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With more than 2000 plants accredited to it, ThyssenKrupp Uhde is one of the world's leading

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03 COMMENT

05 WORLD NEWSContract awards, project updates, industry latest, news digest, diary dates, mergers and acquisitions

12 RUSSIAN ENERGYNancy Yammaguchi, contributing editor, explores the importance of oil and natural gas in Russia and its foreign trade

24 BRAVE NEW WORLDIn the third article of Hydrocarbon Engineerings Recruitment and Employment series, Angela Everitt, Shell, UK, outlines the challenges facing industry recruiters in the contemporary world environment

29 RISK TAKERS AND DECISION MAKERSSebastian Ruik Beyhaut, ROSEN Integrity Solutions GmbH, Germany and Ronald Tuls, ROSEN Europe B.V, The Netherlands, talk asset integrity management tools

35 OFF THE WIREVibhor Tandon, Soroush Amidi, and John Joosten, Honeywell Process Solutions, USA, outline the benets of wireless level measurement equipment over wired equivalents

40 FOLLOW THE DATA, LEAD THE WAYToni Ksbeck, Endress+Hauser GmbH+Co. KG, Germany, discusses the efciency and increased competitiveness of successful integration of inventory data into leading business systems

45 RHENIUM: A HIDDEN ASSETRobert T. Jacobsen, Sabin Metal Corp., USA, discusses how rhenium in spent precious metals bearing process catalysts can prove a hidden asset, enhancing hydrocarbon processing prots

48 ANALYSE THATWerner Arts, LAR, Germany, engages with the fast and reliable online analysis of mineral oils in water

53 KEEPING COOLGlenn Fannin, BARTEC BENKE, Germany, explains the importance of appropriate chilling equipment for analytical systems situated in harsh climates

57 THE BIG PICTURESteve Beynon, FLIR Commercial Systems, The Netherlands, explains how environmental protection can be enhanced with optical gas imaging

61 TREAT IT RIGHTSilke Ruedel, Kurita, Germany, discusses the importance of utilising the latest technology in wastewater treatment

66 SEAS THE OPPORTUNITYSophie Dufoss, Ecoslops SA, France, outlines a new and progressive marine fuel oil recycling solution

72 15 FACTS ON RUSSIA

12

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MANAGING EDITOR James Littlejames.little@hydrocarbonengineering.com

EDITOR Claira Lloydclaira.lloyd@hydrocarbonengineering.com

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CONTRIBUTING EDITORSNancy Yamaguchi David Hayes Gordon Cope

PUBLISHER Nigel Hardy www.energyglobal.com

Regular readers of Hydrocarbon Engineering will have noticed that over the last four months weve been running a recruitment and employment series. Oilcareers.com kicked it off with a look at the downstream recruitment conundrum and argued that a shift towards unconventionals provides fresh opportunities but greater demands. Solomon Associates followed, arguing that cutting costs at all costs is not a helpful strategy and that streamlining staff to achieve sustainable performance is a much more constructive tactic. Then came PetroSkills and a discussion on what the big crew change will mean for industry performance and activity. In this issue, Shell will be completing our series, for the moment, as they outline the challenges facing industry recruiters in the contemporary world environment. However, the debate, of course, wont and doesnt end here.

One of the most recent shakeups in the employment sector was the decision by the UK government to relax immigration rules when employing engineers from outside Europe. This change is particularly focused on the North Sea oil and gas industry and is being implemented in the hope that it will solve the skills shortage being faced by the UK and the North Sea area in particular. However, it is possible that this will only be a short term solution as, like all people in employment, engineers will always be tempted to move to other jobs where wages are higher and skilled workers are also

in short supply. The easing of migration rules may be a quick x for the near future; however, it does not address the big problem, the lack of fresh talent and training available to those within and entering the oil and gas sector.

Findings from the inaugural Global Oil and Gas Training and Development Report produced by the Society of Petroleum and Engineers (SPE) and BP were released shortly after the above decision and once again highlighted that the industry needs more new engineers and more training programs. The survey indicated that 87% of the employees surveyed stated that starting a career in oil and gas requires training and that 57% of respondents said that the lack of training and development opportunities in a job would lead them to consider leaving an employer. Seeing as training is very important to professionals within our industry it is most worrying to see that the skills de cit is growing and that more isnt being done to pass on the skills that come with experience to new generations, and inspire young people to pursue a career in engineering. It appears that more money and time needs to be dedicated to the training and development of those in the early stages of their careers as oil and gas professionals to ensure that the skills gap doesnt get any wider. Additionally, more must be done to attract young people away from more glamorous careers in areas such as media and nance, towards the ever changing and advancing world of engineering, which in my opinion, can be even more exciting.

