SPECIAL REPORT: 2007 construction lags 2006, but more projects lie ahead

Feb. 19, 2007
Planned pipeline construction to be completed in 2007 slipped nearly 13% from the previous year, driven by the 2006 completion of large crude pipelines.

Planned pipeline construction to be completed in 2007 slipped nearly 13% from the previous year, driven by the 2006 completion of large crude pipelines. Plans for 2007 construction of both natural gas and products pipelines expanded, however, despite the year-on-year decline in the total number of miles set for completion.

Operators plan to complete installation of more than 10,000 miles in 2007 alone (Table 1), with natural gas construction making up 71% (nearly 7,200 miles) of the plans, based on reports from the world’s pipeline operating companies and data collected by Oil & Gas Journal.

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Looking forward, to 2007 and beyond, greater mileage is planned in all three pipeline categories (crude, natural gas, and products) than had been the case last year, with the US passing the Asia-Pacific as the region with the most construction planned.

US natural gas prices remained sufficiently strong to keep large infrastructure projects such as pipelines moving forward in 2007, particularly when coupled with expectations of continued growth in demand. A surge in natural gas pipeline activity is also likely this year in Asia-Pacific, driven by a combination of Chinese demand and Central Asian, Russian, and Southeast Asian supplies.

By contrast, natural gas pipeline plans in the Middle East, Latin America, and Africa tailed off, with a good deal of work completed in 2006 and therefore no longer on the books.

Plans for construction of product pipelines in 2007 grew in the US and Europe, with natural gas liquids transportation keying US growth while olefins lines led the way in Europe.

As 2007 began, operators had announced plans to build nearly 67,000 miles of crude oil, product, and natural gas pipelines beginning this year and extending into the next decade (Fig. 1), a substantial increase over data reported last year (OGJ, Feb. 13, 2006, p. 57) in this report.

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The vast majority (more than 70%) of these plans is for natural gas pipelines, but this was down somewhat from the previous year, with the difference split roughly evenly between crude and product plans.


The continued up-tick in worldwide pipeline construction trends follows US Energy Information Administration energy consumption forecasts, which also show continued growth.

EIA forecast world marketed energy consumption to increase by 71% through 2030 (using a 2003 baseline), a period that encompasses the long-term pipeline construction projections stated here.

Energy demand growth will be strongest, according to the midyear 2006 analysis, among emerging economies, with the most rapid growth seen in non-OECD Asia (which includes India and China), where demand will nearly triple over the projection period.

Fuelling this energy demand growth is a projected gross domestic product growth in non-OECD Asia of 5.5%/year through 2030-led by China at 6%/year, the highest projected growth rate in the world-compared with 3% worldwide.

Structural issues that have implications for medium to long-term growth in China include the pace of reform affecting inefficient state-owned companies and a banking system that is carrying a large number of nonperforming loans, according to EIA.

Last month, EIA reduced projected US energy consumption in 2030 to 131.2 quadrillion btu, 2.7 quadrillion btu lower than the previous year’s projection. Even with this 2% drop, however, energy consumption will still increase more rapidly than energy production, with net imports therefore playing an increasingly important role in meeting demand.

Of particular note in this regard is the gap between US natural gas demand and production. EIA projects US natural gas production in 2030 of 21.15 tcf/year, compared with the 21.45 tcf/year projected in December 2005. After a 2015 peak at 4.6 tcf/year, EIA sees lower 48 offshore production declining to 3.3 tcf/year in 2030, as investment is inadequate to maintain production levels.

EIA, however, made an even larger downward revision in its projections of natural gas consumption in 2030, now pegged at 26.9 tcf/year vs. the 27.7 tcf/year projected a year earlier. High natural gas prices in the US will likely discourage construction of new natural-gas-fired electricity generation plants between now and 2030, with more coal-fired wattage planned instead.

Even so, net imports of natural gas will increase at a 1.5%/year between now and 2030 in order to meet the forecast 0.7%/year increase in natural gas consumption while production increases 0.5%/year.

Canada will remain the primary source of US natural gas imports until 2010, according to EIA, after which LNG will replace Canadian imports as the primary source. Production declines and a 1.9%/year growth rate in Canadian consumption will leave less Canadian gas available for export to the US.

LNG imports will, therefore, meet much of the increased demand for natural gas, with EIA’s baseline projection seeing a more rapid increase in LNG imports than was projected a year earlier. Liquefaction project delays, supply constraints, and rapid growth in global LNG demand will keep the US LNG market tight until 2012, according to EIA.

Total net imports of LNG to the US in EIA’s 2007 reference case will increase to 4.5 tcf/year in 2030 (0.2 tcf/year higher than the 2006 projection) from 0.6 tcf/year in 2005.

Regardless of how future natural gas enters the country, however, it will have to be brought to the end-user via pipeline, as will future unconventional domestic production and any new supplies from Alaska.

OGJ has for more than 50 years tracked applications for US gas pipeline construction to what is now called the Federal Energy Regulatory Commission. Applications filed in the 12 months ending June 30, 2006 (the most recent 1-year period surveyed), suggest a continued strength in terms of US interstate pipeline construction.

