Pipeline dreams face the reality of trade restraints
Amid rising production and surging demand, investment in global oil and gas infrastructure increased in 2018
Global energy trends in the final months of 2018 continue to support a generally bullish outlook for oil and gas production and infrastructure construction to meet growing demand and evolving patterns of interregional trade.
An improved world economy is expected to underpin solid increases in the trade of both crude oil and natural gas, and upstream market conditions are the best in recent years, but the E&P sector has continued to spend cautiously and focus on efficiency through its ongoing recovery from a downturn.
Consulting firm Wood Mackenzie projected there would be about 30 final investment decisions (FID) in 2018 on oil and gas projects worldwide, but noted that operators remain focused on less capital-intensive projects with quicker returns. The International Energy Agency (IEA) reported in July that total energy spending declined globally in 2017 for the third consecutive year, but it also highlighted the positive impact of E&P cost efficiencies in areas that may contribute to pipeline infrastructure expansion.
The total number of new onshore pipeline miles installed globally in 2018 is forecast to rise by 13%, according to Westwood Global Energy's 2018 World Onshore Pipelines Market Forecast. In addition, Westwood adds: "An increasing population of ageing pipelines and stringent repair and maintenance regulations in regions such as North America and Western Europe will continue to act as stable long-term drivers for operational expenditure, which the firm expects to increase 17pc during 2018-2022."
An earlier Westwood forecast called for global installations to exceed 276,000km and total onshore pipeline capital expenditures to increase about 5% through 2021 to $203bn, compared with $194bn in the preceding five years, with North America and Asia accounting for 53% of global spending over the forecast period.
In addition to the growth of onshore pipeline projects, a number of subsea projects are proposed or underway, including installations related to offshore discoveries as well as major projects in the Baltic, Black and Mediterranean seas.
Higher LNG demand also is contributing to infrastructure development, including liquefaction facilities, shipping terminals and pipelines. A wave of LNG export projects is expected to increase liquefaction capacity by 30pc by 2023, with US output accounting for nearly three-quarters of the projected total growth in LNG imports over the next five years, followed by Australia and Russia, according to IEA.
With its close proximity to Zohr and Cyprus' Aphrodite gas field, along with an established pipeline system and two liquefaction plants standing idle, Egypt sees an opportunity to become an LNG export hub to Europe.
Egypt and Cyprus have already announced plans for a pipeline connecting the Aphrodite gas field with Egypt's LNG facilities at an estimated cost of $800mn to $1bn. Separately, the companies developing Israel's largest natural gas fields - Delek Drilling and Noble Energy - agreed with their Egyptian partner in September to buy control of EMG's subsea pipeline to Egypt, clearing the way for a $15bn import deal for gas from Israel's Tamar and Leviathan reservoirs.
The Nigerian National Petroleum Corporation (NNPC) said it will start building the largest natural gas pipeline in its nation's history, following agreements that include financing for two of three sections of the Ajaokuta-Kaduna-Kano (AKK) pipeline. NNPC hopes to complete the project by first half of 2020 at an expected cost of more than $2.8bn. The 614km, 40-inch AKK pipeline is designed to provide connectivity between eastern and western sections of Nigeria to supply natural gas for power generation and industrial development in the central and northern regions.
Offshore Angola, Total is nearing completion of the company's first floating production, storage and offloading (FPSO) unit to be converted from an oil tanker. The Kaombo Norte unit is the first of two FPSOs at the site, each designed to process up to 115,000 bl/d of crude oil. Technip and Heerema Marine Contractors led engineering, procurement, fabrication, transport and installation of infrastructure for the ultra-deepwater Kaombo development, including 300km of rigid pipe-in-pipe production and single-pipe injection pipelines.
Asia and Oceania
Already the world leader in energy demand, China's policies mandating a shift from coal to cleaner energy sources have boosted demand for gas and LNG imports while setting a course to more than double its pipeline infrastructure during the next seven years to nearly 241,000km. Its National Development and Reform Commission plans to add about 129,000km miles to its current 112,000km by 2025. After expansion, natural gas pipelines will account for 122,950km, or 51pc of the system.
Russia's Gazprom announced in mid-2018 that 83pc of its Power of Siberia gas pipeline is complete, and construction is on track to begin delivering natural gas to China on completion in 2019. The 3,000km project will transport 38 bn cm of gas annually from the Irkutsk and Yakutia gas production centres to consumers in Russia's Far East and to China via its eastern route. Construction of the Power of Siberia began in 2014.
Since the new Russia-China oil supply agreement took effect at the start of 2018, an extension of the East Siberia-Pacific Ocean (ESPO) oil pipeline between Russia and China started operating and PetroChina's largest refinery has almost doubled the amount of Russian pipeline crude oil that it is processing. The 410,000 bl/d PetroChina refinery in the northeast port city Dalian was estimated to process 260,000 bl/d of Russian pipeline crude oil in 2018, up by 85-90pc compared to 2017, Reuters reported.
On offshore India's southeastern coast, McDermott International and Larsen & Toubro completed engineering, procurement, construction and installation for development of the Oil and Natural Gas Corporation (ONGC) Vashishta and S1 gas fields. The project included 93km of 14-inch dual rigid pipelines, extending from the shallow water shore line to a maximum water depth of 2,300 feet.
Russia and CIS Countries
Russia is projected to remain the world's largest energy exporter as it continues to focus on oil production and increased natural gas exports through major pipeline expansions to Europe and Asia.
