Gazprom pipelines and export capacity

Газопроводы Газпрома и экспортные мощности

Gas pipelines of West Siberia

Газопроводы Западной Сибири

Export flows of Gazprom

Экспортные потоки

Spot, Gazprom, Brent

Цены на нефть и газ

End-use price of gas

Russia and USA

Daily gas production

Суточная добыча


Gazprom inflates pipeline construction costs


Russian pipeline engineering institutions, including the corresponding divisions of Gazprom, give realistic estimations of pipeline construction costs, comparable with these of western projects. However, it looks like on the way to the top management of Gazprom, these cost estimations get at least tripled.

The phenomenon of multifold growth of investment costs can be illustrated by the "Altay" project and the Gryazovets-Vyborg pipeline. Gazprom has published cost estimations for the two 56-in pipeline projects almost simultaneously.

In early 2006, Gazprom's website put the total cost of the 2800-km gas pipeline from West Siberia to China (the Altay project) at $4.5-5.0 billion, including the cost of compressor stations (CS).

According to its press release, in 2006, Gazprom planned to spend RUR 19.84 billion for the construction of 144-km section of the Gryazovets-Vyborg pipeline. The document covers the cost of the first line, excluding CS. The second line construction has started in 2010.

Construction Cost of 1 km of 56-in Gas Pipelines

Project

RUR mill

USD mill (3)

EUR mill (3)

Altai (1)

44-49

1.6-1.8

1.3-1.4

Gryazovets-Vyborg (2)

138

5.1

4.0

(1) March-May 2006 estimation of Gazprom - including cost of CS;

(2) Gazprom's press-release of November 23, 2005 - excluding cost of CS;

(3) At the average exchange rate of 2006.

Considering the CS expense, the total cost of 1 km of the Gryazovets-Vyborg pipeline is four times higher than that of the Altai pipeline. Note that in 2009, the cost of 1 km of OPAL pipeline in Germany was estimated at EUR 2.1 million (RUR 94 million or $3.0 million), including the CS expense.

Here is another example. In March 2008, before the economic crisis and at the peak prices of materials and services, OOO "PiterGaz Engineering" estimated the cost of the Sochi gas pipeline at RUR 8-10 billion. In September 2009, when the price of steel pipe and other materials was lower than before the crisis, Gazprom's CEO Alexey Miller put the cost of this pipeline at RUR 25 billion.

Apparently, after getting a realistic cost estimation, Gazprom executives add a generous margin for contractors and brokers, so the total project cost gets 3-4 times higher.

Mikhail Korchemkin

East European Gas Analysis

November 24, 2010

Malvern, PA, USA

 

 


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