% 2.3 2.3 59 025

Uzbekistan 7.4% 7.4 7.4 58 114

Turkmenistan 6.5% 6.8 7 37 254

Energy deficit countries

Georgia 5.2% 5.3 5 14 754

Armenia 2.7% 3 3.2 11 457

Tajikistan 4.5% 5.2 4.5 7913

Kyrgyzstan 3% 3.7 4.9 6059

TOTAL 380 836

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up to 6 million m3/y of natural gas. The CNPC-KTG pipeline adds to last July’s launch of a rail service to deliver liquefied natural gas (LNG) from the Central Asian country to China’s Xinjiang region.

According to China’s CRI Online, the rail service is expected to deliver 300 000 t of LNG a year from Kazakhstan to Alashankou Free Trade Zone in Xinjiang. Alashankou also recently received its 100th million t of crude oil through a pipeline that is owned and operated by the Kazakhstan-China Pipeline LLP.

Adjusting to lower oil pricesUS ratings agency, Moody’s, has noted that Kazakhstan has been more resilient than Azerbaijan in adjusting to the collapse of oil prices since mid 2014. While both countries are heavily dependent on oil and gas for revenue, Kazakhstan has shown greater economic diversification, stronger institutions and lower debt levels than Azerbaijan.

“Azerbaijan is more vulnerable to the low oil price, given that its economy is more than three and a half times smaller and half as wealthy. Kazakhstan has also made more progress addressing business climate challenges and other structural impediments to growth,” said Moody’s.

Oil and gas accounted for 89% of Azerbaijan’s merchandise export earnings and 26% of nominal GDP in 2015. The industry also provided 60 - 70% of consolidated government revenues. In contrast, oil and gas comprised 76% of Kazakhstan’s merchandise export earnings and 18% of nominal GDP, while contributing to 42% of consolidated government revenues.

“Kazakhstan’s institutions are stronger than those of Azerbaijan, allowing for more effective policy responses,” said Moody’s. It cited Kazakhstan’s smoother transition to a floating exchange rate and rapid monetary policy response, enabling it to more effectively manage the oil price decline.

On the geopolitical front, Kazakhstan has deftly maintained good relations with Russia and China, as well as with the US and the EU. In contrast, Azerbaijan has been unable to resolve its ongoing conflict with Armenia over the disputed territory of Nagorno-Karabakh.

In a separate report, the International Monetary Fund (IMF) predicts that Kazakhstan’s economy will grow by 2.5% in 2017 after expanding by 1% last year. In 2015, it contracted by 3.7%. Higher oil production and prices in recent months have lifted the country’s conditions from its worst economic recession in over 20 years.

“Growth is projected to reach 2.5% in 2017 and non-oil growth should reach 4% by 2021. This will reflect a further increase in oil production, the impact of structural reforms and an unlocking of bank lending,” said the IMF.

Could Azerbaijan’s state oil firm be downgraded?US ratings agency, Fitch, said that Azerbaijan’s state oil company, State Oil Company of the Azerbaijan Republic (SOCAR), faces the risk of a credit downgrade due to its continuing financial struggles. The fully state-owned firm, which accounts for nearly a fifth of the country’s 824 000 bpd oil production, is often taken to measure the economic health

of the Central Asian country. It is also the country’s largest employer and contributor to the government budget.

“If SOCAR’s financial profile comes under pressure due to higher than expected spending, we would probably reassess the ties between SOCAR and the state, which could lead to a downgrade,” said Fitch.

The firm has slapped a ‘negative’ outlook on SOCAR’s long term issuer default rating (IDR) and a ‘B’ on its short-term IDR, meaning that the firm has a high chance of not being able to service its debts. SOCAR’s credit and financial ratings are also watched as a gauge of Azerbaijan’s country risk. Its profits are channelled to the government through the State Oil Fund of the Republic of Azerbaijan (SOFAZ). The two organisations work closely when making financial and investment decisions. According to Fitch, SOFAZ had assets worth US$33.1 billion at the start of 2017, down 1.3% from a year ago.

Risky projectsMuch of SOFAZ’s funds are being earmarked for SOCAR’s investments in several high risk oil and gas projects. While crucial to the long-term health of Azerbaijan’s resource-based economy, these multi billion dollar projects have been hit by delays, cost over-runs, political risks and the 2014 oil price collapse.