• Some 1,414 miles of pipeline were proposed for land construction, but only 6.23 miles were proposed for federal offshore work. For the earlier 12-month period ending June 30, 2005, more than 1,700 miles were proposed for land construction, with 91.8 miles proposed for offshore work.

Plans, however, remain well above the previous 12-month period ending June 30, 2004, when only 213 miles were proposed for land construction, with no miles proposed for expansions in federal waters.

• In contrast, FERC applications for new or additional horsepower at the end of June 2006 accelerated their recent surge, reaching more than 583,000 hp, all onshore, compared with nearly 175,000 hp of new or additional compression applied for a year earlier and 76,000 hp the year before that.

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Notwithstanding the slight downturn in FERC applications, prospects for oil, natural gas, and products pipeline construction appear healthy (Tables 1 and 2), led by a surge in expected work in the US.

Bases, costs

For 2007 only (Table 1), operators plan to build more than 10,000 miles of oil and gas pipelines worldwide at a cost of $18.3 billion. For 2006 only, companies had planned more than 11,500 miles at a cost of more than $27.6 billion.

For projects completed after 2007 (Table 2), companies plan to lay nearly 57,000 miles of line and spend more than $107 billion.

When these companies looked beyond 2006 last year, they anticipated spending more than $116 billion to lay more than 50,000 miles of line.

• Projections for 2007 pipeline mileage reflect only projects likely to be completed by yearend 2007, including construction in progress at the start of the year or set to begin during it.

• Projections for mileage in 2007 and beyond include construction that might begin in 2007 and be completed in 2007 or later.

Also included are some long-term projects judged as probable (such as at least two pipelines competing to bring Arctic gas to the continental US), even if they will not break ground until after 2007.

US average cost-per-mile for onshore and offshore pipeline construction (Table 4, OGJ, Sept. 11, 2006, p. 46) on FERC applications submitted by June 30, 2006, was $1.9 million and $3.5 million, respectively.

Based on historical analysis and a few exceptions and variations notwithstanding, these projections assume that 90% of all construction will be onshore and 10% offshore and that pipelines 32 in. OD or larger are onshore projects.

Following is a breakdown of projected costs, using these assumptions and OGJ pipeline-cost data:

  • Total onshore construction (9,415 miles) for 2007 only will cost more than $18 billion:
    • $956 million for 4-10 in.
    • $5.2 billion for 12-20 in.
    • $5.8 billion for 22-30 in.
    • $6.4 billion for 32 in. and larger.
  • Total offshore construction (682 miles) for 2007 only will cost more than $2.4 billion:
    • $192 million for 4-10 in.
    • $1 billion for 12-20 in.
    • $1.2 billion for 22-30 in.
  • Total onshore construction (55,223 miles) for beyond 2007 will cost more than $107 billion:
    • $1.5 billion for 4-10 in.
    • $12.9 billion for 12-20 in.
    • $14.9 billion for 22-30 in.
    • $78 billion for 32 in. and larger.
  • Total offshore construction (1,679 miles) for beyond 2007 will cost nearly $6 billion:
    • $303 million for 4-10 in.
    • $2.6 billion for 12-20 in.
    • $3 billion for 22-30 in.


What follows is a quick rundown of major projects in each of the world’s regions.

Pipeline construction projects mirror end users’ energy demands, and today much of that demand centers on natural gas, with much of the industry’s focus being on how to get that gas to market as quickly and efficiently as possible. The following sections look at both natural gas and liquids pipelines.

North America

Natural gas. Competing plans in the Bahamas to import LNG and then pipeline the gas to Florida have slowed, with three competing plans having narrowed to two.

The Calypso pipeline, proposed by Calypso US Pipeline LLC, a subsidiary of Suez Energy North America Inc., is premised on the construction of an LNG terminal at Freeport Harbor on Grand Bahama Island. It would involve installation of 42.8 miles of 24-in. pipe in US territory from the boundary of the Exclusive Economic Zone between Florida and the Bahamas.

The 832-MMcfd project’s estimated cost is $144 million, but discussions with the Bahamian government have slowed to the point that Suez is now planning an offshore Florida LNG port as an alternative. The facility would mirror the design of a Suez port planned for offshore Massachusetts and move gas ashore through a truncated version of the already FERC-approved pipeline.

The 842-MMcfd Ocean Express pipeline, proposed by AES Corp., is premised on the construction of an LNG terminal at Ocean Cay, an industrial site in the Bahamas. It would entail installation of 54.3 miles of 26-in. mostly subsea pipeline from the EEZ boundary to Florida.

Start-up is currently anticipated in mid-to-late 2008. Ocean Express’ estimated cost is more than $264 million.

El Paso Corp. abandoned its own plans for a pipeline from the Bahamas to Florida, citing lack of shipper interest, unresolved environmental issues, and mounting fears the Bahamian government would never act on its application.

Elsewhere in North America, the race to bring Arctic gas south to major US consuming centers continued.

