ECUADOR PLANS EXPANDED CRUDE-OIL LINE

Jean Boschat,Jerome Sabathier
Beicip-Franlab
Rueil-Malmaison, France

Ecuador plans to increase throughput of the 309 mile, 20 and 26-in. Trans Ecuadorian pipeline that moves crude oil from the Oriente in the Amazon basin to the Pacific coast for refining in local refineries and export.

Increasing crude-oil production is driving the expansion. In investment, it is the largest pipeline project in the country in more than 20 years.

In August 1992, Petroecuador, the Ecuadorian state company in charge of petroleum, hired the French petroleum consulting firm Beicip-Franlab to carry out the basic engineering and preparation of the technical tender documents for increasing the pipeline's throughput.

1970S VINTAGE

The Trans Ecuadorian pipeline was designed in the early 1970s to transport 400,000 b/d of 300 API crude oil from Lago Agrio in the Oriente (Fig. 1) (32490 bytes) across the Andes mountains to Balao export terminal near Esmeraldas on the Pacific Ocean coast. There the oil can be loaded onto tankers via two loading buoys.

The pipeline began operations in June 1972 with a 250,000 b/d pumping capacity.

Because of increased crude-oil production in the Oriente, pipeline capacity was raised to 300,000 b/d in 1985 and to 325,000 b/d in 1992 by installation of additional pumping units in the existing pump stations.

In Lago Agrio, at 186 m elevation, crude oil from various oil companies is received in eight 250,000-bbl storage tanks.

From there the 497-km pipeline climbs to its culminating point at The Virgin pass at 4,059 m of elevation southwest of Quito, crosses the Quito valley, then drops abruptly to the coastal plain of Ecuador.

The 262-km uphill section from Lago Agrio to San Juan is made of 26 in. OD API 5L X-60 line pipe, 0.344-0.812-in. W.T. It consists of five pump stations located in Lago Agrio, Lumbaqui, Salado, Baeza, and Papallacta

(Fig. 2). Each pump station contains five centrifugal pumps and one stand-by unit, driven by crude oil-burning internal combustion engines with 1,850-2,800 bhp unit horsepower, depending on the station.

The 68-km long downhill section from San Juan to Santo Domingo is made of 20-in. OD API 5L X-60 line pipes, 0.344-0.562-in. W.T.

Additionally, this section includes four pressure-reducing stations - San Juan, Chiriboga, La Palma, and Santo Domingo - to create the necessary pressure drop and also to keep the system under tight-line operation.

The last 167 km go through the rolling coastal plain from Santo Domingo to Balao terminal with again a 26-in, OD, 0.344 in. W.T.

In Balao, crude oil is received into ten 322,000-bbl storage tanks from where it flows by gravity through one 6,200 m, 36-in. sealine and one 7,200 m, 42-in. sealine to two offshore loading buoys designed to load 100,000 dwt tankers.

PRODUCTION FORECAST

Petroecuador, the Ecuadorian state company in charge of petroleum, is boosting the country's exploration, particularly in the Oriente. A seventh exploration round was held in Quito in early 1994 and attracted participation by foreign oil companies.

The current production forecast indicates that Oriente crude-oil production will culminate in 1999 and 2000 at about 470,000 b/d with, however, an average gravity declining from 280 API down to about 240 API.

Deducting the crude oil refined in the Oriente essentially to supply the petroleum activity there leaves, between 195 and 2005, more than the present capacity of the Trans Ecuadorian pipeline to be transported to the Pacific for refining and export with a plateau of 450,000 b/d from 1997 to 2001.

This situation is aggravated by the increasing crude-oil viscosity that increases the friction coefficient and reduces pump efficiency and finally the capacity of the pipeline.

From Lago Agrio to the Colombian coast, 40,000 b/d can be transported through another pipeline; this alternative is obviously insufficient. Additionally, this route is not completely reliable, and, for technical reasons, the line will not accept heavier crude oil.

The only solutions left have been either to build a new pipeline in Ecuador across the Andes mountains or to increase the Trans Ecuadorian pipeline's throughput. As the existing pipeline was already designed with some spare capacity, the latter solution was clearly more economical.

