Robust pipeline construction plans threatened by spreading Asian crisis

Global Industries' Cherokee lay barge installed a 12-in., 10-mile lateral in the U.S. Gulf of Mexico for Discovery project partners Mapco Inc., Tulsa, and Texaco Natural Gas, Houston, a division of Texaco Inc. The lateral, in about 200 ft of water, brings gas from Chevron's South Timbalier 37 platform to Discovery's 30-in. mainline on South Timbalier 41 block. Discovery is a $340 million gas pipeline, processing, and fractionation system located in and off southern Louisiana. The system began receiving gas from offshore producers at yearend 1997. (Photograph by Brian Kanof, courtesy of Mapco.)

• Pipeline Construction, 1998 and beyond [31,043 bytes]

Prospects for worldwide pipeline construction, viewed by operators as 1998 began, were very bright. But as the Asian financial crisis spreads and becomes more entrenched, it casts doubts on previously bullish petroleum and natural gas demand forecasts.

These forecasts underpin pipeline operators' plans for new construction.

Plans for petroleum (oil, condensate, and NGL) and natural gas pipeline installation during the year show a 27% jump over those announced a year ago for 1997 alone. Plans for construction beyond 1998, however, are off from what was envisioned a year ago, by nearly 17%.

More than 67,000 miles of crude oil, product, and natural gas pipeline are planned for 1998 and beyond (see map, p. 38).

Major areas of planned pipeline construction include: North America, especially between Canada and the U.S.; Latin America, especially to bring gas into fast-growing Brazil and booming Chile (see related story, p. 40); Europe's Caspian Sea region to move huge supplies of crude oil; and the North Sea, to bring more gas to meet Europe's burgeoning gas demand.

The latest Oil & Gas Journal pipeline construction data indicate these trends. The data are derived from a survey of world pipeline operators, industry sources, and published information.

But the data behind these trends were submitted before the full effects of the Asian financial crisis had begun to emerge. And, at presstime, industry forecasts for oil and gas demand among formerly booming Asian economies were being trimmed.

Premises and costs

For 1998 only (Table 1 [167,682 bytes]), companies have indicated they expect to complete more than 23,000 miles of oil and gas pipeline worldwide at a cost of more than $26 billion. For 1997 only, companies had predicted more than 18,000 miles at more than $17 billion.

For projects completed after 1998 (Table 2 [174 294 bytes]), companies expect to spend another $50 billion to lay more than 44,000 miles of line. Last year, when these companies looked beyond 1997, they expected to lay more than 53,000 miles, also at a cost of $50 billion.

In these construction estimates, projections for 1998 pipeline mileage reflect only projects expected to be completed by yearend, including construction in progress at the first of the year or set to begin during it. Projections for mileage in 1998 and beyond include construction that might begin this year but will be completed in 1999 or later. Some probable long-term projects are included even if their sponsors will break ground after 1999.

Cost estimates are based on U.S. average cost per mile for onshore and offshore gas pipeline construction, as found in Table 4 of OGJ's most recent Pipeline Economics report (OGJ, Aug. 4, 1997, pp. 44-45). Cost projections assume 90% of all construction will be onshore and 10% offshore. Pipelines of 32 in. OD or larger are assumed to be onshore projects.

Under these assumptions and with OGJ pipeline cost data, here is a breakout of costs by line size:

• Total onshore construction for 1998 only will cost $25 billion.

  -$8.1 billion for 4-10 in.
  -$7.6 billion for 12-20 in.
  -$4.6 billion for 22-30 in.
  -$4.7 billion for 32 in. and larger.

• Total offshore construction for 1998 only will cost more than $1.5 billion.

  -$627.5 million for 4-10 in.
  -Nearly $585.6 million for 12-20 in.
  -$353.2 million for 22-30 in.

• Total onshore construction for beyond 1998 will cost $47.6 billion.

  -$2.8 billion for 4-10 in. pipelines.
  -$10.4 billion for 12-20 in.
  -$14.6 billion for 22-30 in.
  -Nearly $19.8 billion for 32 in. and larger.

• Total offshore construction for beyond 1998 will cost more than $2.1 billion.

  -Almost $215 million for 4-10 in.
  -More than $802 million for 12-20 in.
  -$1.1 billion for 22-30 in.
  

Canadian gas for the U.S.

