The CPC Expansion Project aims to increase CPC Main Pipeline annual throughput capacity up to 67 MTA. This will be the second stage of the oil pipeline construction project originally envisaged in CPC TEO back in 1998 due to the growing oil production and shipments from Kazakhstan and Russia. CPC operations play a highly important role in the development of major fields in the Caspian Region. Production increase by Shippers is viewed as the key driver of CPC economic performance. Likewise, CPC capacity expansion means guaranteed sustainability of operations for oil producers shipping crude oil through the pipeline. The Expansion Project implementation will help raise the Consortium to a new economic level.
The currently growing production in Kazakhstan outpaces the development of export pipeline capacities in the region, making it obvious that CPC capacity expansion is very important now. The expanded pipeline system will be receiving crude oil from fields that have already been providing crude oil to CPC, e.g. Tengiz and Karachaganak fields. Tengiz field production volumes have significantly been increased in the recent years and the current plan is to continue the increase in oil recovery. Oil flow is also expected from new Caspian fields such as Kashagan Field in Kazakhstan and Filanovsky Field in Russia.
Expansion Project parameters have been estimated based on long-term oil shipment nominations from CPC Shippers. These plans are realistic because they are supported by crude volumes guaranteed under Ship-or-Pay Agreement. The Agreement was signed with each Shipper and will remain in full force and effect until pay-back period for the Expansion Project costs is over.
Phase-by-phase construction is anticipated with each phase resulting in the increased throughput and loading capacity. Project Phase 1 involves refurbishment of the existing CPC facilities, including replacement of 88 km pipeline in Kazakhstan as well as construction of the third SPM and three tanks 100,000 cum each at the Marine Terminal, which will allow to achieve up to 35 MTA capacity from the current level of 28 MTA (CPC is currently shipping 34-35 MTA per annum by using Drag Reducing Agent. Project Phase 2 aiming to increase the capacity up to 48 MTA by building five new PSs. Project Phase 3 targeting construction of another five new PSs and three tanks 100,000 cum each and the increase capacity up to the designed 67 MTA.
The current Project Expansion value is estimated at $5.4 bn, as stated in the Project Budget. Project Financing Plan was approved under which the key source of financing is CPC own funds generated from Base Business profit (which was increased due to the reduced interest rate of 6%) and Shareholders Loan Deferral. Should the funds deemed insufficient, CPC will use foreign loans.
The Expansion Project TEO successfully underwent a state expert review in April 2009 and the project received a positive environmental expert review opinion.
The design makes a primary focus on environmental protection and strict compliance with Russian and Kazakhstan environmental safety laws. The Company’s business concept hinges on the recognition of the fact that human life and health safety and environmental impact prevention come above any economic value. The work is planned in such a way as to minimize or eliminate any negative impact on arable land, forests or other ecosystems, including fluvial flora and fauna of rivers in close proximity to the pipeline route. Construction will be carried out through application of well-proven technologies and equipment and the latest state of the art developments in the oil pipeline transportation industry.
Facilities construction in the CPC pipeline transit regions and increased oil shipment volumes will allow for a significantly increase of the taxable base.
About 30% of the estimated construction costs will be spent to cover labor costs. The Expansion Project will add over 3,000 temporary and 350 permanent jobs.
The launch of the Expansion Project phase will give a new impetus to CPC social programs, including but not limited to the incremental sponsorship aid allocated by CPC to finance social projects and programs in the pipeline transit areas and to support health care, educational and other programs.
The development process was rather challenging for CPC Expansion Project and there is much yet to be done to boost the expanded pipeline system to achieve the full design capacity. So far any challenges experienced by CPC Expansion Project have been successfully managed mainly due to the organic economic model of the project and the common sense. Positive experience gained from the Shareholders cooperation and the effectively coordinated multinational team of professionals will help overcome any challenges and achieve successful execution of CPC Expansion Project.