This expansion can be achieved either by injection of a drag-reducing agent (DRA) in the crude oil to reduce its viscosity artificially and thus boost pipeline capacity or by installation of additional equipment.

Using a drag-reducing agent extensively and indefinitely is expensive. Economic analysis showed that installing additional equipment is preferable.

INCREASING THROUGHPUT

Expanding the Trans Ecuadorian pipeline's capacity could be increased by either installing new intermediate pump stations or looping the pipeline.

Both methods were studied with several alternates, including partial DRA injection.

The first necessitated installation of seven intermediate pump stations. On the other hand, consideration of investment and operating costs over the life time of the project revealed that looping the pipeline without DRA injection was 32% cheaper than any other solution.

Another consideration was the proximity of the volcano El Reventador. In March 1987, the Salado pumping station and 25 km of the Trans Ecuadorian pipeline that run near the volcano were devastated by an earthquake.

To reduce the threat of being near the volcano in the event of another earthquake and/or possible eruption, a new route was chosen for the pipeline loops between the Lumbaqui pump station and the village of Santa Rosa de Quijos 27 km upstream of Baeza pump station.

The pipeline configuration finally decided upon includes the following:

Looping the Lago Agrio-Lumbaqui section (66 km) with an 18-in. line
Building a new 20-in. line between Lumbaqui and Baeza (98 km) including a new pump station with three pumping units (two working and one spare) in Mirador to avoid El Reventador. A new road will have to be built in this wild area.
Looping the Baeza-San Juan section (98 km) with an 18-in. line
Looping the La Palma-Santo Domingo section (34 km) with a 22-in. line
Looping the Santo Domingo-Balao section (168 km) with a 20-in. line
Installing two additional pumping units and one stand-by identical to the existing ones in Lago Agrio (Fig. 3), Lumbaqui (Fig. 4), Baeza, and Papallacta pump stations
Replacing the pressure relief valves in all pressure-reducing stations.

All new lines will be made of API 5L X-60 line pipe with no less than 0.344-in. W.T., coated with three layers of polyethylene, and buried with 3 ft of cover.

A complete pressure-surge analysis of the entire system led to a considerable increase in the pressure-relief devices in several locations.

Petroecuador also decided no longer to mix all the Oriente production arriving in Lago Agrio tank farm but to make two different blends of crude oils: one medium, the other heavy.

The rule is that heavy crude-oil viscosity shall not exceed 164 cSt at 800 F., the medium crude oil being made of the remaining. Both qualities will be shipped into the pipeline in batches.

Beicip-Franlab studied the production profile of all the concerned Oriente fields between 1994 and 2013 and derived a forecast of heavy and medium blends' production during this period.

This forecast, coupled with the future pipeline throughput for each blend, enabled the determination of the necessary additional storage capacity to be installed in Lago Agrio and Balao.

It was also necessary to study the contamination that will occur between the two batches traveling from Lago Agrio to Balao as a result of normal interface and of the fact that the main pipeline and its loops have different diameters and thus different flow velocities.

The result was that about 300,000 bbl of contamination are forecast to arrive in Balao between two batches.

Petroecuador also decided to be able to load 250,000 dwt tankers at the Balao offshore terminal (Fig. 5). The existing buoys will thus be revamped to allow this operation.

But it was also necessary to determine if this terminal could export the future pipeline throughput taking into account a new tanker fleet pattern, new storage tanks, two different crude-oil qualities plus a contamination and all the operational constraints of the terminal.

These constraints include the necessity to leave the crude oil resting at least 27 hr in the storage tanks to allow water separation before being loaded into tankers.

A computer simulation program of the land and marine terminal operation, built by Beicip-Franlab, enabled analysis of all sorts of configurations. Petroecuador will also use the program to manage future terminal operations.

It was finally decided to build two new 250,000 bbl floating-roof storage tanks in Lago Agrio and five 516,100 bbl floating-roof storage tanks in Balao.

In the meantime it was decided to bring the existing fire-fighting system in both locations to modern standards, including new fire-fighting pump stations for tank cooling and foam production.

