Petrofac wins key TurkStream contract

12 September 2017, Week 36, Issue 641

The TurkStream pipeline project in early September continued the swift movement evident since the two governments’ reconciliation late last year – with the award of the third major construction contract by Gazprom.

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The deal was the first to be signed on a major energy export scheme since legislation passed in the US in August permitting the imposition of sanctions on foreign firms participating in such developments.

Gazprom named the Turkish project when asserting the firm’s resilience to such restrictions – while providing an update on progress thus far on a project of high strategic importance for both parties.

TurkStream was launched in late 2014 in the wake of the collapse of the abortive South Stream project to route Russian gas to Europe via Bulgaria – the appeal of both schemes for Moscow lying in the diversification of European supply options and in particular the avoidance of a route through now-hostile Ukraine.

However, a year-long hiatus ensued in the wake of a diplomatic spat between Moscow and Ankara, which formally ended in mid-2016 and prompted the signature of an intergovernmental agreement on the estimated US$6 billion pipeline scheme in October.

Having passed through various legislative processes in both countries, residual doubt that the project would proceed beyond politically-symbolic signals of intent were quashed with the award to Swiss-based Allseas in December and February of the contracts to lay each of the two proposed strings of the pipeline. Both will have a capacity of 15.75 bcm per year.

The 32-inch (813 mm) lines will run 900 km from Anapa in western Russia to Kiyokoy in eastern Turkey and are scheduled for completion in 2018 and 2019 – with half of the gas intended to fulfil Turkey’s burgeoning domestic requirements and the remainder envisaged being exported to southern and eastern Europe.

Addressing a conference in St Petersburg on August 31, Gazprom CEO Alexei Miller said that 220 km of the offshore sections of the pipeline had been laid thus far – declaring the project to be “in full swing”.

Confirming his assertion five days later, the UK’s Petrofac was awarded an engineering, procurement and construction management (EPCM) contract worth around 340 million euros (US$405 million) by South Stream Transport – the wholly-owned Gazprom subsidiary implementing the scheme.

This will see Petrofac build the onshore receiving terminal at Kiyakoy, to be capable of handling the requisite 31.5 bcm of annual gas throughput and again due to become operational in 2019.

The British company’s announcement reported having been working with Gazprom since April on early works – including front-end engineering and design (FEED) verification, and design and procurement.

However, the new contract was widely noted for being among the first such agreements to have been reached since the signature of a bill on August 2 by US President Donald Trump allowing – although not mandating – the imposition of sanctions against international companies participating in Russia’s energy export projects.

A Gazprom statement in mid-August asserted that “for the time being” the sanctions “are not cause for … adjusting the list of key Gazprom projects” – which also includes Nord Stream II, again designed to enable increasing gas supplies to the EU.

Petrofac’s press release struck a somewhat-defiant tone, describing TurkStream as “a vital gas export channel” and on September 6, reported the award of another major contract on the Gazprom-led Sakhalin Island LNG project in Russia’s far east.

The UK firm, a stalwart of Middle East contracting, has also worked with the Russian parastatal in Iraq, commissioning the third train of processing facilities last year at the 3-billion-barrel Badra field in federally-controlled Wasit province.

From landfall at Kiyakoy, one string of pipeline is planned to run onward 180 km west to Luleburgaz to connect with Turkey’s national gas network. Despite residual reluctance to increase already-heavy energy dependency on Russia, Ankara’s need to secure additional supplies is becoming increasing urgent and other regional options – among them pipelines from Iraqi Kurdistan and Israel, or higher volumes from existing supplier Iran – appear further off.

Meanwhile, the highly-sensitive decisions on the routes and customers for the additional TurkStream gas envisaged being delivered onwards into Europe remain pending.

When the scheme was first launched, a route to southern and south-east Europe via Ipsala on the Turkish-Greek border was mooted but more recent suggestions have focussed on the possibility of two spurs – one running through Greece into Italy and a second running via Bulgaria and Serbia to Hungary. The latter currently relies on supplies from Gazprom via Ukraine for around two-thirds of annual consumption 8.9 bcm.

In early July, Budapest claimed to have signed agreements with the Russian behemoth to receive TurkStream gas from 2019. 

Edited by

Ian Simm

Editor

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