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5 June 2013HYDROCARBONENGINEERING

w rld newsUSA | LNG REFUELING NETWORK

TravelCenters of America LLC (TA) has signed an agreement with Shell Oil Products US to construct and operate a nationwide network of natural gas refuelling lanes. The agreement dictates that Shell will construct at least two such lanes, for over the road trucks and related storage capacity, at up to 100 TA and Petro Shopping Center locations, along the US Interstate Highway System.

Currently, the agreements focus is on LNG, but TA expects to monitor demand for natural gas fuels, adjusting

its plans to include the dispensing of compressed natural gas (CNG) if appropriate.

The construction work will be carried out within the next couple of years, at Shells own cost. Shell has additionally agreed to supply the natural gas to the lanes. However, the organisations will each market the product separately, to their respective customers.

The project is now in the site selection stage, with both rms optimistic that the rst locations will be operational within one year.

Fluor Corporation | MAKING INVESTMENTS

Fluor Corporation has been awarded an engineering and design contract by South African Petroleum Re neries (SAPREF) for its Clean Fuels II Project in Durban, South Africa.

SAPREF is a joint venture between Shell SA re ning and BP Southern Africa. Its re nery, which will be substantially upgraded as part of the project, is the largest in the region, representing 35% of South Africas re ning capacity. The purpose of the upgrade will be to improve the quality of transportation fuels produced by reducing the levels of sulfur, benzene and aromatics.

This project is the rst to be executed in Africa under Shells enterprise framework agreement with Fluor, that encompasses engineering and project management services throughout Europe, Africa and the Middle East.

Fluor Corporation has also announced that it was awarded a contract by The Dow Chemical Company to execute a signi cant portion of its US Gulf Coast investments. Fluor's scope includes the engineering, procurement and construction (EPC) of a propane dehydrogenation unit, an ethane cracker, and associated power, utilities and infrastructure facility upgrades to support each unit. The facilities will be constructed in Dow's Oyster Creek facility, Freeport, Texas. Fluor booked the undisclosed contract value into backlog in the rst quarter of 2013.

Fluor's Sugar Land, Texas, of ce will lead the EPC and self perform construction phases of the project with additional support provided by the company's Asia Paci c operations.

Air Products | TWO DECADES OF SUCCESS

Air Products has received an LNG heat exchanger order from PETRONAS for a major LNG project in Malaysia. The SplitMR Liquefaction process and technology were selected, and will be supplied to the PETRONAS LNG Train 9 project in Bintulu, Sarawak, Malaysia.

The project is an expansion of the existing PETRONAS LNG Complex and will produce 3.6 million tpy, increasing production to 29.3 million tpy overall. The estimated date for completion is late 2015.

Air Products has additionally signed a Memorandum of Understanding (MoU) with Russian based Gazprom Export LLC, con rming long term plans to purchase helium from Gazprom.

Gazprom intends to commence development of its major natural gas resources in Eastern Siberia, and will implement large scale helium production from the helium rich gas feedstock in the Blagoveshchensk region in 2018.

The MoU additionally indicates that Air Products is interested in working

with Gazprom on logistical, technical and production elements of the project.

The company has also received its rst ever major LNG heat exchanger order for a liquefaction project based in the US. Air Products will supply its LNG proprietary C3MRTM liquefaction technology and equipment to a joint venture of IHI E&C International Corporation and Kiewir Corporation, for Dominion's major liquefaction project to be constructed at the site of Dominion's existing Cove Point LNG import facility at Lusby, Md.

Finally, Air Products and Technip are this year celebrating the 20 year anniversary of their global hydrogen alliance. The alliance began in 1992 in order to meet re ning industry demands for outsourced hydrogen to make cleaner burning transportation fuels. Since then, Air Products and Technip have constructed 35 steam methane reformer (SMR) hydrogen production plants, located in 11 countries. The plants provide more than 2.2 million m3/h (1.8 million t) of hydrogen.