TRIUNFO NUEVO-CONDIJUA PIPELINE

In order to transport the future production of Arco's discovery in Block 10 and of other promising spots in this area, Petroecuador will also build a new pipeline to link Triunfo Nuevo with the Trans Ecuadorian pipeline at Condijua, 8 km upstream of Baeza pump station (Fig. 1) (32490 bytes).

The crude oil to be pumped, at least until new fields are discovered, is heavy at 18.90 API and viscous, varying from 1,510 cSt at 600 F. to 13.8 cSt at 2400 F. (design).

Several methods for pipelining this crude oil were studied by Beicip-Franlab, including heating to reduce its viscosity at flowing temperature. The most economical method was finally- to pump it conventionally without heating, as jelling in the pipeline is not feared, and to use screw pumps.

Three stages of development are foreseen: 30,000, 50,000, and 80,000 b/d, respectively.

Obviously, the pipeline proper will be sized for 80,000 b/d in the first phase. It will be 136 km x 18 in. OD, API 5L X-60 line pipe, 0.344-0.406 in. W.T. It will be coated with three layers of polyethylene and buried with a minimum 3 ft of cover. Cathodic protection will be applied.

In the first phase, three main pump stations will be installed in Triunfo Nuevo, Archidona, and Sarayacu, respectively. The pumping units will be installed progressively during the different phases.

As previously stated and except in Triunfo Nuevo, these units will be screw pumps powered by crude oil-burning internal combustion engines. In Triunfo Nuevo, the necessary horsepower will be small and electric motors will be used.

For remote stations, diesel generators will be provided to meet a station's electrical demands.

In Triunfo Nuevo, a tank farm will be built to store 7 days' production: two 105,000-bbl tanks in the first phase, one additional 140,000-bbl tank in the second phase, and one 210,000-bbl tank in the third phase.

In Condijua, the crude oil will be injected in both lines of the Trans Ecuadorian pipeline. Due to the batched operation of this pipeline, this will only be possible when the heavy blend will be passing there, thus requiring some storage facility at the end of the Triunfo Nuevo-Condijua line. This storage will consist in two 70,000 bbl floating-roof tanks. Injection will be either directly from the line coming from Triunfo Nuevo, with motor-driven screw pumps pumping from the storage tanks, or from both.

In all locations, modern fire protection will be provided.

NEW SYSTEM

The revamped Trans Ecuadorian pipeline, together with the Triunfo Nuevo-Condijua pipeline, will form the new Trans Ecuadorian pipeline system. This means that they will be integrated into a single system controlled and monitored from a main dispatching center in Guajalo near Quito which is now Petroecuador's maintenance center for the existing pipeline.

As there is no supervisory control and data acquisition (scada) system now on the Trans Ecuadorian pipeline, scada will be built along with a new telecommunication network covering the entire new Trans Ecuadorian pipeline system.

Also, to comply with the most modem requirements in terms of environmental protection, especially in a country subject to seismic activity, a leak-detection system will be implemented on all lines.

The general principles establishing the basis for the economic evaluation of the project are set in Decree No. 1573, published in the official register No. 401, Mar. 17, 1994, administrated by the Ministry of Energy & Mines of Ecuador.

According to this decree, the private company, national or foreign, selected by the bid committee, will be responsible for the financing and operation of the expansion of the Trans Ecuadorian pipeline, of additional public roads needed by the project, and of operation of the existing pipeline.

In turn, Petroecuador will guarantee the volume of crude oil transported through the new Trans Ecuadorian pipeline system from the Oriente to Balao, will allow the private company complete control over the system, and will pay a transportation tariff.

The 15-year contract to be signed between Petroecuador and the private entity will clearly indicate the global annual tariff that Petroecuador will pay for using the new pipeline system.

This tariff will be revised annually according to several factors such as the barrel index producer price for industrial commodities and the crude price. The final transportation tariff will be a determining factor in selection by the bid committee.