By far the biggest North American story for the last 2 years has been activity to move Albertan and northeastern British Columbia gas into the U.S.

Alliance Pipeline proposed in June 1996 to build a system that would bypass Alberta's NOVA Gas Transmission system and thus reduce costs to Canadian shippers. Alliance proposes a 1,864-mile, 1.3 bcfd line from western Alberta to near Chicago (OGJ, Aug. 27, 1997, p. 29).

That proposal prompted a couple of other proposals and talk of several more. It also forced NOVA to re-evaluate its "postage stamp" transportation rate within the province, and it has spurred the interprovincial carrier TransCanada PipeLines Ltd. to revise its facilities proposal to respond to the implicit competition of Alliance or something similar.

And the recently announced planned merger of NOVA and Trans Canada (OGJ, Feb. 2, 1998, p. 30) seems clearly a response by both companies to a perceived threat from Alliance.

From the first, the line has been opposed by NOVA, which says the Alberta section will duplicate its pipeline facilities. Talks on a possible deal between NOVA and Alliance failed last year.

Alliance is unique in its plan to carry not only gas but also liquids in a high-pressure, dense-phase line from Alberta to near Chicago, with the liquids stripped out and resold somewhere south of the Canada/U.S. border.

In April of last year, the U.S. Federal Energy Regulatory Commission (FERC) approved the U.S. portion of the pipeline (OGJ, July 14, 1997, p. 24), subject to completion of an environmental review. Alliance partners, consisting mostly of Canadian gas producers, hope to begin service by late 1999. Approvals from Canadian regulators are still pending.

For systems competing with Alliance's efforts, Canada's National Energy Board (NEB) recently approved an $824.5 million (Canadian) natural gas pipeline construction program proposed by TransCanada. The line will cross Saskatchewan, Manitoba, Ontario, and Quebec and includes 192 miles of pipeline looping, 11 compressor units, and additional metering facilities at five existing stations. Completion is planned for November 1998.

This will add about 352 MMcfd of firm transportation service from Empress, Alta., and 65 MMcfd of short-haul firm transportation service from St. Clair, Ont. About 16% of the capacity is for domestic consumption.

At presstime, it was unclear what effect, if any, the NOVA-TransCanada merger would have on TransCanada's construction plans (see related story, p. 42).

Other plans to move western Canadian gas to the U.S. are also afoot.

The NEB approved an application by Foothills Pipe Lines Ltd., Calgary, to build an $18 million (Canadian) decompression/recompression station at Empress to provide about 690 MMcfd of incremental natural gas export capacity (a 45% increase) for the eastern leg of the pipeline expansion starting Nov. 1, 1998.

And Canada's Northern Pipeline Agency approved Foothills' design for the rest of the $167 million project, which calls for 71 miles of 42-in. pipeline. Gas delivered through Foothills' eastern leg is shipped to U.S. Midwest markets in the Northern Border pipeline.

FERC in 1997 approved a plan to double capacity of the Northern Border pipeline system to 1.5 bcfd. The plan, which competes for some of Alliance's customers, would bring gas from Foothills to Ventura, Iowa, and into the Chicago area. The project is slated for completion by November of this year.

On the eastern side of the continent, activity to bring Sable Island gas off Nova Scotia to the Maritimes provinces and on into the U.S. has pushed projects closer to realization. Last month, Mobil Corp. announced that construction had begun on the Sable Offshore Energy Project to bring as much as 460 MMcfd of gas and 20,000 b/d of NGL ashore f(OGJ, Jan. 19, 1998, p. 26).

Initial construction will include laying more than 250 miles of pipe. Eventually, the gas is targeted for the U.S. Northeast and has spawned a flurry of planned pipelines for eastern Canada and the U.S.

One year ago, Portland Natural Gas Transmission System (Pngts) and Maritimes & Northeast Pipeline applied to FERC to construct about 100 miles of 30-in. jointly owned pipeline in the U.S. and an interconnection with the upstream portions of the proposed 290-mile Pngts system and the 729-mile Maritimes & Northeast system.

Also, Maritimes & Northeast signed a precedent agreement to deliver 90 MMcfd of gas to Nova Scotia Power Inc. The deal followed a 25 MMcfd agreement with New Brunswick Power Corp.