6June 2013HYDROCARBONENGINEERING

w rld news| INBRIEF

Europe | MASTER CONTRACT

January 14th 2013 was the of cial start date for the Master Contract between BP International and Applus RTD. The three and one year contract, signed by Applus RTD CEO Iain Light and Rory Lamont of BP, entails a broad range of different non-destructive testing and inspection activities.

Applus RTD will be the only contractor working under this kind of agreement, and will provide NDT and inspection services at the BP re neries in Rotterdam, The Netherlands,

Gelsenkirchen, Germany and Castellon, Spain through sister division Applus Norcontrol. For the execution of these activities Applus RTD will utilise multiple NDT methods and techniques to gain insight in the condition of the assets of the BP re neries. Besides conventional NDT and inspection services, the aim is to reach a more innovative approach, enabling BP to make judgments based on results gained with best available techniques.

USA | MAKING EXPANSION PLANS

Enterprise Products Partners L.P. has announced plans to signi cantly expand its crude oil storage and distribution infrastructure that serves the re ning market in southeast Texas. The project will be completed in phases with the nal installment scheduled for completion by the end of 2014.

In addition to the above plans, Enterprise's Crude Oil Houston (ECHO) storage facility is going to be expanded to have a capacity of over 6 million bbls. The storage facility will be incorporated into the wider Texas expansion project resulting in it having access to Enterprise's marine terminal at Morgan's Point on the Houston Ship Channel.

Worldwide | STRATEGIC PARTNERSHIP

Sulzer Pumps and Sinopec Corporation have established a long term strategic partnership to develop their commercial activities within the hydrocarbon processing industry. Through the collaboration, both companies will bene t from joint technology development and R&D.

Commercial and logistics cooperation is also planned.

In addition, both companies will be pulling together a team of experts in the areas of technology, design and manufacturing in order to further develop offerings to the global market.

ChinaCB&I has been awarded a contract by Shandong Wonfull Petrochemical Group Co., Ltd. to provide the license and processing engineering design for a first of a kind solid acid alkylation unit to be located in China. The unit will be capable of producing 100 000 tpy of alkylate and is scheduled for startup in early 2014.

USAPiedmont Natural Gas marked the opening of its ninth compressed natural gas (CNG) fueling station in Piedmont's three state service territory on 30th April. This is being taken as a sign of growing demand as more companies convert their fleets of cars and trucks to natural gas. The Spartanburg fueling station, South Carolina, is open to commercial fleet vehicles and the general public.

UKBury based international cable seal manufacturer Rotec has signed its latest deal in the energy sector. The company is going to supply one of the largest oil refineries in the UK based on the Humber. Roxtec has supplied multi cable transit seals to seal cabling entering massive fuel and oil storage and bund tanks at the refinery.

USAKBR has announced that it has been awarded a contract by a leading chemical company on the Gulf Coast to provide turnaround services for its pyrolysis gasoline (pygas) unit. KBR will conduct services as the general contractor to perform regulatory maintenance, mechanical fixed equipment, piping systems, electrical and instrumentation services for the pygas unit.

USA | REFINERY CONSTRUCTION

Bil nger Westcon, a subsidiary of Bil nger Industrial Services, has been awarded a contract for key project management as well as the construction of a grass roots re nery for Dakota Prairie Re ning, LLC, in Dickinson, North Dakota. The customers are joint venture partners Montana Dakota Utility (MDU)

Resources and Calumet Speciality Products Partners. With a value of E 135 million, the project is to be completed by December 2014.

Bil nger Westcon has been a member of the Bil nger Group since mid 2012. Ground on this project broke in early April of this year.

8June 2013HYDROCARBONENGINEERING

w rld news| INBRIEF

Canada | PROJECT STARTUP

ExxonMobil Corporation has announced the startup of the Kearl oilsands project in Alberta, Canada, which incorporates technological innovations to enhance environmental performance while enabling long term production to meet future energy demand. Kearl will access 4.6 billion bbls of resource that will meet energy needs for the next 40 years.

By combining a high quality resource with ExxonMobil's technologies, proven project execution capability and operational excellence, Kearl will provide attractive returns over the long term with a smaller

environmental footprint than traditional oilsands mining.

