Interview by CPC General Director, Mr. N. Gorban published by RIA Novosti on June 22, 2023
Photo: RIA Novosti photohosting agency
Caspian Pipeline Consortium is the largest international oil transportation project involving Russia and Kazakhstan and ensuring the principal export route for oil from Kazakhstan to the global market. This year, the Consortium completes its large-scale expansion project of the pipeline system. Nikolay Gorban, General Director of CPC spoke of the projects to come, production targets, necessary equipment and competitor companies in an interview to RIA Novosti on the sidelines of St. Petersburg International Economic Forum.
Interviewed by Daria Semenova.
St. Petersburg International Economic Forum was held on June 14-17. RIA Novosti acted as information partner and host photo agency of the forum.
- Mr. Gorban, we meet on the sidelines of SPIEF, can you please share your impressions?
- CPC takes part in the forum on an annual basis, this year is no different, we have a long agenda of meetings with our partners. We actively engage with governors of the four RF regions where CPC operates: Astrakhan Oblast, Republic of Kalmykia, Krasnodar Krai and Stavropol Krai, as well as with representatives of local city administrations of the host regions. There are many matters linked to our interface with the authorities that we address here, among other formats. We also look forward to meeting representatives of the RoK Ministry of Energy.
This year, we are not planning to sign any agreements; many were signed last year, and those were long-term documents. We have a great deal of meetings with our partners dedicated to technical matters, financial services; there are discussion items that came up in the new environment. This concerns, for instance, import substitution.
- Do any of the foreign shareholders attend this year?
- This year, no foreign shareholders of CPC attend the forum.
- Currently, CPC is about to complete a large-scale debottlenecking program. Are you planning any other major projects?
- That is right, as of today, we are about to complete the Debottlenecking Program (DBNP), a minor scope remains to be completed this year. Construction of DBNP facilities at the Marine Terminal is complete. As of now, startup and commissioning has completed, metrology operations and verifications are in progress; that said, new facilities run on operating fluid, i.e., oil. As for other host regions in Russia, work on all DBNP facilities has also been completed.
This and next year, final reports confirming construction completion need to be signed, startup and commissioning need to be completed; registration and administrative work needs to be performed, etc. That being said, currently, the system has reached a capacity that we planned back in 2019: i.e., 82 million tons, including 76 million from Kazakhstan.
I believe that in the long run, the most significant activity for CPC will be partial replacement of the pipeline due to the expiry of piping service life. We have obtained shareholder approval for the first 27 km section. This year, CPC conducts necessary tender procedures. Pipeline replacement project is most likely to be launched closer to the end of the year. Next year, some 400 km will need to be replaced.
- How long will this replacement work take?
- There is no rush, and we are going to take our time. I think we might do this job in 3-4 years. It is quite feasible, and we do not need this done in one year.
- As for pipeline replacement. Are there, or do you anticipate any issues with the equipment?
- This is an issue for all industry players. We were doing our homework and identified 140 key items that we need from alternative manufacturers. Out of 140, we have 136 similar items and can find a replacement.
When it comes to import substitution, our logic and policy are: avoid having everything down and requiring replacement at once. Let’s say, we follow the path of decommissioning. What this means is, when service life of equipment comes to an end, and something needs to be replaced, and we are out of spares - by then, we would have conducted testing and research, and we can either implement or have implemented the findings.
We have deployed this for the 136 key items, and we actively pursue it for the remaining four items. The remaining items are quite significant for us: single point moorings (SPM) that we are planning to replace, floating and submarine hoses. We believe that we are quite successful in working on the ‘problematic’ items. Naturally, all of that work requires technical and research efforts. I think that fabrication of the equipment we need will be available in Russia, and we will be able to make it on schedule.
- Does that mean that currently, equipment is not a big issue?
- It was an issue, some time in the past. Right now, things are more or less stable. I would like to point out that currently, there are no risks of the system being shut down due to lack of spares, repair or replacement capacity. I do not observe any of those risks. It is just that we need a certain amount of time for the equipment manufacturers to match our requirements and take note of our characteristics.
- You have mentioned planned replacement of SPMs...
- That is correct, replacement of two SPMs will take place in 2026. SPM-3 is a new piece, no replacement is necessary. Also, design and fabrication of SPM spares will be performed in Russia. CPC did talk to foreign colleagues, but encountered challenges, so we went ahead and identified other opportunities. Currently, development is in progress, design documents are almost ready for release.
- We believe that, in a few years’ time, we will arrange for fabrication of requisite SPM equipment in Russia.
I think it is achievable, I believe it is. We will do everything to make it happen.
- In view of the current situation with more stringent sanctions in place, has communication with your foreign partners become more complicated?
- Initially, there were issues, naturally.
However, as of today, corporate decision-making works flawlessly. The logic and standards behind decision-making have not changed, but the communication part has. For instance, holding face-to-face corporate events with governance bodies in attendance has become more complicated. We have to pick locations in ‘friendly’ countries that everyone can attend.
– Kazakhstan?
