11.1 BP Current Developments - First Pipe for BTC Pipeline Arrives in Baku

Spring 2003 (11.1)
Pages 72-73

BP Current Developments
First Pipe for BTC Pipeline Arrives in Baku
by Tamam Bayatly

BP Photo - BTC Director Mike Townshend talks to the press at the Umbaki pipe yard during the first BTC pipe arrival in Baku. Jan. 28, 2003. Left: BTC Director Mike Townshend talks to the press at the Umbaki pipe yard during the first BTC pipe arrival in Baku. Jan. 28, 2003.

In late January 2003, the first joints of pipe for the construction of the Baku-Tbilisi-Ceyhan [pronounced jey-HAN] (BTC) pipeline were delivered to Baku from the Georgian port of Poti on the Black Sea. The first shipment of 240 joints of pipe was brought by railway from Poti by the German company Kuehne & Nagle, a freight-forwarding subcontractor for the Azerbaijan section of the pipeline. The pipes have a 42-inch diameter and were produced in Japan by Sumitomo. The pipe coating was carried out in Malaysia.

Approximately 39,000 joints of pipe will be needed for the Azerbaijan section of BTC, which is 460 km long. Transportation of pipe shipments will take about seven months, with each ship carrying 25 to 30 km of pipe.

The pipe joints are stored in the Umbaki pipe yard near Sangachal, from where they will be transferred to the pipeline corridor, known as the "Right of Way" in early April, when physical construction activities are scheduled to commence.

The BTC project remains on schedule to be completed in time for First Oil from the Azeri Development Project of the Azeri-Chirag-Gunashli oil field, which is planned for early 2005.

Stage 1 for Shah Deniz

BP Photo - Rolling up the jacket at SPS yard. December 2002. Left: Rolling up the jacket at SPS yard. December 2002.

In late February 2003, the project partners decided to sanction the Stage 1 Development of the Shah Deniz gas and condensate field in the Azerbaijan sector of the Caspian Sea. This decision opens the door to a new East-West Energy Corridor linking the Caspian Sea to Turkey and beyond.

The parties to the Shah Deniz Production Sharing Agreement (PSA) are: operator BP (25.5%), Statoil (25.5%), the State Oil Company of Azerbaijan Republic (SOCAR) (10%), LUKAgip (10%), NaftIran Intertrade Company (NICO) (10%), TotalFinaElf (10%), and Turkish State Petroleum Oil Company (TPAO) (9%).

Stage 1 reserves produced during the PSA period are projected to be 178 billion cubic meters (6.3 trillion cubic feet) of gas and 34 million tons (250 million barrels) of condensate. At maximum production, the development is expected to achieve average rates of 8.4 billion cubic meters per year of gas (900 million cubic feet per day) and 2 million tons (14.6 million barrels) per year of condensate. The recoverable reserves of the Shah Deniz field are 625 billion cubic meters (22.1 trillion cubic feet) of gas and 101 million tons (750 million barrels) of condensate, with potential for further hydrocarbons at deeper horizons. The full production potential of the field is about 16 billion cubic meters per year, which can be reached through later development stages.

BP Photo - Central Azeri platform integrated deck fabrication at SPS construction yard. Feb, 28, 2003. Left: Central Azeri platform integrated deck fabrication at SPS construction yard. Feb, 28, 2003.

Stage 1 includes both upstream and midstream development with total investments of $3.2 billion. The upstream project comprises a 15 well-slot TPG 500 type production, drilling and quarters platform to be installed at a depth of 105 meters; a sub-sea development with five wells to be drilled at a depth of 300 meters; two sub-sea pipelines of 100 km each - a 26-inch pipeline for gas and a 12-inch pipeline for condensate - from the TPG 500 to the Sangachal Terminal; and gas and condensate processing facilities in the onshore terminal. The total upstream investment is $2.3 billion.

The midstream project comprises a new gas export system - the South Caucasus Pipeline (SCP) - from Azerbaijan through Georgia to the Turkish border. The SCP is a 42-inch, 690-km pipeline (442 km in Azerbaijan and 248 km in Georgia) to be constructed jointly with, and in the same corridor as, the BTC oil export pipeline in order to minimize the environmental and social impact and to save on capital and operating costs. Construction will commence in 2004 and will be completed in time to deliver First Gas to Turkey in 2006.

BP Photo - Central Azeri platform integrated deck fabrication at SPS construction yard. Feb, 28, 2003. Left: Roger Nunn BP's Reputation & Assurance Director, handing AIOC-sponsored book on Dada Gorgud to a refugee girl in BP-refurbished school in Sumgayit. March 2003.

Total midstream investment is $0.9 billion, and will be made by the newly formed South Caucasus Pipeline Company (SCPC). The funding shareholders of SCPC are the same as for the Shah Deniz PSA.

Gas sales agreements for Stage 1 have been entered into with BOTASH of Turkey (6.3 billion cubic meters per year), Azerbaijan (up to 1.5 billion cubic meters per year) and GIOC (Georgia International Oil Corporation) (up to 0.8 billion cubic meters per year).