Kearl is the rst oilsands mining operation without an upgrader, making lifecycle carbon dioxide emissions for its output similar to those of many other crude oils processed in the US. Kearl uses proprietary paraf nic froth treatment technology to produce bitumen, a process that does not require onsite upgrading and avoids a multi billion dollar capital investment and associated operating expenses. This means the bitumen is processed once, instead of twice, which reduces the amount of emissions generated overall.

Russia | REFINERY UPGRADE CONTRACT

Foster Wheeler AG has announced that a subsidiary of its Global Engineering and Construction Group has been awarded a contract by OJSC Gazpromneft Moscow re nery to provide front end engineering design (FEED) and design documentation in accordance with Russian Norms, for a major investment, termed the combined oil re nery unit (CORU) project, at the Moscow re nery. The value of the award was not disclosed and will be included in Foster Wheeler's rst quarter 2013 bookings.

The CORU project is part of the implementation of Gazpromneft's OJSC

Moscow re nery revamping and upgrading program, under which the re nery will be expanded up to 2020 to process an additional 6 million tpy of crude oil and produce transportation fuels to Euro V standards.

The CORU facilities are planned to include crude distillation and vacuum distillation units, a continuous catalytic reforming unit with naphtha hydrotreatment and hydrogen recovery by pressure swing adsorption, a diesel hydrotreater including a dewaxing section, a gas plant with a LPG sweetening unit and common utilities.

UKYokogawa Electrical Corporation has announced that its wholly owned UK subsidiary, Yokogawa Measurement Technologies Ltd will merge with another group company, Yokogawa United Kingdom Ltd, and trade under the name Yokogawa Measurement Technologies.

USAGE Oil & Gas has announced that it has agreed to acquire substantially all of the assets of Schertz, Texas based Salof Companies, a designer of small scale LNG technologies. Salof is a privately held company known for its cryogenic plant design and fabrication for small LNG and CO2 applications.

IndiaGTC Technology US, LLC, has opened a full service process engineering office in New Delhi. The new facility, GTC Process Technology (India) Pvt. Ltd. (GTC India), is part of GTC's long term plans to bring innovative technologies and solutions to India and surrounding countries. The new office will offer process licensing for the area's refining and petrochemical sectors, and be the company's centre for engineering/procurement/construction management and a regional site for GTC's energy services and process equipment business units.

USASunoco Logistics Partners L.P., has acquired the former Sunoco refinery in Marcus Hook for US$ 60 million and announced plans to develop it into a hub for shipping natural gas liquids from the Marcellus and Utica shale formations.

HCS Group | ACQUISITION MADE

Haltermann Holding GmbH has acquired 100% of shares in Petrochem Carless Holding Limited (PCL), creating a new company for hydrocarbon based speciality products and solvents, HCS Group. The newly

founded group is anticipated to bring a number of strategic bene ts including a broader product range, a more exible production network, and an improved supply chain. Combined annual turnover will be e 650 million.

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10June 2013HYDROCARBONENGINEERING

w rld newsnews digest| DIARYDATES

USA | THE RFS IS WORKING

Brent Erickson, executive vice president of the Biotechnology Industry Organisations (BIO) Industrial & Environmental Section spoke out in favour of the Renewable Fuel Standard (RFS) at this years Advanced Biofuel Leadership Conference.

The RFS was designed to reduce US reliance on foreign oil and, Erickson has insisted, the blend wall is no reason to abandon it. High fuel prices are a symptom of the lack of oil alternatives;

oil re ners themselves have hastened the onset of the blend wall by destroying demand for transportation fuel through high prices. Intended to alter the behaviour of fuel producers, the RFS aims to increase biofuel blending in order to reduce reliance on foreign oil and drive down fuel prices. Hence, the blend wall cannot be cited as evidence of RFS failure. To the contrary, the standard is working as Congress intended.

IEA | NORTH AMERICAN SUPPLY SHOCK TRANSFORMS MARKET

The International Energy Agency's (IEA) Medium-Term Oil Market Report (MTOMR) anticipates that the supply shock caused by a surge in North American oil production will be transformative to the market over the next ve years, causing oil companies to alter their global investment strategies and overhaul the way oil is transported, stored and re ned.