In late October 2005 Alaska signed an agreement with ConocoPhillips regarding the proposed Trans-Alaska Gas Pipeline. The pipeline would run more than 3,000 miles across Alaska, through western Canada, and into the US Midwest and carry 4.5 bcfd. The project is expected to cost $20 billion and projected to take at least 10 years to build.

The Alaskan governor’s office eventually completed negotiations with the other two North Slope producers-BP PLC and ExxonMobil Corp.- but the resulting agreement was not passed by the state legislature.

Included in the state’s proposal were a 30-year term, state ownership in the pipeline, and access to the gas for instate use. Alaska said it would invest $4 billion in the project, $1 billion in cash and $3 billion in financing.

The governor’s office has estimated that the pipeline could generate $2-3 billion/year in revenues for the state once it is operational.

In a February 2006 report, FERC said that further delay of the pipeline could hurt project economics, potentially opening the door for competing proposals. Such proposals could include the $16.1 billion All-Alaska Pipeline, designed to carry gas from the North Slope to a liquefaction plant in Valdez for subsequent shipment to the US West Coast. The project, however, would require an exemption to the Jones Act which requires that ships moving between US ports be US-built, US-owned and US-crewed.

A revised pipeline agreement is expected to dominate Alaska’s 2007 legislative session. Gov. Sarah Palin has scrapped the previous contract and stated the she will open the project to parties beyond the state and the three original signatories.

In Canada, the proposed Mackenzie Valley pipeline would stretch more than 750 miles to transport Mackenzie River Delta gas to Alberta and beyond. Plans call for initial capacity of 1.2 bcfd, expandable to 1.8 bcfd. The project is currently in regulatory reviews.

Numerous issues remain unresolved, however, including land access arrangements. The Deh Cho First Nations aboriginal group in the southern part of the proposed route remains outside the Mackenzie Valley Aboriginal Pipeline Group, which owns 33.3% interest in the project. The other three aboriginal groups have joined the project. In addition to the Aboriginal Pipeline Group, other pipeline partners are Imperial Oil Ltd. 34.4%, ConocoPhillips Canada 15.7%, Shell Canada 11.4%, and ExxonMobil Canada 5.2%

In June 2006, Imperial put on hold its talks with the Canadian government regarding the pipeline, wanting to reassess its increasing costs and their effect on the project’s viability. Third-party cost estimates for the project have grown to $10.5 billion (Can.) or more from $7 billion (Can.) filed by Imperial just 2 years ago.

The following month, the panels reviewing the project said that they would need an additional 5 months to complete their work. Associated delays have pushed start-up back to 2012 at the earliest, beyond both earlier projections that gas would be moving by 2011 and the originally filed estimate of 2009.

Large domestic west-to-east natural gas pipelines also continued to be planned in the US. The Rockies Express pipeline, running 1,323 miles of 42-in. pipe from Cheyenne, Wyo., and Colorado to Clarington, Ohio, is the largest new US pipeline project undertaken in 20 years. The 1.8 bcfd, $3 billion line has firm commitments in place for 900 MMcfd, including a binding 500 MMcfd by EnCana Corp. and a conditional 400 MMcfd from the Wyoming Natural Gas Pipeline Authority.

Kinder Morgan Energy Partners LP will operate the pipeline and owns two thirds of the project; Sempra Pipelines & Storage holds one third of it. In exchange for capacity commitments, some shippers may exercise options for equity in the project, which could give KMP a minimum of 50% and Sempra 25% after construction.

The pipeline, which KPM expects to be completed by June 2009, will be brought on line in three segments.

The first 710 miles, from the Cheyenne Hub in Colorado to an interconnection with Panhandle Eastern Pipeline Co.’s system in Audrain County, Mo., is scheduled to be in service Jan. 1, 2008. It will include transportation of gas from a capacity lease to Questar Corp.’s Overthrust Pipeline and any necessary expansion of Entrega Pipeline LLC, which KPM and Sempra purchased from EnCana Oil & Gas (USA) Inc.

The second segment, to be in service in January 2009, will continue to the Lebanon Hub in Ohio. The third segment, to the Clarington Hub in Ohio, is to be operational by June 2009.

Kinder Morgan Energy Partners LP and Energy Transfer Partners LP will jointly develop the Midcontinent Express Pipeline. The 1.4-bcfd pipeline will be about 500 miles long, originating near Bennington, Okla. It will run through Perryville, La., and terminate at an interconnect with Transco in Butler, Ala. Pending regulatory approvals, the $1.25 billion project will be in service by February 2009. MEP has prearranged binding commitments for 800 MMcfd, including a commitment from Chesapeake Energy Marketing Inc. for 500 MMcfd.

MEP has executed a firm-capacity lease agreement for up to 500 MMcfd with Enogex to provide transportation from various locations in Oklahoma into and through MEP. The new pipeline will also interconnect with Natural Gas Pipeline Company of America and with the ETP 36-in. pipeline extending from the Barnett Shale and interconnecting with ETP’s Texoma line near Paris, Tex.