Maritimes & Northeast also signed precedent agreements to deliver as much as 45 MMcfd of natural gas to Irving Cos.' St. John, N.B., refinery and pulp and paper plants starting Nov. 1, 1999, and as much as another 40 MMcfd for cogeneration at the same sites. The deal with Irving, the third concern to sign a precedent agreement with the pipeline sponsors, prompted preliminary siting and other work to build a spur from the main line to St. John.

More U.S. activity

Activity is similarly heating up south of the U.S.-Canada border as a result of efforts to move Canadian gas to U.S. markets.

Texas Eastern Transmission Corp. in 1998 plans to boost gas capacity by 250 MMcfd through its Lebanon lateral pipeline in Indiana and Ohio. The $31-million expansion will provide more capacity for the company's Spectrum project to move as much as 500 MMcfd of gas from Chicago to U.S. East Coast markets. There, the gas could compete with Canadian gas moving from the Sable Island project.

Texas Eastern's project will involve installing an additional 17,000 hp at two compressor stations. Texas Eastern's ultimate capacity in the 114-mile Lebanon lateral will be 650 MMcfd.

In an open season, PanEnergy Corp. received nominations for more than the 500 MMcfd in capacity nominations it sought for the proposed Excelsior and Spectrum gas pipelines from Chicago to eastern U.S. markets (OGJ, Mar. 31, 1997, p. 38). The projects create new systems by connecting existing pipelines with expansions to new areas.

And partners in the Viking Voyageur gas pipeline project revised plans for the 775-mile pipeline from Emerson, Man., to near Joliet, Ill. The application submitted to FERC is for a 42-in. line, rather than the planned 36-in. line. The change increases line capacity to 1.4 bcfd from 1.2 bcfd.

Field work on the line began last year, construction is expected to begin early in 1999, and first gas delivery is slated for November 1999. Partners are Northern States Power Co., Trans Canada, and Nicor Inc.

Tennessee Gas Pipeline Co. has disclosed initial plans for its Eastern Express Project 2000, an extension of the Eastern Express project, all part of an effort to move 400-500 MMcfd of incremental supplies to the New York City area.

And Northern Natural Gas Co. disclosed that its East Leg 2000 open season resulted in requests totaling more than 650 MMcfd, exceeding the target volume of 450 MMcfd. The project will involve construction of a branch line, border station infrastructure, and mainline loop, all to be operating by Nov. 1, 1999, to move gas from Canada to Iowa, Illinois, and Wisconsin.

In addition, Crossroads Pipeline Co., subsidiary of Nipsco Industries Inc., along with CNG Transmission Corp. and East Ohio Gas Co., have proposed to deliver natural gas from U.S. and Canadian supply basins through the Chicago area to eastern U.S. markets. Crossroads said a 20-mile pipeline to link Chicago to the U.S. East via Crossroad's existing interconnection with Natural Gas Pipeline Co. of America could be in service by late 1999. Crossroads also has interconnections with Panhandle Eastern Pipeline Co., Trunk line Gas Co., and Columbia Gas Transmission.

Elsewhere in the U.S., several projects in the Gulf of Mexico are planned or proposed to fill out the already extensive gas system there.

Williams Field Services has laid a 35-mile, 10-in. gas gathering pipeline from Green Canyon Block 205 Genesis field to a connection with Transcontinental Gas Pipe Line in the Ship Shoal area of the Gulf of Mexico. And Nautilus Pipeline Co. of Houston received FERC approval for its 101-mile, 600-MMcfd line in the central gulf.

FERC approved the $308 million, 210-mile Destin pipeline to transport up to 1 bcfd to interstate pipelines in Mississippi. Construction of the 76-mile offshore leg has begun; onshore pipelaying will begin in March 1998, with an in-service target of July 1998.

Latin America: gas for power

One of the most important and largest pipeline projects in South American petroleum history is picking up speed: the 1,900-mile Bolivia-to-Brazil gas pipeline. The initial 32-in. system will include 345 miles in Bolivia between Rio Grande and Puerto Suarez near the Brazilian border and 324 miles from Corumba, Brazil, on the countries' border to near Campo Grande, Brazil.

The Bolivian section will be complete by yearend 1998; the Brazilian, by first quarter 1999. The main line eventually will stretch as far as Sao Paulo, with laterals carrying gas southward through the states of Paran , Santa Catarina, and Rio Grande do Sul to Canoas on the outskirts of Porto Alegre.

The pipeline is part of efforts to secure fuel for electric-power generation for growing populations of Brazil.

