Last year became symbolic for Caspian Pipeline Consortium in several respects. In October the CPC celebrated 15 years of operation from the beginning of the Company’s business activity. And by the end of the year the record volume of 44,3 mln. tons of crude oil was pumped through the pipeline. The contribution to hitting the record was made by Russian and Kazakhstan Caspian sectors commissioned in 2016 – named after Vladimir Filanovskiy and Kashagan. In the current year the Consortium is planning to complete the expansion of the pipeline system. As a result, its throughput capacity shall grow up to 67 mln. tins a year. General director of CPC, Nikolai GORBAN told “Vertical” about the role of the pipeline in the life of the region, about the development of the Company, and about the plans for the future. As the head of Consortium pointed out, the route of Tengiz-Novorossiysk is more cost effective for the regional shippers. Even for this year it is planned to transport by this route about 65 mln tons of feedstock, including from Caspian fields of LUKIOL. Also, the top-manager admits that the challenging situation in the industry may make corrections in the plans for CPC loading. It may also affect the terms of the expansion project getting to the payback level.
Editor.: Nikolai Nikolaevich, in October of 2001, at the CPC Marine Terminal, near Novorossiysk, first tanker was loaded with crude oil. What role the new pipeline route played in the life of the Caspian region?
N.G.: This role can be called a key role, primarily for Kazakhstan. In 1990-ies the Republic had to determine the destiny for its giant fields, locked-in inside the continent and not having any exits to outside markets. An agreement was signed for creating the consortium, a company was opened, and within the tight timeframe the pipeline was laid to the Black Sea shore. Just the commissioning of CPC allowed to start the industrial operation of these fields. Today, three quarters of the exported oil of the northern Kazakhstan is transported through the Consortium pipeline system. As far as Russia is concerned, the state as a shareholder of CPC gets certain payments as per the share participation. For the last 15 years the Consortium has made a big job. It can most vividly be seen in figures. For example, initially, the pipeline route had five oil pumping stations and in the next year, the number of stations will increase to 15. No less important is that CPC is the socially responsible company which takes part in improvement of people’s lives. The regions where the pipelines was laid were given the new vacancies, taxes, transportation infrastructure, kindergartens, schools, hospitals…
Editor: The CPC structure consists of 11 shareholders from six counties. Do you always manage to balance the interests with so many representatives? Hasn’t it become more difficult to find an agreement after the deterioration of relations between Russia and the West? And the aspirations of external economic activity of Moscow and Astana differ oftentimes…
N.G.: We, as a management, try to consider the interests of all shareholders and prevent from any conflict situations. This requires for serious preliminary work. Before any of the key issues are brought up for discussion at the Board of Directors or Shareholders Council, it shall be thoroughly reviewed by the interested parties. As far as the current operational activity is concerned, it has all been regulated, all the procedures are in place. And normally we have no problems as such.
Editor: What is the cost of transporting by CPC? How much economically attractive is your pipeline route as opposed to other regional pipelines, first of all, to Baku-Tbilisi-Ceyhan?
N.G.: For shippers it is definitely the most beneficial route. We have the lowest tariff - $38 per ton. This was reached, in particular, due to the shorter transportation leg in comparison with BTC, and also due to the availability of proprietary single point moorings at Marine Terminal. I should also add that the CPC is the most safe pipeline as it runs through the politically stable states.
Editor: Has there been any oil leaks, illegal taps and other contingencies for the last 15 years?
N.G.: In the beginning of operation there had been up to 23 illegal taps a year. Last year only three taps were revealed. They were found in the early stage of fabrication and thus had no negative effect on transportation or the environment. The created security system allows to effectively prevent such violations.
Editor: What are the characteristics of the oil transported by CPC in comparison with the main exported grades of oil?
N.G.: Caspian oil – light, with low Sulphur. This grade is of course not unique, but is good in quality and is fairly demanded. The problem of sulphur content in the oil is not an issue for CPC. Our pipe was designed for targeted oil fields of Norther part of Caspian sea, the feedstock of which has nearly the same compound.
Editor: From 2002 CPC has an oil quality bank. Can it guarantee the true evaluation of the received feedstock? Have the shippers ever disagreed with the “verdict” of the quality bank?
N.G.: I can’t remember that we have ever had such cases, let alone the judicial disputes. As it was said before, all the issues of the current activity, including the functioning of the quality bank, are strictly regulated. Besides, the shareholders annually conduct the independent joint audit of the quality bank operation.
Editor: In 2016 CPC has pumped the record volume of crude oil. What oil fields played the key role?
N.G.: Of the 44,3 mln tons 40,8 mln — is the crude oil of Kazakhstan shippers. The main portion was from Tengiz. Another 803 thousand tons were delivered from Kashagan, which was launched in December for industrial operation. Russian producers shipped 3,5 mln tons into the system. In particular, LUKOIL shipped 635 thousand tons from its new Caspian oil field - named after Filanovskiy, another 110 thousand tons – from the oil field named after Korchagin.
Editor: The immediate objective of Consortium is to expand the throughput capacity up to 67 mln tons a year. How is it being implemented? Are the plans for completion of the expansion this year in force?
N.G.: Yes, the plans are in force. Last year we enlarged the Marine Terminal Tank Farm in Yuzhnaya Ozereevka from 700 thousand up to 1 mln tons (quickly built three tanks with a capacity of 100 thousand tons each). Launched the operation of the new oil pumping station PS-4A, filled with crude oil another three PSs, and started its comprehensive testing.