Focus on the Environment
Three Environmental and Social Impact Assessments (ESIAs) have already been carried out - one for each SCP section in Azerbaijan and Georgia and one covering the offshore and onshore facilities. These documents were approved in 2002 by Azerbaijan's Ministry of Ecology and Natural Resources and Georgia's Ministry of the Environment. The ESIAs describe the existing environmental and social conditions around the planned onshore and offshore facilities and along the pipeline route. They also describe the design, construction and operation of the facilities, the predicted effects of these activities and the measures that will be taken to prevent, minimize and mitigate any potential adverse effects on the ecology and population.

Safety will be a top priority during construction and an important criterion for the selection of contractors. There will be a rigorous approach to training with particular emphasis on frontline supervision, application of safety management systems and target-setting to influence safety performance.

Shah Deniz to Provide Local Jobs

BP Photo - Some of the first pipes arriving for the BTC pipeline. Left: Some of the first pipes arriving for the BTC pipeline.

In addition to the direct investments and state revenues, the Shah Deniz project will provide significant employment opportunities during its construction and operating phases.

During construction, the project will provide 4,200 local jobs for the SCP and an additional 1,300 jobs within the construction of the onshore and offshore facilities. The Shah Deniz partners expect that the local procurement strategy under the umbrella of the Enterprise Center will spur further local small and medium enterprise (SME) development.

The Enterprise Center in Baku is jointly funded by the partners in Shah Deniz, AIOC and BTC. Comprehensive training and education programs are also planned to support construction and subsequent operating activities.

The Shah Deniz partners are also implementing a $7.5 million Community Investment Program in Azerbaijan and Georgia. This program aims to improve social conditions along the pipeline route and near the Sangachal Terminal, supplementing the $4 million national and transnational Environmental Investment Programs.

Istiglal Begins Work on Shah Deniz
The Istiglal semi-submersible drilling rig sailed in early March 2003 to start the Stage1 pre-drilling program in Shah Deniz. Earlier, the Aura, a Tidewater Marine International vessel under contract to BP, towed the flotation cradle with a drilling template to the Istiglal rig. The template, which was installed under the Istiglal, will be used for the pre-drilling of production wells.

The Stage 1 Pre-Drilling Program includes the drilling of three production wells. These operations are planned to commence in early April 2003 and will continue for 18 to 20 months.

The template was designed by the UWG Group, a company based in southern England. Fabrication work was carried out by Azfen/Tekfen in its construction yard near Baku. The contractor used 100 percent local content, including some 25,000 man-hours of labor employing some 30 local Azerbaijan citizens. The fabrication of the template, which is a 41-ton piece of equipment with 15 well slots, commenced in September 2002 and was completed on schedule at the end of January 2003.

Progress on Azeri Project
The Azeri development project has to date performed 10 million man-hours without any accidents in Azerbaijan. This overall project progress is four times better than the average BP performance was in 2002. The project is halfway completed to Central Azeri First Oil due to be delivered at the end of 2004 with 51 percent progress in facilities construction and eight of the 12 planned pre-drilling wells completed.

The project has already exceeded the targets for local jobs, with 13 million man-hours across 11 countries (10.5 million in Azerbaijan), currently employing 4,000 local Azerbaijan citizens and forecast to peak at 6,000 (1,000 more than the target) in 2004.

The year 2003 is expected to be one of unprecedented activity for the Central Azeri project. An average of $6 million per day is expected to be spent on construction of the project. Activity will be built up for the Compression and Water Injection Platform, West Azeri and East Azeri. All this activity will be conducted in four major construction areas in the country: Sangachal (terminals), SPS (construction shipyard), ATA (Azfen/Tekfen/AMEC) and the Eupec pipe-coating yard.

Helping Refugee Schools
BP supported an important community development project in Baku's neighboring city of Sumgayit, which was implemented in collaboration with the Umid (Hope) Humanitarian and Social Support Center. This project was aimed at improving conditions in local schools and supporting the development of education in rural areas.

The project covered the construction of additional classrooms for two schools in refugee communities now residing in Sumgayyit: the Ashaghi Jijimli Village School of the Lachin district and Jabrayil District School No. 4. BP also supplied the schools with educational facilities and equipment. These communities have also been receiving support through a larger community development project undertaken by UNHCR and sponsored in part by Statoil.

In addition, BP in collaboration with Umid, supports the Sema Community Center in Sumgayit, which works with various groups of women and children. The Center will receive a community credit facility that will enable it to provide funds for its members' entrepreneurial activities. Entrepreneurs will also be provided with training to help them develop economically viable projects and make the best use of their loans. Initially, some 10 to 12 entrepreneurs will be supported in their efforts to create or extend their businesses. The community will use the interest charged on the loans in part to fund joint activities. For the first stage of the project, the members have identified the need to repair the flooring of the community center. This project was completed in February 2003.