Elsewhere in South America's Southern Cone, another project to bring Argentine gas to Chile is underway, following the formal dedication in August 1997 of the GasAndes pipeline from La Mora in Argentina to Chile's capital Santiago (OGJ, Apr. 21, 1997, p. 61).

Construction began late last year by Gasoducto Atacama Cia. Ltda. on a 300-MMcfd, 914-km, 20-in. natural gas pipeline from Argentina's Neuquen basin to a combined-cycle, electric power plant being built at Mejillones, Chile (OGJ, Jan. 5, 1998, p. 29). GasAtacama is a joint venture of CMS Energy Corp. and Endesa 40% each, Pluspetrol Energy 16%, and Astra Capsa 4%.

Construction of the 414-km Chilean leg will be completed by November. Argentina has yet to approve its portion of the line.

Elsewhere in Latin America, last year saw important, if symbolic developments in Mexico:

• The first privately owned and operated gas pipeline in Mexico started up in December. Under a $20 million contract, Willbros Group designed and built a 45-mile, 24-in. gas pipeline joining El Paso Natural Gas Corp.'s system at its Hueco compressor station east of El Paso to the Samalayuca I and II power plants in Chihuahua, Mexico (OGJ, June 17, 1996, Newsletter). The line is moving 70 MMcfd to Samalayuca I; Samalayuca II will begin receiving gas later this year.

• In October, Energ!a Mayakan SRL de CV, a joint venture of Trans Canada, Bechtel Corp.'s International Generating Co. unit, and Mexico's Gutsa Construcciones SA, received approval to build and operate a natural gas pipeline to supply customers in the Yucatan Peninsula for 30 years.

The $260-million, 700-km pipeline will originate at Ciudad Pemex, Tabasco, and deliver gas to industrial customers in Campeche and Merida. Initial deliveries of 270 MMcfd are slated to start in September 1999. TransCanada will own and operate the line in a 26-year contract (OGJ, Jan. 26, 1998, p. 54).

The two pipelines reflect Mexican efforts to liberalize and open up the gas-transmission markets to non-Pemex companies.

Caspian Sea, Europe

Oil from the Caspian Sea region should begin flowing early this year through a rehabilitated line between Baku and the Russian Black Sea port of Novorossiisk. The movement will mark a breakthrough in a continuing political impasse for moving some of the region's vast oil reserves to world markets.

Another rehabilitated line between Baku and the Georgian port of Supsa could supplement the more northerly route and cost more than $1.5 billion to complete. But, together, these lines will quickly become inadequate to handle anticipated increasing volumes.

A second, new line along the Baku-Novorossiisk route is possible, with a capacity of 1 million b/d and costing around $2 billion. But oil, whether in Novorossiisk or Supsa, must move to the Mediterranean Sea to reach world markets. And that could involve moving across the Black Sea and through the narrow, already crowded Bosporus straits a route the Turkish government would like to discourage. It wants the oil to continue south from Supsa along a new 1,235-mile pipeline to the Turkish Mediterranean Sea port of Ceyhan at an estimated cost of almost $3 billion.

Each route involves the Azerbaijan International Operating Co., a group of 11 international oil companies headed by Amoco Corp. and BP, and stems from their $8 billion plans to develop offshore fields Azeri, Chirag, and Guneshli. Reserves in these fields are estimated at 4 billion bbl.

Another group, the Caspian Pipeline Consortium, has announced plans to build a 900-mile oil line from Tengiz, Kazakhstan, around the north of the Caspian Sea and across Russia to Novorossiisk. This group includes Chevron Corp. and Mobil Corp. and is shooting for a start-up capacity of 560,000 b/d with ultimate (2012) capacity of 1.3 million b/d. Again, however, the oil must get from Novorossiisk to world markets beyond the Bosporus.

The most direct route out of the region would involve a pipeline directly south from Tengiz, across western Turkmenistan, and over Iran to the Persian Gulf. U.S. sanctions targeting companies' doing business with Iran, however, makes this route problematic.

Moving natural gas out of the region has also met with some political obstacles.

Unocal Corp. is the major stakeholder in Central Asia Gas Pipeline Ltd. (CentGas), a group of Turkmenistan and six international oil and engineering firms. CentGas plans a 2 bcfd, 790-mile line from southeastern Turkmenistan through Afghanistan to Lultan, Pakistan, at an estimated cost of almost $2 billion.