Gazprom began pipelaying offshore Finland for its Nord Stream 2 project despite US sanctions and opposition from European countries concerned about growing reliance on Russian gas. Germany, Finland, Sweden and Russia have all approved the project, leaving only Denmark undecided, but Gazprom said it could reroute the project and remain on budget. Nord Stream 2 is scheduled to start flowing natural gas from Russia's Baltic coast to Germany by 2019, running alongside the first Nord Stream pipeline, which was completed in 2011. It will render existing pipelines obsolete, including several pipelines that run through Ukraine, which stands to lose about $2bn in annual transit revenues if gas is diverted away.
Pipelaying operations resumed in June for the second string of Gazprom's TurkStream offshore gas pipeline, as it progresses toward Turkey. Construction of the twin 32-inch pipelines began in May 2017, and the first string of the offshore section was completed in April with a total of 1,161 km of pipes laid along the two strings. After re-entering the Black Sea in June, the pipeline head of the second string was recovered from a depth of 2,170 metres. Each of TurkStream's twin pipelines has an annual throughput capacity of 15.75 bn cm. The first string of TurkStream is intended for Turkish consumers, while the second string will deliver gas to southern and southeastern Europe.
Construction has commenced on the Afghan section of the Turkmenistan, Afghanistan, Pakistan and India (TAPI) gas pipeline. The 1,818km project will deliver gas from Turkmenistan to Pakistan and India. In a rare announcement, the Afghan Taliban said it will support and protect the pipeline in areas under its control. Uzbekistan announced plans to join the $8bn project. TAPI reportedly received an investment from Saudi Arabia as it began construction on the difficult Afghan section, which runs abreast of the 557km Kandahar-Herat highway.
With growing gas demand and declining oil and gas production, Europe has become a key battleground for global natural gas and LNG market share.
In a sign of further weakening, the Dutch government in late June revised its 2018 production forecast downward for the Groningen natural gas field to 19-20 bn cm from an earlier projection of 21.6 bn cm, compared with 24 bn cm last year. The government announced in March that it plans to stop all production in Groningen by 2030 due to the risk of earthquakes.
Russian expansion has motivated some countries to seek supply diversity. The Finnish government, for example, authorised state-owned Baltic Connector Oy to start construction this year on the Balticconnector natural gas pipeline and announced it will open wholesale and retail gas markets to competition in synch with project completion in 2019-2020.
Saipem's pipe laying vessel, Castorone, began installing Norway's longest and largest pipeline to Equinor's Johan Sverdrup oil field. The 283km, 36-inch pipeline is being pulled through a pre-drilled hole at the bottom of the Fensfjorden. It will be capable of transporting up to 660,000 bl/d to Equinor's Mongstad terminal. The Johan Sverdrup oil field, located west of Stavanger, is being developed in two phases. Phase 1 is projected to be completed in late 2019 with production capacity estimated at 440,000 bl/d. Phase 2 is projected to be completed in 2022, expanding the field's production capacity to 660,000 bl/d.
State-owned Bulgaria Energy Holding (reached a preliminary agreement with the European Investment Bank in June to finance construction of a natural gas pipeline with Greece. The proposed gas link is expected to begin transporting gas from Azeri to Bulgaria in 2020, as well as some liquified gas from terminals in Greece.
The leaders of Israel, Cyprus and Greece were hoping to move forward on the proposed East Med Pipeline, with Israeli Prime Minister Benjamin Netanyahu describing the project as a serious endeavour of great importance to Europe. Israeli Energy Minister Yuval Steinitz said Israel expects a decision to move ahead with construction of the 2,000km pipeline by early 2019. The estimated $7bn East Med would cross from Israel and Cyprus into Greece and Italy in deep waters with an expected capacity of 9-12 bn cm annually. Project owners are IGI Poseidon, a joint venture between Greece's natural gas firm DEPA, and Italian energy group Edison.
Energean Oil & Gas said it has approved development of the Karish & Tanin Project offshore Israel, which includes an FPSO with capacity to treat 800 MMscf/d natural gas and liquids storage capacity of 800,000 barrels. A 90km gas pipeline will connect the FPSO to the domestic sales gas grid operated by INGL, Israel's national gas transmission company. Energean plans to begin operating Karish & Tanin in the first quarter of 2021 and expects to transport 2.15 tcf of gas over a period of 16 years.
Jordan and Iraq agreed to a framework for construction of a 1,680km, twin oil and gas pipeline from Basra to Aqaba. When completed the project would move 1 mn bl/d of oil and 258 MMcf/d of gas to its destination. The pipelines would eliminate exposure to terrorist activity at border crossings which have forced Jordan to find more expensive sources for most of its 134,000 bl/d demand.
South and Central America
Argentina is still a net energy importer, but there are signs of change under a business-friendly administration. Government incentives to develop and create markets for the Vaca Muerta shale and Austral Basin are starting to pay off. Transportadora de Gas del Sur committed to an initial $250m project to add gas transportation infrastructure in the Vaca Muerta during 2018-2019, including a conditioning plant and a 92km, 36-inch gas pipeline that will cross 16 hydrocarbon areas with an initial capacity of 37 mn cm/d, expandable to 56 mn cm/d.
Argentina was expected to have started exports of natural gas to neighbouring Chile by the end of 2018. Existing agreements limited gas and electricity exports allowed gas and electricity exports only in emergency situations and required equivalent re-imports within a year.