CenterPoint Energy Gas Transmission Co. and Spectra Energy signed a memorandum of understanding to lay a natural gas pipeline from the Waha hub in West Texas to as far away as Oakford-Delmont, Pa. Previously, CenterPoint launched an open season for Midcontinent Crossing pipeline stretching from Dumas, Tex., to Barton, Ala. Potential shippers expressed interest in extending the proposed pipeline to the US Northeast and became involved because its Texas Eastern Transmission system has pipeline rights-of-way from Arkansas to Pennsylvania.

The 1,600 mile, 42 and 36-in. pipeline was to have a capacity of 1.5-1.75 bcfd and be in service as early as late 2008. CenterPoint and Spectra, however, called off development of the project earlier this month.

Crude oil. Export lines for Canadian crude continued to progress. TransCanada Corp.’s proposed 1,840-mile Keystone pipeline project is designed to transport 435,000 b/d of crude oil from Hardisty, Alta., to Patoka, Ill. In early November 2005 ConocoPhillips signed a memorandum of understanding committing to ship oil on the line, saying that the pipeline would further integrate its upstream assets in Canada with its Wood River, Ill., refinery. The MOU also gave ConocoPhillips Pipe Line Co. the right to acquire as much as 50% ownership in the $2.1 billion pipeline.

Firm long-term shipping contracts for 340,000 b/d, with an average duration of 18 years, were secured in January 2006, prompting TransCanada to move forward with regulatory filings. These filings included a June 2006 application with the National Energy Board for transfer of a 530-mile segment of TransCanada’s Canadian Mainline gas pipeline into service as part of Keystone.

In addition to the 530 miles of converted line, the Keystone system will include about 1,100 miles of new pipeline in the US and 230 miles of new pipeline in Canada. TransCanada filed its application to construct the Canadian section in December 2006.

TransCanada has also hosted open houses concerning a proposal to extend Keystone from Patoka to Cushing, Okla. The Cushing Extension would add about 291 miles of pipe through Nebraska, Kansas, and Oklahoma at an estimated $445 million.

TransCanada plans to have the pipeline in service in 2009.

The Keystone project is one of two competing major systems planned to deliver crude oil from Hardisty to the US Midwest. Enbridge Energy Partners LP, also of Calgary, plans its own pipeline expansion to deliver 400,000 b/d of crude oil to the US.

The proposed Southern Access system expansion will use 42-in. pipe to allow for future expansions of as much as 800,000 b/d on its Canadian mainline from Hardisty, Alta., to the international border near Neche, ND, and new pipeline construction in the US. The new pipeline will be added between Superior, Wis., and Flanagan, Ill., just west of Chicago, on Enbridge’s Lakehead system (Fig. 2).

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The US portion of the expansion will cost $1.04 billion and take place in the three stages. The first stage will add 44,000 b/d of capacity in 2007. An additional 146,000 b/d will be added by early 2008, with the final 210,000 b/d entering service in early 2009.

At Flanagan, the new line will have access to Chicago and will interconnect with Enbridge Inc.’s Spearhead pipeline, which began deliveries to Cushing, Okla., Mar. 1, 2006.

Enbridge also announced in July 2006 that it would construct a $350 million extension to Southern Access, running 286 km of 36-in. pipe from Flanagan south to Patoka, Ill. Construction of the 400,000-b/d line remains subject to regulatory approval. It is expected to begin service as early in 2009 as possible and can later be expanded to 800,000 b/d through the addition of pumps.

Accompanying the Southern Access expansion is Enbridge’s Southern Lights 180,000-b/d Chicago-to-Edmonton diluent pipeline. Shippers have committed to 162,000 b/d, with the balance retained for spot suppliers. Enbridge will build 674 miles of 16 or 20-in. pipe from the Chicago area to Clearbrook, Minn. Enbridge will reverse the flow of its existing Line 13 to carry the diluent from Clearbrook to Edmonton, replacing this volume with a new 20 or 24-in., 185,000 b/d pipeline from Cromer, Man., to Clearbrook and an expansion of its existing Line 2 (Fig. 2).

Preliminary cost estimates for Southern Lights, expected to be in service in 2009, are near $920 million.

Beyond these two projects, Enbridge intends to file a project proposal with NEB early this year for the Alberta Clipper 36 in., 1,000-mile crude oil pipeline with a planned capacity of 450,000 b/d. The line would parallel Southern Access-Southern Lights from Hardisty to Superior; work on it would only begin once the other two projects were complete.

Even with these projects, however, Canadian officials have said that pipeline capacity could pose a greater constraint on future Canadian oil sands development than water or natural gas availability. “Pipeline capacity will be tight by 2007. There will be need for some incremental increases from then until 2009. Beyond that, more capacity will be needed,” said Colette Craig, a resource analyst with the NEB (OGJ Online, June 6, 2006).

Enterprise Products Partners LP signed definitive agreements with producers to construct, own, and operate an oil export pipeline to provide firm gathering services from BHP Billiton-operated Shenzi field located in South Green Canyon, Gulf of Mexico. The 83 mile, 20-in. pipeline will have the capacity to transport 230,000 b/d and will connect the field to the Cameron Highway Oil Pipeline and Poseidon Oil Pipeline systems.

BHP Billiton expects Shenzi production to begin in mid-2009.