After nearly 2 years of planning, including talks with Afghanistan's Taliban leadership, it appears that the project will go forward. A 400-mile, $600 million extension to New Delhi is being considered.

And Royal Dutch/Shell has been given approval by the governments of Iran, Turkmenistan, and Turkey to proceed with plans to build a 1,500-km, $1.6 billion gas line from Turkmenistan via Iran and Turkey to European markets.

Plans to move gas via pipeline for consumption by countries within the region are moving ahead briskly.

Turkmenistan has built a 200-km gas line from its Korpedzhe field into the northern Iranian gas grid at Kord Kuy. The 4 billion cu m/year line will double capacity by 2006.

And Turkmenistan has signed an agreement to supply Turkey, via pipeline, with 15 billion cu m/year of gas. Turkey already had in place a contract with Russia for 3 billion cu m/year via a 1,200-km pipeline across the Black Sea.

Elsewhere in Russia, plans were disclosed last month for an oil pipeline from the Timan-Pechora oil fields in Russia's Komi republic to a new port at Primorsk near Leningrad or to the Finnish oil terminal at Porvoo on the Gulf of Finland.

The system would carry 140,000 b/d of oil, with possible expansion to 600,000 b/d by 2010. Were the line to use the Primorsk route, it would be 2,718 km, of which 1,885 km already are in place and 833 km would be needed.

On the gas side out of Russia, Wingas, a 65/35 joint venture of Germany's Wintershall AS and Russia's Gazprom, started work last year on a new pipeline link for gas into Germany from Russia's Yamal Peninsula. The Jagal pipeline will extend 330 km from Mallnow in Brandenburg to Ruckersdorf in Thuringia, where it will join up with the existing Stegal gas pipeline in Germany.

The 48-in. Jagal pipeline will be able to move as much as 28 billion cu m/year of gas and will cost more than $560 million. It is due for completion in mid-1999 and will form part of the Yamal-Europe pipeline system, which will carry Russian gas more than 4,000 km from western Siberia to European markets.

Gazprom also last year took its plans to diversify its entry points to the European gas market a step further in an agreement with Finland's Neste Oy. The two companies have formed a 50-50 joint venture to build a pipeline to take gas from Russia to Finland and then on to Sweden and the European Union gas market.

Russia currently exports 3.5 billion cu m/year of gas to supply Finland's domestic market. Under the agreement, Finland will increase its consumption to 4.5 billion cu m/year in the next few years.

The venture plans to lay a pipeline to carry about 45 billion cu m/year of Russian gas to Nordic and European markets by 2005.

New contract volumes for Russian gas to supply Italian demand will be satisfied with expansion, currently being planned, of a supply line from Slovakia across Austria. Italy's SNAM SpA says the new contract will need a third pipeline of 378 km, 40 in. and an expansion (20 MW) of Baumgarten station. Gas supply will begin in October 1999.

Asian question mark

A great many transportation projects are on tap for Asia, most of which are tied to power-generation plans to supply growing markets, especially in Indonesia, Thailand, and China. Virtually every part of the region, however, has been hit by the deepening financial crisis, and previous optimistic scenarios for energy demand have all been revisited and trimmed.

Here are some that could nonetheless survive, even if in contracted form:

• Russia and China have spent 3 years studying two pipelines linking the nations and working on agreements for an early start.

One of the lines would connect gas fields in Russia's Irkutsk region with Rizhao in eastern China's Shandong province, with a possible extension to South Korea and Japan. The other pipeline, from western Siberia to China's Shanghai through the Xinjiang Uygur Autonomous Region, would ease energy bottlenecks in booming eastern and southeastern China. The entire 3,500-km network could cost as much as $10 billion and take 8-10 years to complete. Peak transportation capacities could reach 20 billion cu m/year.

• Chevron Asiatic Ltd. will install a $2 billion (Australian) natural gas pipeline between Papua New Guinea and Australia. The line will pass through the Torres strait.
• Enron and Shell are moving toward construction of a Bangladesh-to-India gas pipeline that will tap gas reserves in Myanmar, India's Tripura state, and Bangladesh.
• Nearby, the Myanmar section of a Myanmar-to-Thailand line has been completed, but the 260-km Thai section is under attack from environmental and human rights activists.

Copyright 1997 Oil & Gas Journal. All Rights Reserved.