SOCAR owns 49% of Southern Gas Corridor CJSC (SGC), with the Ministry of Economy and Industry holding the majority 51% stake. SGC is involved in three several major natural gas projects including the development of the Shah Deniz field, expansion of the South Caucasus pipeline, and construction of the Trans Anatolian and Trans Adriatic pipelines.

SOCAR operates the depleting offshore Gunashli oil field in the Caspian Sea, located 120 km east of Azerbaijan’s capital city, Baku. In production since 1982, Gunashli is not a part of the giant Azeri-Chirag-Gunashli (ACG) oilfield that is operated by the BP-led consortium, the Azerbaijan International Operating Co (AIOC).

Fitch said Gunashli’s production fell 8% to 248 000 boe/d last year after a deadly fire on the production platform in December 2015. The company is behind schedule on its plan to restore production with only four of 28 wells producing.

“We assume production in Gunashli will be restored gradually over 2017 and 2018, while SOCAR will be able to maintain output of around 270 000 - 280 000 boe/d in the rating horizon,” said Fitch.

Pipeline project inching forward despite doubts Proponents of an 1800 km pipeline to deliver natural gas from Turkmenistan to Afghanistan, Pakistan and India (TAPI) remain hopeful that it will be constructed, despite the continuous tide of political, financial and security challenges.

First mooted more than 20 years ago, the proposed project has undergone numerous amendments to tap Central Asia’s huge natural gas reserves. The latest blueprint laid out by the Asian Development Bank (ADB) envisages the TAPI pipeline to deliver up to 33 billion m3/y of natural gas to support energy demand and the development of economies in Central and South Asia.

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Long delays and project revisions have led to its estimated cost tripling, from around US$3.3 billion to US$10 billion today.

Recent news reports from Pakistan, India and Azerbaijan suggest that technical and survey work has started after over a year of near inactivity.

Turkmenistan claims to be making headway with building the 200 km section of the pipeline inside its territory to tap the giant Galkynysh, which holds an 16 trillion ft3 of natural gas reserves.

Turkmenistan has promised to invest US$25 billion to deliver 3.2 billion ft3/d of gas to Afghanistan, Pakistan and India for 25 years, starting in December 2019.

In December 2015, Turkmenistan’s President, Gurbanguly Berdymukhammedov, and his Afghan counterpart, Mohammad Ashraf Ghani, jointly held a ceremony to start work on the TAPI pipeline project in the eastern Turkmen province of Mary.

Berdymukhammedov then announced that the Turkmen section would be ready by December 2018, which has proved optimistic given the slump in energy prices, as well as the region’s unstable geopolitics and ongoing security threats.

Already, Turkmenistan’s state firm, Turkmengas, has missed its deadline to achieve financial close on the project by December 2016, said the Pakistan-based Institute of Strategic Studies. There is no guarantee that it will meet the new deadline of June 2017, casting fresh doubts on whether the project can be operational by 2020.

The US-backed ADB is clearly pushing against the tide in trying to jumpstart the TAPI bandwagon.

Security remains the foremost concern. Afghanistan is a key location for both international terror and local militia activities,

and Pakistan has long been a safe haven for militant fighters and other radical groups. The antagonistic relations between Pakistan and India add another dimension of uncertainty and risk that will deter most investors and financiers.

Just as crucial, China and Russia are hardly enthusiastic about TAPI as the pipeline does not serve their national interests. China has already put in place its pipeline network through Xinjiang region to tap Central Asia’s oil and gas resources since 2009. Russia, which was Turkmenistan’s only gas customer before China broke the stranglehold in 2009, has no wish to see another pipeline further reduce its influence over the region’s oil and gas producers.

Somewhat optimistically, the ADB said last September that as the project’s financial adviser, it would help “mobilise resources from other financial institutions.” It said that it would also consider financing shareholder equity and provide non-sovereign loans and credit enhancement for the project’s operator, TAPI Pipeline Company Limited (TPCL).

Established in 2016, TPCL – which is owned by the four countries – has an initial budget of over US$200 million to fund engineering and survey studies that are needed to support decisions leading to the project’s final investment decision. The ADB said construction would take up to three years upon FID approval.

In 1995, Turkmenistan and Pakistan signed the first agreement to build the first version of TAPI, but it was invalidated when the Talibans seized control of Afghanistan a year later. The US supports the project to help Turkmenistan open up new markets and reduce its traditional dependence on Russia and China.

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