Throughput reduction is due to objective factors

On 6 October Nikolai Platonov, the general director of Caspian Pipeline Consortium (CPC) addressed the KIOGE-2011 conference held in Almaty with a report dedicated to the Expansion Project and also answered questions from participants of the conference and journalists.

Having related the goals and phases of the Expansion project, he stressed that the investment program for the Project approved by the Shareholders at USD 5.4 bn is all-around substantiated and no revision of it is planned.

The general director also touched upon some issues related to the utilization of the Tengiz-Novorossiysk pipeline at the current stage.

Nikolai Platonov noted that in 2011 CPC plans to load at its Marine Terminal near Novorossiysk about 32 MT of crude oil. Last year the system delivered via the terminal 34.923 MT of crude oil (in 2009—34.574 MT). Thus, the reduction of oil shipment volumes this year will equal 8%.

That situation is due to three causes. The first one is process-related. The consortium is taking a number of steps to maintain the pipeline in optimum condition. In particular, some recoating work is in progress in Kazakhstan requiring pressure reduction in the system. That in its turn affects the throughput volumes.

In addition, Rosneft canceled almost all of its volumes that used to be injected at Kropotkin PS under the Russian quota and redirected those to other channels. That company used to injected about 200-250 kt per month or 2.5 MTA. That was why, according to Nikolai Platonov, some surplus appeared on that section.

Furthermore, the intensity of Marine Terminal operations had to be restricted due to poor weather conditions.

It was the combination of those causes that impacted the throughput volumes. “There is a number of objective factors that are beyond CPC’s control”, summed up Nikolai Platonov.

At the same time the CPC general director stressed that the throughput this year will be greater than the design capacity which is 29.2 MTA.

The company’s CEO forecasts that in 2012 the oil shipment volume through the CPC system will also be a little lower than in 2010 which is due to short-term scheduled shutdowns for the Expansion project's needs. However, it is quite possible that the performance will improve relative to the current year.

Nikolai Platonov stressed that upon the completion of the Expansion Project the volume of Kazakh crude shipped by it will amount to 52 MTA. In addition the CPC system will received Russian producers’ crude from LUKOIL, Rosneft and others.

As the throughput capacity of the pipe increases the CPC shippers will have an opportunity to move additional crude oil volumes using the more economic route and the consortium’s pipeline system, having the ability to replace volumes of oil shipments received from shippers at different delivery points, will become more flexible.

The parameters of the Expansion Project were developed on the basis of long term nominations for oil movement which were submitted by the CPC shippers. The realism of those plans is confirmed by the fact that the crude oil volumes are assured by a ship-or-pay agreement. It was signed with every shipper and will remain in effected until the costs of the Expansion project are paid back.

Caspian Pipeline Consortium owns the Tengiz - Novorossiysk oil pipeline, 1,511 km in total length, that connects Western Kazakhstan fields with the Russian Black Sea coast.

On 1 July 2010 CPC started construction work to implement a project to expand the throughput capacity T MT (using DRA). The project is estimated to cost $5.4 bn. The expansion is planned to be completed in 2015.

CPC Shareholders: Russian Federation – 31% (including Transneft – 24% and CPC Company – 7 %); Kazakhstan 20.75 (represented by KMG – 19% and Kazakhstan Pipeline Ventures LLC – 1.75%); Chevron Caspian Pipeline Consortium Company - 15%, LUKARCO B.V. - 12.5%, Mobil Caspian Pipeline Company – 7.5%, Rosneft-Shell Caspian Ventures Limited – 7.5%, BG Overseas Holding Limited - 2%, Eni International N.A. N.V. - 2% and Oryx Caspian Pipeline LLC – 1.75%.