Also in Green Canyon, Chevron USA Inc. approved construction of a 55-mile deepwater oil pipeline for its Tahiti project. The company also approved expanding the pipeline from an initially planned 20 in. to 24 in. to handle 300,000 b/d of oil and accommodate additional discoveries in the Walker Ridge and Green Canyon areas.

Tahiti is to start production in 2008.

Products. Overland Pass Pipeline Co. LLC, Tulsa, plans to build a 750 mile, 14 and 16-in. NGL pipeline from gas processing facilities in the Rocky Mountains to a market hub in Central Kansas. The $450 million pipeline will extend from Opal and Echo Springs, Wyo., to fractionation facilities at Bushton and the Conway-Midcontinent NGL market and storage hub. The pipeline will be baseloaded by 110,000 b/d Williams expects its Opal and Echo Springs, Wyo., plants to be producing by 2008. Capacity can be increased to 150,000 b/d by addition of pumping facilities.

Overland Pass intends to start construction in summer 2007 and anticipates that the pipeline will be operational by December 2007. The new company is a joint venture between Williams and Northern Border Partners LP. Northern Border holds a 99% interest in the pipeline and has agreed to reimburse Williams for development costs to date. Williams has an option to boost its 1% interest to 50% and become operator within 2 years of start-up.

Colonial Pipeline Co. received assurance from FERC encouraging it to invest $1 billion in expanding its mainline petroleum products pipeline. To ease constraints on its system, Colonial plans to construct and operate 500 miles of 36-in. pipeline between Louisiana and Georgia to transport at least 800,000 b/d, a 30% increase in capacity. Colonial estimates the project will enter service in 2010.

Kinder Morgan Energy Partners LP plans to invest $388 million further to expand its 550-mile Calnev pipeline, which transports petroleum products from California to Nevada. The proposed expansion, involving construction of a 16-in. pipeline from Colton, Calif., to Las Vegas, Nev., will increase system capacity to 200,000 b/d, transporting products for Nellis Air Force Base. Following its completion, the existing 14-in. line will be transferred to commercial jet fuel service for McCarran International Airport and any future airports planned in Las Vegas.

Pending FERC approvals, start-up of the line is set for late 2009 or early 2010.

Latin America

Intergovernmental meetings continued to be held in 2006 regarding construction of a 7,776-mile pipeline to transport natural gas from Venezuela to Argentina through Brazil, Uruguay, and Paraguay. The line would cost $23 billion and could take 5 years to construct.

Talks culminated in the January 2007 signing of a declaration between Brazil and Venezuela authorizing construction of the pipeline’s first leg, with construction to begin in 2009.

The first 2,950 km (1,832 miles), from Puerto Ordaz, Venezuela, to Maraba, Brazil, calls for 66-in. OD pipeline with 13 compressor stations of 25,000 hp each and 11 city gates. The diameter of the line would gradually decrease to 32 in. as it crosses Brazil from Maraba to Fortaleza to the existing pipeline system that extends along the coast to Salvador, Bahia state.

From Salvador, Petróleo Brasileiro SA is building the Gasene line to Brazil’s north and south systems. Petrobras is investing $3.9 billion in 3 years to build 4,191 km of pipelines as part of this separate domestic project.

A second branch, the main transmission line, would continue south from Maraba in a 1,977 km stretch of 54-in. OD pipe to Sao Paulo state. It would include eight 20,000-hp compression stations and 20 city gates and distribute 42 million cu m/day (MMcmd) in Sao Paulo.

From Sao Paulo the pipeline would be routed to the border between Rio Grande do Sul state and Uruguay and cross Uruguay to Argentina in an 1,875-km section of 38-in. pipe. This section, including eight 15,000-hp compressor stations and 20 city gates, would transport 50 MMcmd, according to study estimates.

Petrobras signed an accord with Goias state to build the country’s first ethanol pipeline, a $226 million, 975-km line to transport 4 billion l./year. The pipeline will run from Goias to a refinery in Paulinia, near Sao Paulo.

Tidelands Oil & Gas Corp received permitting from the Mexican government for both the Occidente and Oriente sections of its proposed Terranova pipeline, itself part of the Burgos Hub Export-Import Project. The Occidente section will use 323 km of 30-in. pipe, running from Brasil storage field to Nuevo Progresso, Mexico, with a proposed international pipeline crossing into South Texas from Mexico at the Donna station.

This crossing will allow interconnections with TETCO, TGPL, and Texas Gas Services. The pipeline will also include a stretch from Brasil to Arguelles, where another proposed crossing into South Texas would facilitate interconnection with Houston Pipeline, Calpine, and Kinder Morgan.

The Oriente section will use 36-in. line spanning 149 km. It will run from a proposed offshore LNG regasification terminal to Norte Puerto Mezquital and from there to the Brasil storage field.

Both lines are designed to flow natural gas bi-directionally between Texas and Mexico at a rate of 1.2 bcfd.


Oil Search Ltd. and Malaysia’s Petronas, partners in the proposed Papua New Guinea-Australia natural gas pipeline, decided to scale back front-end engineering and design activities on the pipeline’s Australian leg even though most budgeted FEED activities had already been completed. AGL cited a dearth of critical foundation customers and escalating costs as the reasons for deciding to table the project, adding that the pipeline is unlikely to proceed without an alternative ownership structure.