Besides, the Marine Terminal MCC with new SCADA - Supervisory Control and resumed the operation after the major overhaul. This system allows to perform an online monitoring of and control all the stages of crude oil transportation by the Tengiz-Novorossiysk pipeline route: from receiving the feedstock at custody transfer meter to offloading to tankers.
This year the Expansion Project shall be allocated $150 mln USD. In the first half of the year we plan to start the PS-4A and PS-5A in Astrakhan oblast. Then the PS-8 shall be commissioned in Krasnodar krai and PS-5 in Stavropol krai. The last PS within the territory of RF that will be commissioned will be the PS-2 in Kalmykia. And finally, in Kazakhstan the PS-3A is scheduled to be commissioned in the second half of the year.
Editor: What part of works is carried out by Russian contractors? Have the western sanctions affected the project?
N.G.: Within the Russian territory the major part of works have been performed by Russian companies. In Kazakhstan – the works are done by Kazakhstan companies with the involvement of foreign specialists. As for sanctions, I can tell that we were lucky: we preliminarily signed all the contracts and completed major procurements. In foreign countries we were buying only the specific products that could not be produced in CIS. About 80–85% of supplies consists of Russian and Kazakhstan production.
Editor: What is the total cost of the Expansion Project? Who is financing it?
N.G.: Cost of the project is $5,4 billion. Sometimes we find the wrong information that the CPC expansion allegedly has been implemented at the expense of a loan provided by shareholders. I would like to clarify on the matter: the loan was taken during the initial stage for pipeline construction and is in no way connected with the current project. The expansion has been implemented by the finances gained by CPC from its operational activity – transportation of crude oil.
Editor: When the expenses for the system expansion will be paid back? May the return of investment be postponed due to the problems in the oil industry?
N.G.: We expect it would happen in the third quarter of 2020 when we will fully redeem the loan and start to accrue dividends. Of course, it all depends on the transported volumes. The more revenue the quicker we shall pay off the shareholders. If the volumes fall the terms will most likely move.
Editor: How much oil do you plan to transport this year? What is the Kazakhstan and Russian share of the feedstock?
N.G.: Presently the producers are reporting about 65 mln tons. Kazakhstan will produce 54,7 mln, including 10,4 mln from Kashagan. Russia is expected to produce about 11 mln tons, of which 5,4 mln at Filanovskiy and Korchagin oil fields. Probably the designed volume of 67 mln will be reached in the next year.
Editor: By 2019 the LUKOIL is intending to produce at Filanovskiy 6 mln tons a year. Will the full volume from this filed be shipped to CPC?
N.G.: We have such agreements, it was mentioned by the president of LUKOIL, Vagit Alekperov when they were launching the production of the oil field last year in October. Today, all the oil from the Filanovksiy oil field is coming to us. I hope the situation will soon change.
Editor: Will the CPC expanded capacities be demanded if the Company will have to modify plans for production? For example, according to the latest report from the Ministry of Energy the Kashagan will provide less than 9 million tons of oil…
N.G.: We have a request from the oil field operators. I hope all the declared volumes will be shipped. It should be noted that CPC will soon adopt the concept of “pump and pay”. This concept is currently on hold until the completion of expansion project. The final decision on the given issue will be made by shareholders.
Editor: The Kashagan operators decided to ship the oil from the field via three export channels. Why not direct all the volumes to CPC? And don’t you expect any contingencies with the system loading?
N.G.: The CPC route can be used only by shareholders or its affiliated companies. Among the participants of Kashagan project there are those who do not belong to the above categories. Their volumes shall be shipped via different directions. Nevertheless the main share of Kashagan oil shall be shipped by our pipeline route.
Editor: Shall the oil delivery grow and how much from two other Kazakhstan oil fields – Tengiz and Karachaganak?
N.G.: We expect for growth. Tengiz is preparing now for reconstruction of its capacities. As far as I know these works will be finished by 2021 what will add about 12 mln tons more.
Editor: It comes that even the expanded CPC capacities will not be sufficient?
N.G.: As soon as we get the respective requests from producers we will take technical measures for receiving additional volumes. When the pipeline capacity is calculated we should take into consideration the actual need and never bear the unnecessary costs.
Editor: What challenges will the Consortium face after 2017 when the expansion project is finished? Would you expect any more “pain in the neck”?
N.G.: Pipeline system is always a pain. Our main objective is to provide for stable transportation. The CPC oil pipeline is 15 years old – the equipment wears out, needs to be replaced, repaired, modified. The maintaining of the system in operable condition is the technological process requiring permanent care.
IN OCTOBER OF 2001 THE FIRST TANKER WAS LOADED WITH CTRUDE OIL AT MARINE TERMINAL NEAR NOVOROSSIYSK
INITIALLY THE PIPELINE HAD FIVE PUMP STATIONS AND THE NEXT YEAR WE WILL HAVE 15 STATIONS
SOON CPC MAY ADOPT THE CONCEPT OF “PUMP AND PAY”. THIS CONCEPT WAS PUT ON HOLD UNTIL THE COMPLETIN OF THE EXPANSION PROJECT
From Caspian Sea to Black Sea
The CPC pipeline system is one of the major investment projects in the energy sector with involvement of a foreign capital within the territory of CIS. The pipeline with the length of 1511 km connected the oil fields of Western Kazakhstan with Marine Terminal in Novorossiysk. The Terminal is equipped with three single point moorings, allowing to safely load the tankers at a considerable distance from the shore, even at unfavorable weather conditions.
Last year the CPC revenue was $1,6 billion, what is for 7% more than it was in 2015. Total revenue grew for 18%, up to $237 mln.
Neftegazovaya vertikal, #5, 2017