ESTABLISHING A TARIFF

Establishing a correct transportation tariff will be guided by the following parameters:

The contract covers 15 years. After this period, the company, at no cost, will return to Petroecuador all the infrastructure built.
The tariff paid by Petroecuador to the company is a uniform tariff (as opposed to a distance-related tariff) and reflects the investment and operating costs, including all the legal taxes plus a return on investment.
The private company will be liable for all legal taxes, according to Ecuadorian law: labor tax, 15% of net income before tax; and income tax, 25% of net income before tax less the labor tax.
Method of depreciation Only the assets related to the expansion of the Trans Ecuadorian pipeline can be depreciated. The method of depreciation is the straight line beginning 1 year after incorporation of the assets to the company.
Financing of the project: The complete project will be privately financed. The commercial part of the bid should indicate the source of funds of the company, the equity share engaged, and the global interest rate for the loans. The loans will be completely amortized over 15 years.

The transportation tariff is thus the result of the addition of four main factors:

Operating costs : Fixed, variable, plus other costs
Taxes: labor and income
Amortization of the loans
Return on investment.

The fourth factor represents the profit for the operating company.

According to the new law on hydrocarbon products (November 1994), the return on investments of the company must be "reasonable, and complying with the international standards of the petroleum industry."

The bidders are therefore facing the following problem: What should be the reasonable return on investments ensuring at the same time the economic viability of the project and the lowest transportation tariff for Petroecuador?

One way to come to grips with this problem is to simulate the operation of the new Trans Ecuadorian pipeline system for the 15 years of the contract and calculate what could be the typical cost of transportation paid by Petroecuador given different rates of return on the investment.

The methodology used by Beicip-Franlab in this study is described in Fig. 6 (9599 bytes) and uses a trial and error approach involving the following steps:

Build up of investment cash flow, related to pipeline, pump stations, and roads, with time profile of assets, depreciation, and equity/capital loans balance.
Pro forma income statement: starting for a first approximation of an average transportation tariff, allowing calculation of labor taxes, income taxes and net income after taxes.
Build up of the cost of transmission service: This cost is the sum of operation expenses, financial costs, and a return on capital.

The return on capital is defined as a percentage of the net fixed assets. This cost of service, or tariff, is calculated each year in U.S.$/bbl. It can be also expressed as a uniform average value over the period studied (discounted value) reflecting the long-run marginal cost.

The above cost of service is then introduced as input in the pro-forma income statement, and the loop is followed until it converges on the cost of service giving as results the annual tariff paid by Petroecuador to the private company and the uniform average tariff (discounted over the period studied).

This methodology has been applied taking into account the following parameters:

Project start in 1995 and finish in 2009.
Pipeline throughput according to Petroecuador's forecast, with a plateau of 450,000 b/d from 1997 to 2001.
Precise estimation of the total investment, including the roads. The investment of the Lago Agrio-Balao pipeline has been spread out over 3 years from 1995 to 1997 and the investment for the Triunfo Nuevo-Condijua pipeline over 2 years (1995 to 1996).
Operating costs, including fuel consumption, manpower, and maintenance of the existing Trans Ecuadorian pipeline and its expansion. Operating costs fluctuate between 8% and 14% of total investment, depending of the pipeline flow profile and the construction schedule.
Interest rate and inflation.
Equity share.
Return on investment.
Taxes, depreciation of the assets and amortization of the loans, according to Ecuadorian law.

All the simulations Beicip-Franlab made tend to show that, in the final setting of the tariff, financing of the project and selection of the return on the capital invested are as important as the value of the total investment of the project.

Although there are a number of subtleties in the calculation of the tariff that have not been developed here, the methodology applied gives an accurate idea of what Petroecuador must be prepared to pay for carrying the crude from Lago Agrio to Balao and of the profitability of the project for the private operating company.

Bids from seven international consortia were due Nov. 14, 1994.

The Authors

Jean Boschat is pipeline department manager for Beicip-Franlab. He has been employed by Bechtel Corp. and Total. He holds a doctorate of mechanics of continuous media from Grenoble University (1960) and is a member of the French Assosiation of Petroleum Engineers.

Jerome Sabathier is an energy economist for Beicip-Franlab, which he joined in 1992. Previously he has worked for the Institut Francais du Petrole in Caracas. He is a graduate from l'Ecole des Mines, France, and holds a masters in energy management and policy from the University of Pennsylvania, Philadelphia.