The proposed $5 billion (Aus.) Highlands natural gas pipeline would have extended 3,600 km from Papua New Guinea to Queensland, Australia.

Earlier this month, however, Oil Search abandoned the project, maintaining that costs and returns were no longer attractive.

Industrial growth in Western Australia prompted an increase in the size of the proposed Stage 5 expansion of the Dampier-Bunbury natural gas trunkline to handle an additional 375 terajoules/day of natural gas expected to come online in 2007-09. This will require laying 1,150 km of pipeline alongside the existing pipe at an estimated cost of $1.5 billion (Aus.).

The Indonesian government tendered in January 2006 for the construction of a 1,219-km natural gas pipeline between Bontang in East Kalimantan and Semarang in Central Java. The pipeline, estimated to cost $1.7 billion, would carry 700-1,000 MMcfd of natural gas.

PT Bakrie & Bros. won the tender to build and operate the pipeline and in December 2006 said it plans to proceed with the project despite doubt voiced by officials about its feasibility. In January 2007 Indonesian officials said that they were awaiting the publication of reliable figures on the country’s natural gas reserves before deciding whether to proceed with this line. Attention focused on Cepu gas field in Central Java, development of which might make the pipeline redundant.

PT Perusahaan Gas Negara will build its South Sumatra to West Java Transmission Pipeline Project in two stages. Stage 1 will use 375 km of 32-in. pipe to move gas from Pagardewa (South Sumatra) to Cilegon (Banten). Stage 2 will transport natural gas from Pagardewa to Labuhan Maringgai (South Sumatra) and from Muara Bekasi (West Java) to Rawa Maju (West Java) using 100 km of 28 and 32-in pipe.

Indonesia is also considering plans for a 220-km natural gas pipeline between Cirebon and Bekasi in West Java at a cost of $200-300 million.

In Kazakhstan, the government is considering construction of a 20 billion cu m/year Trans-Caspian gas pipeline from Aktau to Baku, with the intent of connecting to the Baku-Tbilisi-Erzurum pipeline. Estimated cost of the project is $3-4 billion.

In China, PetroChina obtained approval from the Chinese government to lay two pipelines to carry oil products from the northern areas of China to the country’s central regions. PetroChina said it will spend about $1.5 billion to construct the two lines, which could be operational before the end of 2007.

One pipeline will extend from Lanzhou, in northwest China’s Gansu province, and carry 8 million tonnes/year of products. The other pipeline will begin in Jinzhou, in northeast China’s Liaoning province, and carry as much as 4 million tonnes/year.

The two lines will meet in Zhengzhou, in the central province of Henan. A planned extension will reach Changsha, the capital city of Hunan province, south of Henan. The pipelines will transport products from refineries processing crude oil received by pipeline from Kazakhstan and Russia.

Kazakhstan and China also agreed in August 2005 to build a 40 to 48-in. natural gas pipeline running from western Kazakhstan to China.

China’s own West-East Gas Pipeline, running 4,000 km from the Xinjiang Uygar Autonomous region to Shanghai and other eastern provinces, entered service in 2004.

The Chinese government is expanding the line to 17 billion cu m/year from 12 billion cu m/year, requiring additional compression.

Kazakhstan is not the only country actively pursuing export projects to China. In early September 2005, Russian President Vladimir Putin confirmed that the long-discussed crude pipeline from Taishet, Siberia, would run to China first, and only later be extended to the Pacific for exports to Japan.

The first stage of the 4,188-km project called for construction of a 2,400-km oil pipeline from Taishet to Skovorodino near the Chinese border and of a rail oil terminal at the Perevoznaya Bay at a combined cost of $7.9 billion. The second stage, depending on development of Eastern Siberian oil fields, involves construction of a pipeline link between Skovorodino and Perevoznaya on Russia’s Pacific Coast.

China looks to import as much as 30 million tonnes/year of crude if a pipeline spur is built from Skovorodino to Daquing, while supplies along the Skovorodino-Perevoznaya route would total 50 million tonnes/year, the bulk of which would be exported to Japan.

In February 2006, however, Russia’s environmental safety supervisory body rejected the proposed route of the pipeline, which would have taken it within 1 km of Lake Baikal, the world’s largest, oldest, and deepest freshwater lake and home to 20% of the world’s fresh water.

The new route is 350-400 km from Lake Baikal but added 1,920 km to the pipeline’s overall length (Fig. 3). Despite this officials remained confident that the project would be completed by December 2008.

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Last month, Russia’s state-owned OAO Transneft reported it had constructed about 530 km of the pipeline. The company plans to lay about 1,250 km in 2007.

The May 2006 agreement over the pipeline route opened the way for exploratory work, the preparation of a technical and economic feasibility study for the projects, and a determination of the line’s final cost. China and Russia began feasibility studies on construction of the spur from Skovorodino to the Chinese border in October 2006.