The MTOMR forecasts North American supply to grow by 3.9 million bpd from 2012 - 2018,

accounting for approximately two thirds of forecast non-OECD demand. With large scale North American crude imports tapering off and excess US re ning output looking for markets, the domino effects from this new supply will continue, compensating for declines and delays elsewhere, provided that the necessary infrastructure is in place. Failing this, bottlenecks could pressure prices lower and slow any potential development.

26 - 28 JuneChina International Sulphur &Sulphuric Acid 2013Grand HyattShanghai, ChinaTel: +44 (0)20 7903 2444Email: conferences@crugroup.com

18 - 20 SeptemberGPA Europe 30th AnniversaryConferenceRoxburghe HotelEdinburgh, ScotlandTel: +44 (0)1252 625542

30 September - 3 October42nd Turbomachinery Symposium & 29th International Pump Users SymposiumGeorge R. Brown Convention CentreHouston, TexasTel: +1 979 845 7417Email: info@turbo-lab.tamu.edu

7 - 9 OctoberAFPM Q&A & Technology ForumSheraton Dallas HotelDallas, TexasTel: +1 202 457 0480Email: info@afpm.org

4 - 7 NovemberSulphur 2013 International Conference &ExhibitionInterContinental Miami, USATel: +44 (0) 20 7903 2444Email: conferences@crugroup.com

10 - 13 NovemberADIPEC 2013Abu Dhabi, UAETel: +97 1 2 444 4909

Worldwide | WORLD'S BEST CITY

Dubai has emerged as the most desired location in which to work, according to nearly 8000 oil and gas professionals responding to a survey led by Rigzone. North America's Calgary and Denver were the second and third most popular cities thanks to the work/life balances both cities provide. Each are able to offer easy access to mountain and modern city lifestyles while being close to major conventional and unconventional oil and gas reserves with a broad mix of

majors and independents located in each.

Positions four through 10 on the list are dominated by Asia, with Singapore, Jakarta, Mumbai and Kuala Lumper ranking fourth, fth, eighth and ninth respectively. Western European employment hubs in the sector such as Aberdeen or Stavanger, or fast growing Eastern European centres such as Baku, Azerbaijan, failed to make it onto the list. Cairo, Egypt grabbed the tenth spot.

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12

The Soviet introduction of the principles of glasnost (openness) and perestroika (restructuring) laid the groundwork for a host of economic reforms, some of which continue to this day. It also led to the dissolution of the USSR into Russia and 14 other independent republics, an outcome that surprised many observers. The 1990s were a time of tumult, and Russias economy shrank by half, a disaster that was considered on a par with the 'Great Depression' in the US. The leadership contended with rampant inflation, unemployment, and a host of crippled businesses. The energy industry was sorely affected. Yet by the end of the decade, there were many successes, and real growth was underway. There is no doubt that Russias energy resources contributed to this recovery.

13

14June 2013 HYDROCARBON ENGINEERING

The 14 republics vary in cultural background, levels of wealth, and progress toward economic openness, but Russia continues to play a leadership role among the former Soviet states. Additionally, Russias economic and political strength ensure a continuing influence in Eastern Europe, Western Europe, Asia and the world. Russian fossil energy resources contribute to this. Russia contains approximately 5% of the worlds proven oil reserves, 21% of the natural gas reserves, and 18% of global coal reserves, as depicted in Figure 1. Although oil reserves appear relatively small in comparison to natural gas and coal reserves, Russia has used its oil resource to great strategic effect. Its oil pipeline network is the worlds most extensive and, for some areas, Russia is the only feasible source of oil supply. Russia has emphasised exports, and this article explores the importance of oil and natural gas in Russia and in its foreign trade.

The key role of oil

Changes in Russian demand and the emerging emphasis on oil exports

Analysing the Russian energy sector is complicated by the events surrounding the dissolution of the USSR at the end of 1991. Longer term historical data series on the USSR often could not be disaggregated into the 15 new republics that emerged, so there are major discontinuities in data series.

The years of turmoil also affected the oil sector in numerous ways. While it is common to think of oil as being critical to government revenues and overall economic performance in places like the Middle East and in OPEC countries, it is vital to Russia as well. In fact, Russias ability to provide low cost oil was a key factor in uniting the disparate states formerly in the USSR. The year 1989 has been called The Fall of Communism, and the events of that year have also been called The Revolutions of 1989. With the exception of Romania, these were largely peaceful revolutions to form new governments, with the hope that a shift to market based policies would lift the various states out of economic stagnation.

