The pipeline prepares to receive over 60 million tons of oil
Next year Caspian Pipeline Consortium (CPC) will finish a project to expand the largest pipeline in the region. When the company plans to repay the shareholder debt and whether the quality of oil will get worse after the new Caspian fields go in production is related by Nikolay Gorban, CPC General Director.
Rossiyskaya Gazeta: It was planned that the pipeline should have increased its capacity already this year. Was the Expansion project delayed because the production did not grow, or were there other reasons?
Nikolay Gorban: The main reasons for the delay are connected with technological difficulties that arose in the course of the implementation of the project. There were also some contractors with whom it was necessary to part company, and problems with equipment deliveries, receiving land allocations, and construction licenses. Eventually, all problems were solved but the schedules slipped.
RG: Where is it more difficult to receive a land allocation – in Russia or Kazakhstan?
NG: In Kazakhstan no problems arose with land, while in Russia there were difficulties that were caused, primarily, by a change in cadastral legislation. Some regions turned out to have disputed territories and therefore it was difficult to complete formalities required for land allocations. That is one of the reasons which influenced the schedule slippage.
RG: How much oil will pass through CPC this year and how much is expected next year?
NG: In November we have approached 40 million tons. It was expected that this year it would be 45 million tons, however achieving this figure largely depends on production levels from new fields of Filanovsky and Kashagan, wich are now delivering oi to CPC., For 2017, our shipers have submitted nominations for pumping more than 60 million tons. We hope that the producers will meet the production schedule. CPC will be ready for such volume. By late Q3 – early Q4, 2017, all pipeline expansion work will be completed.
RG: Why is not all oil from the Kashagan field going to go into your pipe?
NG: The Kashagan field is being developed by a consortium of companies. The KazMunaiGas Atyrau-Samara pipeline will receive oil from producers who are not included in the CPC shareholder group. CPC Shareholders and their affiliates send oil into our pipe. Currently (note: as of November 24) already over some 500 thousand tons have been pumped from Kashagan through the CPC system, let us hope that there will be no upsets and we will reach 1 million tons by the end of the year. For the next year the Ministry of Energy of Kazakhstan has announced plans for production of 12 million tons in Kashagan. As a rule, their forecasts come true.
RG: Is the share of Russian oil in CPC growing?
NG: For many years, the volumes have been stable – at about 5 million tons per year. However now deliveries are going to increase owing the Filanovsky field being commissioned in October. This year about 1 million tons will be received. Oil from another Lukoil field, Korchagin, that used to go into the Baku-Tbilisi-Ceyhan (BTC) pipeline earlier, is now going into CPC. For next year "Lukoil" has submitted a nomination for pumping about 5.4 million tons.
RG: Would the quality of the CPC blend become worse once large volumes from the new fields start going into its pipeline?
NG: The CPC Blend is low-sulfur, lighter than Urals. Kashagan and Filanovsky oils are not too much different from the oil which is already coming into the pipeline. We knew that in advance – based to analysis of preliminary batches. So the quality will not become worse. But, in any case, the oil shippers are running no risk because since 2002 CPC has been using a quality bank which has set average oil parameters. If a company delivers lighter oil, with a smaller quantity of sulfur, it gets a premium. If the parameters are worse than the average, penalties are imposed.
RG: The CPC pipeline is expanded through construction of new oil pump stations. Wouldn’t the pumping costs increase?
NG: Of course, at first, when financial investments go into a project, it affects the cost of pumping. But as volumes increase, unit transportation costs per ton of oil decrease. The profitability of the CPC pipeline system will remain at the level of 65%.
RG: Were any new technologies used during construction?
NG: Some new things were used, but I wouldn’t say it was a know-how. For example, an integrated surge relief system implemented in the CPC pipeline that reacts to any fluctuations in the oil pipeline is also used in the Transneft pipeline system. But we are proud that in October we started after an upgrade the main control center at the Marine Terminal in Yuzhaya Ozereevka where all sensor signals go. After the Expansion their number has increased from 80 thousand to 200 thousand. The control center has an equipped room for training operators and dispatchers, there is a simulator that allows to model any pumping modes in real time. All CPC employees responsible for decisions regarding operation parameters– from Tengiz to Novorossiysk – will be trained there.
RG: Did the economic sanctions affect the Expansion project?
NG: They did not. All necessary equipment had been contracted and purchased in advance. And we do use not a lot of imports and these imports we do use are not impacted by sanctions. In terms of its cost, the ratio of Russian products adds up to 60-65% in the total quantity of equipment purchased for CPC. It is necessary to import pumps, high-precision equipment – things that l Russian and Kazakhstan manufacturers cannot offer yet .
RG: You expect to double annual revenues after pipe capacity increase. How much is it necessary to pump in order to receive $2 billion?
NG: At least 67 million tons per year, but this volume is possible if a drag reducing agent is used. Without it, the pipe can move no more than 62 million ton.
RG: When will the shareholders begin to receive dividends from the CPC pipeline?
NG: We are already paying back to the shareholders the borrowed funds. Last year the consortium returned to the shareholders $1.5 billion, this year we will return $1.2 billion, for next year we are planning about 1.1 billion. Everything depends on throughput. If the volumes are confirmed, we will be able to return more. In 2020, we hope to begin paying dividends.
Yakovleva-Ustinova
Rossiyskaya gazeta, December 19, 2016