- Primarily, yes. Also, UAE and Turkey. As for daily interfaces, we have secure communication channels that allow us to hold meetings and make decisions. I’m not saying the process is painless, but challenges is no news to us.
- Speaking of the company’s operating results. What was oil transportation volume for the past five months?
Our shippers / shareholders have submitted 67 million tons in nominations for 2023. That being said, as of today, we have shipped 29.5 million tons to global markets.
- What is the anticipated volume at the end of the year?
- Company management’s forecast is rather pessimistic. We believe that the 2023 throughput will be roughly 60-61 million tons of crude oil. Nevertheless, financial results are reassuring. In 2022, CPC ranked 5th in Russia in terms of total amount of dividends paid. At the shareholder meeting in May, a decision was made to start payment of dividends for 2022. Total amount is about USD 1.3 billion.
- What investments are planned for 2023? How will the funds be used?
- Some 200 USD million have been earmarked to complete the Debottlenecking Program. The investment portion of the current operational needs includes replacement of pumps, repairs on the line pipe, site facilities, replacement of valves. Normally, some 100 USD million is allocated to that end. Thus, our investment costs can be easily calculated.
- What is the situation with illegal taps? Is it an issue for the company?
- As of today, we do not have illegal taps. We did not have any last year.
CPC uses the preemption strategy: robust monitoring of the pipeline is in place. On top of foot patrols monitoring the pipeline, on top of leak detection system, we also implement live surveillance of company facilities using UAVs. Perhaps we are just lucky in terms of pipeline location… We are in a region where illegal taps are few and far between - Stavropol Krai, Astrakhan Oblast, Krasnodar Krai. Kazakhstan also looks pretty safe in this regard, but we remain vigilant since we realize that the pipeline remains very attractive in terms of taps.
For what it's worth, I do not think that the issue of illegal taps can be resolved once and for all. We detect a leak and fix it, but trespassers are on the look-out and find new ways of tapping in.
- Recently, Kazakhstan started minor deliveries of oil via the Baku-Tbilisi-Ceyhan (BTC) oil pipeline. Is it much more cost efficient to ship via CPC? How will this diversification reflect on oil transportation within CPC?
- Any oil producer and any country is looking at alternative ways of shipping its produce. That said, as of today, our itinerary is the most cost efficient. First, we use the shortest supply chain that is also easiest for the shippers. Second, transportation costs are much lower compared to all other itineraries. Thus, BTC is not a competitor of ours, at present.
Volumes that Kazakhstan currently ships via BTC or Druzhba are minor. If, for instance, one million is subtracted from our 60 million tons, it is possible to estimate how much that is in percent.
It should also be noted that, starting April 2024, Kazakhstan is planning to increase production at the Tengiz field by 12 million tons. This will not happen overnight, but they will reach those figures within a year. Where do you think those volumes will go?
- Where to?
- We have ensured reserve capacity of our system up to 82 million tons. This will fully cover the needs of the shippers and there will be spare capacities.
- Will other shippers increase their volumes?
- As for other shippers, Lukoil delivers crude oil produced at Caspian fields. That said, those deliveries are stable, they proceed in line with nominations and so far, we do not observe any increase in the volume of oil delivered. The second injection point for Russian oil producers is our PS Kropotkin. However, the numbers are not that big, they deliver roughly 3 million tons a year. Currently, CPC is prepared to intake any new volumes.
- Sanctions becoming more stringent has greatly impacted oil sales markets. In this regard, do you believe that requirements to oil specifications have also changed? Speaking of CPC, what are its oil quality specifications?
- Requirements to specifications have not changed. Neither Asia nor Europe has opened any new oil refineries. That said, every refinery, normally, processes a certain oil grade, with a certain content of sulfur, paraffin, etc. That is why conditions have remained the same, at least for CPC.
Quality specifications of CPC Blend have not changed. The blend has a low sulfur content, just as it did before. CPC blend is in demand for its properties for more than 20 years. CPC system was designed to ship mainly to the Mediterranean, but for more than 10 years now, we deliver way beyond the borders of the region. Our blend is currently shipped to markets across the globe, to refineries of various countries.
- A key subject of the Forum this year has been staffing for businesses. Does your company require new personnel?
- Naturally, any company, specifically operating at the scale of CPC, requires qualified professionals. This is an ongoing effort for the company. Currently, we actively engage with Russian universities and specialized secondary schools. As of last year, personnel turnover was about 6%, which is quite low.
CPC core team is roughly 2,000 people, including PS operators, all of our technical and administrative personnel. On top of that, we have outsourced services, catering, transportation, cleaning, security etc., which is another 4,000 jobs.
CPC team is quite young, with average age being 40-45. Almost all specialists, even those holding regular positions have a higher education degree. The need for qualified personnel is always there, however, the company has a pool of high potential employees.
- What is the situation with injuries and safety at the Company facilities?
- This is a second successive year for CPC with zero injuries, and we are proud of that. The Company stated its commitment to zero injury rate many years ago, and we have been able to keep it up.
CPC will hold its regular Safety Day in Astrakhan in September. This time, the event will be international. Representatives of many foreign companies are going to attend. When they go back home, they are going to share with their teams what they have learned.
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