During the decade of the 1990s, a great deal of work was done to restructure the economy and lay the groundwork for future growth. To a large extent, this was funded by oil revenues. In addition, Russia used its oil resources and its role as a supplier to cement political alliances and to exert political pressure on its neighbours when the leadership deemed it necessary. Russia has been criticised many times for using oil as a weapon, but in fairness many of these criticisms have come from countries and companies that in the past benefitted from subsidised Russian oil and other Russian assistance. Many of the newly formed republics had to wean their economies off subsidised oil, which had led to all manner of market inefficiency, and adapt to global prices. With Russias own economy shrinking, the hard currency earned by oil exports became absolutely crucial, and little was gained by selling at a discount to former members of the USSR.

Russia therefore placed a high priority on exporting oil. In the domestic market, energy demand had fallen, but as Figure 2 demonstrates, the decline in natural gas use was much smaller than the decline in oil and coal use, and by the late 1990s, natural gas use had begun to grow once again. Oil and coal use remained relatively flat, with a resumption of growth in oil use not seen until the mid 2000s, and with a continued slight decline in coal use. Figure 3 shows Russian oil demand by main product grouping, illustrating the sharp drop in diesel and fuel oil use during the 1990s. Oil product use plummeted in the decade following the breakup of the USSR. Between 1990 and 2000, an incredible 4.8 million bbls of demand vanished, equivalent to a drop of -8.2%/y. Demand for fuel oil and diesel fell rapidly, at rates of -12.1% and -8.9%/y. Fuel oil demand has continued to shrink, falling at an average rate of -5.5%/y from 2000 through 2011. In contrast, demand for light and middle distillates has begun to rise, growing at 2.9% and 3.4% respectively from 2000 through 2011. Total oil product demand grew by 1.3%/y from 2000 through 2011. There was a visible dip in demand following the oil price spike in 2008 and the global economic recession. However, this drop in oil use was quite minor in comparison to the drop in demand in OECD countries. As a major exporter of oil, Russian demand can remain robust during times of high oil prices because export revenues buoy the economy.

Russia has given a higher priority to oil exports. By controlling domestic demand and stimulating production, export availability has grown. Figure 4 shows the overall oil balance for the period from 1987 to 2011, as reported by BP.

Figure 1. Russia's share of global hydrocarbon reserves.

Figure 2. Russian natural gas dominates domestic consumption.

EXCLUSIVE TOwww.energyglobal.comBringing you the power of information

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ENVIRONMENTAL GROUPS SUE EPA OVER REFINERY EMISSIONS

Air Alliance Houston and three other environmental groups have led a lawsuit to force federal regulators to review the way in which they calculate emissions from petrochemical plants, oil reneries and other large industrial facilities.For further information go to www.energyglobal.com

TIER 3 PROPOSAL THREATENS ECONOMY AND ENERGY SECURITY

API Senior Downstream Policy Advisor, Patrick Kelly has suggested that Tier 3 sulfur standards could signicantly impact gasoline costs and would come at a time when a wave of other regulations affecting reneries also could be imposed.For further information go to www.energyglobal.com

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NATURAL GAS RISING

Nancy Yamaguchi, contributing editor, takes a closer look at the natural gas industry of the Middle East.For further information go to www.energyglobal.com

API URGES EPA TO RECONSIDER NEW GASOLINE REGULATIONS

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16June 2013 HYDROCARBONENGINEERING

The time of readjustment was accompanied by a drop in oil consumption and a drop in oil output, but by the mid 1990s, the decline in oil production had been arrested, and output began to climb. Oil production dipped below 6.1 million bpd in 1996, but production climbed to 10.3 million bpd by 2011. Growth in output continued, yet consumption stagnated, allowing growth in exports. Exports climbed from 1.86 million bpd in 1991 to 8.69 million bpd in 2011, with a drop seen in 2008 - 2009 caused by the oil price spike. Oil wealth helped Russia weather the 1998 economic crisis and the economic recession after 2008.