Russia is also considering construction of an 8 billion cu m/year natural gas pipeline from Okha, Sakhalin Island to China, much of which would parallel a line between Sakhalin and Khabarovsk, Russia, before crossing the border into China.

Construction on several sections of the Sakhalin-2 onshore pipeline system was halted in October 2006 as Russia voiced concerns that environmental laws were being violated. In December, OAO Gazprom agreed to acquire, for $7.45 billion, a 50%-plus-one share stake from Sakhalin-2 project operator Sakhalin Energy Investment Co. Ltd.-Royal Dutch Shell PLC, Mitsui & Co., and Mitsubishi Corp.

Finally, Turkmenistan and China held talks in June 2006 regarding construction of a natural gas pipeline from eastern Turkmenistan to China and joint development of Turkmen gas fields to fill the line. The pipe, planned to begin operations in 2009, would move 30 billion cu m/year.

Turkmenistan also agreed to supply 3.2 bcfd of natural gas to Pakistan over 30 years via the proposed $3.3 billion Turkmenistan-Afghanistan-Pakistan pipeline. India, which attended February 2006 meetings as an observer and earlier had been invited to join the project, expressed its willingness to participate in the 1,680-km pipeline.

A 735-km Afghan segment lies between a 145 km Turkmen length and the final 800 km through Pakistan. An extension off this line is one of the possibilities China and Turkmenistan are considering in their plans.


Work started in early December 2005 on the Russian onshore section of the North European Gas Pipeline in Babayevo. This 56-in. segment will stretch 917 km to the Baltic Sea coast near Vyborg, linking existing gas pipelines from Siberia to the NEGP project. Seven compressor stations will provide the necessary pressure. The pipeline will cross the Baltic, making landfall near Greifswald, Germany. This section will be 1,200 km in length with a 48-in. OD.

The full system is scheduled to start operations in 2010 at a capacity of 27.5 billion cu m/year. The project includes the possibility of building a second, parallel pipeline, doubling capacity to about 55 billion cu m/year.

A joint venture consisting of Gazprom (51%), BASF AG (24.5%), and E.ON AG (24.5%) is building the pipeline. For the two-leg option, the total cost for the offshore project will amount to more than $4 billion (Euro), with Gazprom investing an additional $1.3 billion (Euro) in the onshore section.

The Netherlands, Gaz de France, and Finland have also voiced interest in participating in the project.

Gasunie plans to expand the gas transport network in the Netherlands by 500 km of pipe and four compressor stations at a cost of €1.5 billion. Expansion activities will be focused on the route from northeast Netherlands to southwest Netherlands. Construction is expected to start in 2009 for completion in 2012.

Gazprom is considering an expansion of its Blue Stream natural gas line between Russia and Turkey. The $3.2 billion initial pipeline moved 5 billion cu m of gas in 2005 and is to carry 16 billion cu m/year by 2010.

Medgaz is set to begin construction of the 8 billion cu m/year Algerian-European gas pipeline bearing the same name early this year, having received all regulatory approvals within the scheduled time frames. The project is expected to cost €900 million, with start-up slated for 2009. This figure includes past costs of the project, construction, start-up, and preinstallation of future extension points in the coastal section.

Medgaz’ offshore length is 210 km and it will reach a maximum water depth of 2,160 m. Supplies will come from the Hassi R’Mel-Beni Saf gas pipeline operated in Algeria by Sonatrach. Upon landfall in Spain, the pipeline will link with the Almería-Albacete gas pipeline operated by Enagas, facilitating its connection to the Spanish and European gas grid.

Plans to export Algerian gas via Italy have also progressed, new gas-purchase agreements by five Italian energy companies having been concluded in November 2006.

The companies, Enel, Edison, Hera, Ascopiave, and Worldenergy, agreed to import a total of 6 billion cu m/year of gas from Algeria via the proposed Galsi pipeline connecting Algeria with Italy by way of Sardinia.

Sonatrach of Algeria, Enel, and Wintershall of Germany formed a venture to study feasibility of the pipeline in December 2001.

The project envisions four pipeline segments: 640 km onshore between Hassi R’mel gas field in Algeria and El Kala on the Algerian coast; 310 km between El Kala and Cagliari on Sardinia in water as deep as 1,950 m; 300 km between Cagliari and Olbia on the northern Sardinian coast; and 220 km between Olbia and Pescaia, southeast of Florence, in water as deep as 900 m.

Sonatrach says the Galsi pipeline will have a capacity of 8 billion cu m/year and projects start-up at the end of 2009.

Austria’s OMV Akteingesellschaft continues to advance the 56-in. Nabucco pipeline, which will bring Central Asian and Caspian gas to the Baumgarten hub in Austria near the Slovakian border at 31 billion cu m/year before moving it on to Western Europe.

The €4 billion pipeline, spanning 2,000 miles, is to be completed by the end of the decade. The European Commission has given its backing to the proposal and will accelerate commercial, regulatory, and legal work to build the pipeline.

Middle East

Iran, Pakistan, and India continued discussions toward building the long-contemplated gas export line from Iran to India during 2006. Gazprom has also expressed interest in participating in the $7 billion project, which would transport as much as 120 MMcmd of natural gas from the South Pars field in the Persian Gulf through 2,100 km of 56-in. OD line. (Iran, 1,100 km; Pakistan, 750 km; India, 250 km).