Oils growing role in tradeFigure 5 provides a dramatic illustration of oils overwhelming importance in Russian exports by charting the total value of Russian exports, as reported by the Bank of Russia, against the spot price of Brent crude oil. The two data series are plotted on two separate axes, yet their trend lines parallel one anothers very tightly. Brent crude spot prices were approximately US$ 25/bbl in 2002, and prices then began a steady climb until they peaked at approximately US$ 97/bbl in 2008 (the largest price spike occurred in the summer, but this shows the average spot price for the year). The total value of Russian exports climbed in tandem with the oil price, and when Brent spot prices dropped to approximately US$ 62/bbl in 2009, Russian export values fell just as sharply. When oil prices recovered, Russian export values rose on the same trend line as oil prices.

The majority of the drop in the value of Russian exports after the price spike can be attributed to the drop in oil demand in Western Europe, where many economies fell into recession. Figure 6 displays the value of Russian exports to CIS and non-CIS countries. The rst point made by the chart is that the CIS countries contribute far less to Russian export revenues than the non-CIS countries, consistent with the greater level of wealth and larger markets in the Western European economies. The second point is that, when the Western European economies faltered, the drop in Russian export revenues was much sharper. The third point is that Russias trade links with non-CIS countries have grown much more quickly than the trade links with CIS countries.

This relationship also holds true when assessing the cost of Russian imports of goods from CIS and non-CIS countries, as Figure 7 illustrates. The cost of Russias imports from non-CIS countries is roughly six times the value of Russian imports from CIS countries and, when oil prices spiked and fell, there was a sharper drop in Russian imports from the non-CIS countries. In many ways, Russias economy is more strongly tied to Western Europe than it is to the republics that once were part of the USSR, and many Russians also feel strong cultural ties to non-CIS Europe.

Russian oil exports and key pipeline systemsRussias producing oil elds are scattered and often far from population centres, the majority of them located in Western Siberia. Russia also has limited coastal access, particularly at the western reaches of the country, where the Atlantic Basin markets must be accessed via the Gulf of Finland and the Baltic Sea, and the Mediterranean Sea is reached via the

Figure 4. Russia's oil balance.

Figure 3. Russian oil product demand.

Figure 5. Russian export values are determined by oil spot prices.

Figure 6. Values of Russian exports to CIS and non-CIS countries.

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Black Sea. Unsurprisingly, therefore, Russia has built the worlds largest oil pipeline system, approximately 50 000 km of lines run by the state controlled company Transneft. Currently, over 90% of Russias oil is transported by Transneft. Transneft also controls transport of refined products. Some of Russias key pipeline systems are as follows.

The worlds largest pipeline is the Druzhba Pipeline, a 5327 km line capable of carrying 2 million bpd of oil. The line was built to export Russian crude to Poland, Bulgaria, Hungary, Czechoslovakia, and what was then East Germany. It was planned in 1958. The Druzhba pipeline was called The Friendship Pipeline, because each country was responsible for the portion of the line that was within their borders, and this section of line was considered that countrys property. A second stage of construction began in 1965 to meet rising demand. This second pipeline has a length of 4412 km. Druzhba is connected with Western Siberian oilfields via the 2000 km Ust-Balyk-Almetievsk line, built in 1973.

Druzhba is also connected to the Baltic Pipeline System-2, which links terminals near the Russia-Belarus border and extends north to the Ust-Luga terminal on the Gulf of Finland. Construction began in 2009 and was completed in 2012. The Baltic Pipeline System-1 is also known as the Timan Pechora to Primorsk Pipeline. Phase 1 was commissioned in December 2001, allowing exports of Russian crude via the port of Primorsk on the Gulf of Finland. The North Western Pipeline System branches off the Druzhba line near the Russia-Belarus border and sends Russian oil through Belarus to Latvia and Lithuania. This line has a 300 000 bpd capacity.

Russia has worked to develop new oilfields and access new markets. The Tengiz to Novorossiysk Pipeline was commissioned in 2001 to send Tengiz crude from Eastern Kazakhstan to Russias Novorossiysk port on the Black Sea. It is operated by the Caspian Pipeline Consortium (CPC.) This line is being expanded to carry 1.34 million bpd.

The Eastern Siberian Pacific Ocean (ESPO) system, Taishet-Skovorodino-Kozmino Bay, is being built in two phases to deliver Eastern Siberian crude to the Pacific Coast. The first phase, 1491 miles long with a capacity of 600 000 bpd, was completed in September 2010. However, this project has been plagued by scandal, with accusations that various Transneft employees set up shell companies to pose as contractors for the lines construction, eventually bilking Transneft out of US$ 4 billion.

The Purpe-Samotlor Pipeline system was commissioned on October 2011 to expand exports to China and to facilitate development and production from new Arctic oilfields. It will also serve Rosnefts significant new Vankor oilfield. This line will be linked to the ZapolyaryePurpe line, which is under construction, to connect oilfields on the Yamal Peninsula to the ESPO trunkline. The goal is to have this line completed by 2016, and at the same time have new oil production coming onstream from the Zapolyayre field. The new crude supplies are intended for export to China and other Asia Pacific markets.

In South Asia, India is also a potential customer for Russian crude. India has expressed interest in purchasing upwards of 1 million bpd of Russian crude, and a number of cooperative ventures have been discussed. Given the vast distances involved and the barrier posed by the Himalayas, these would not be pipeline projects that connect southwards to India, but rather are proposals to further develop Western Siberian oil and increase its export through the northern seas. As part of these discussions, Transneft proposed a 240 000 bpd line from the Timan-Pechora oilfields to the Port of Indiga, known as the Kharyaga-Indiga Pipeline. The port of Indiga has access to the Barents Sea. This would increase Russian seaborne export capability, but development is complicated by the extreme climate. French company Total is a partner in the Kharyaga field, and the company has noted

18June 2013 HYDROCARBON ENGINEERING

winter conditions with strong winds and temperatures down to -65 C. To combat these conditions, all facilities are insulated, and both the oil and the injection water are gas heated. The waxy crude is kept at 40 C to prevent clogging. Thus, the technology and expertise is available to greatly expand production, but the costs are high, and Transneft has indicated that it would not undertake the new pipeline unless other partners and funds were committed.

Figure 8 illustrates how Russias total oil exports have not only grown, but how their destinations have diversified between 1995 and 2011. The objective of expanding oil exports has focused attention on developing additional oil resources in Western Siberia, including oilfields north of the Arctic Circle and closer to Russias Pacific Coast. While Europe remains the chief customer for Russian oil exports, the new developments target new markets. Increased production, expanded pipelines, and improved coastal access have caused significant growth in exports to the US, for example. In 1995, Russia exported a mere 25 000 bpd of crude and product to the US, less than 1% of Russian oil exports. In 2011, this had skyrocketed to 729 000 bpd, equivalent to over 8% of Russian oil exports. Exports to the Asia Pacific markets jumped from 128 000 bpd in 1995 to 1 662 000 bpd in 2011, and projects are underway that will increase this even further. Exports to China reached nearly 1 million bpd in 2011, and they are expected to grow to essentially whatever level is available when pipelines are completed. Europe historically had purchased approximately 80% of Russian oil exports, but this share fell below 70% in 2011, whereas the Asia market had grown to account for 19% of Russian exports.

Russian natural gas production and exports

Natural gas use and flaring

Oil has been critical to Russian export revenues, but oil export growth has been made possible partly through the increased use of natural gas. Following the dissolution of the Soviet Union, oil consumption dropped sharply, yet oil export revenues began to climb, particularly over the past decade when oil prices began to rise. Natural gas has been substituted for fuel oil in many industrial and power sector uses, and natural gas has satisfied a growing percentage of Russian primary energy needs. In 2011, natural gas use accounted for nearly 56% of Russian primary energy use, while oil accounted for slightly less than 20% and coal accounted for 13%.

In the larger picture, however, natural gas can be said to be underutilised in Russia, and the country is working to change this and to develop remote natural gas reserves. Russia has the worlds largest natural gas reserve, but the majority of the proven reserves are in Western Siberia. A shocking amount of Russias associated natural gas has been flared, more than in any other country. According to the US National Oceanic and Atmospheric Administration (NOAA), Russia accounted for 27% of global natural gas flaring in 2011. Russia adopted programs to reduce gas flaring, and a 28% drop was reportedly achieved between 2007 and 2011. Tengizchevroil (TCO,) for example, launched a four year,

Figure 8. Growth and diversification of Russian oil exports 1995 - 2001.

Figure 9. Russian natural gas exports by pipeline, 2011.

Figure 10. Sakhalin LNG exports by destination.

Figure 7. Values of Russian imports to CIS and non-CIS countries.

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