Natural gas pricing disagreements have so far worked against the project, joining already-present forces such as security concerns and pressure from the US. Iran has stated that the gas price expected by India is unacceptable. Iran is looking for $7.20/MMbtu, with 3% annual hikes, with India seeking $4.25/MMbtu.

Pakistan has indicated a requirement of 60 MMcmd and might join with India in a joint price proposal. Last month, however, elected Pakistani officials cited Iranian red tape as the reason the pipeline has yet to progress.

The Dolphin Gas Project, which includes twin 36-in. subsea lines running 80 km from Qatar’s North field to the Ras Laffan treatment plant and a 48 in., 364-km subsea export line to Tawilah, Abu Dhabi, and Jebel Ali, Dubai, is nearing completion following protests from Saudi Arabia regarding the Qatar-UAE leg of the pipelines crossing of Saudi territory. The $3.5 billion project’s initial planned capacity is 2 bcfd. The pipeline, however, would have the capacity to carry nearly 3.2 bcfd if demand justifies it. Qatar plans to export 200 MMcfd to Oman starting in 2008.

National Iranian Gas Co. plans steady pipeline growth, much of which will be additions to the Iranian Gas Transmission domestic pipeline system. IGAT lines IV-VIII will encompass more than 3,900 km of 42-56-in. transmission line and associated trunks.

Outside of this sytem, to meet growth in gas demand in the northern and eastern provinces of Semnan, Khorasan, Golestan, and Mazandaran, NIGC plans a 790 km, 48-in. pipeline between Parchin and Sangbast, and a 110 km, 40-in. line between Miami and Jajarm. The system will have four compressor stations and will handle South Pars gas delivered through IGAT VIII.

To serve the western and northern provinces of Hamadan, Kordestan, Zanjan, and Western and Eastern Azerbaijan provinces, NIGC plans to lay 280 km of 48-in. pipeline between a compressor station at Saveh and the city of Bijar and 192 km of 40-in. pipeline between Bijar and Miandoab. Four compressor stations are planned. Other segments with diameters of at least 30 in. will boost pipeline lengths planned for this region to 950 km.

AMEC PLC began work in 2006 on a $200-million pipeline in Yemen from a natural gas field close to the town of Marib to an LNG terminal being built close to Bal Haf on the Gulf of Aden. The project will involve construction of 320 km of 38-in. gas pipeline and 25 km of 20-in. line. Work on the 6.7 million tpy system is now expected to be completed in 2009, a dispute between Hunt Oil Co. (an 18% participant in the project) and the Yemeni government having delayed the start of construction.

Calvalley Petroleum Inc. will build and operate 250 km of 16-in. crude oil pipeline in Yemen between Blocks 9 and 18, crossing several development areas before reaching a tie-in to an export pipeline already in place running from Block 18 to the Ras Isa terminal on the Red Sea.

Saudi Aramco signed two lump-sum turnkey contracts with subsidiaries of J. Ray McDermott SA, which include engineering, procurement, fabrication, and installation of the offshore Safaniya TP-18 tie-in platform, due online in December 2007, and a 24-in. pipeline between the new platform and a subsea connection with a new 42-in. trunkline flowing to the onshore Safaniya GOSP-1 separation facility.

The second contract is associated with the 22 km subsea portion of the new 66 km, 30-in. BKTG-1 pipeline, which will transport 220 MMcfd of gas from the Abu Ali plant to the Khursaniyah gas plant. The subsea portion will be installed by May 2007.


Nigeria and Algeria met in October 2006 to discuss implementation of the 4,400 km Trans-Saharan Gas Pipeline. Their respective national oil companies, Sonatrach and Nigerian National Petroleum Corp., signed a joint-venture agreement to conduct a feasibility study of the $7 billion project in 2005. Gas would flow north to Algeria at a rate of 25 billion cu m/year and then on to Europe.

Installation of the 353-mile main offshore segment of the West African Gas Pipeline was completed in 2006. The estimated $560 million project is the first regional natural gas transmission system developed in sub-Saharan Africa. First gas delivery depends on completion of tie-ins and onshore facilities.

Sonatrach has secured 30-in. X-60 pipe for the 665 km NK-1 Haoud el Hamra-to-Skikda oil pipeline.

A Korean consortium led by state Korea National Oil Corp. agreed to build a 745-mile gas pipeline from the Niger Delta to Abuja, as well as associated power generation facilities, in return for production sharing rights with NNPC on deepwater oil exploration Blocks 321 and 323.

Global Offshore International Ltd. received a letter of intent from Perenco Gabon SA to build the latter’s $50 million Societe d’Energie et d’Eau du Gabon pipeline project. Global’s contract includes transportation, installation, and precommissioning of one 8 in. 108-km gas pipeline, one 10 in. 98-km gas pipeline, and associated shore landings. Global will mobilize its Cheyenne and Comanche pipelay barges in May 2007 for installation in water up to 30 m deep along the Gabonese coast.