Aker Solutions :: Sakhalin - Concrete advance in Russia

July 1, 2003 was a red-letter day for the group with Aker Kvaerner Technology signing a contract worth about USD 150 million for engineering and services in connection with two concrete gravity-base structures (GBSs) for the Sakhalin II, phase 2 development – the first such structures to be built in Russia. Aker Kvaerner Technology’s partner QuattroGemini Ltd of Finland signed a contract worth some USD 100 million for construction and installation of the substructures.

The contract with Aker Kvaerner Technology was signed on the group’s behalf by Simen Lieungh, executive vice president, Field Development Europe. Also present was Aker Kvaerner Technology’s project manager during the tender and start-up phase Erik Gulbrandsen. The client, Sakhalin Energy Investment Company (Sakhalin Energy), was represented at the ceremony by Jeroen van Beek, platform installation and commissioning manager. Sakhalin Energy’s shareholders are Shell Sakhalin Holdings BV, Mitsui Sakhalin Holdings BV and the Mitsubishi-owned Diamond Gas Sakhalin BV.

Landmark Project
Sakhalin II, phase 2 is a landmark project for Russia. It involves an investment of some USD 10 billion, the largest single foreign investment in the country to date, in one of the biggest oil and gas developments ever undertaken. Reserves of some 1.2 billion barrels of oil and 17 trillion cubic feet of gas in the Piltun-Astokhskoye and Lunskoye fields off Sakhalin Island will be developed. The gas will be processed at a new liquefied natural gas (LNG) plant with capacity of 9.6 million tonnes a year to be constructed at Prigorodnoye in the south of Sakhalin Island. The LNG will be exported to Japan, establishing Russia as a leading energy supplier to the Asia Pacific market. Year-round oil production is scheduled to start in 2006 and gas in 2007 – the previous stages of Sakhalin development are limited to seasonal production.

Aker Kvaerner’s involvement in the project goes back to February 2002, when it was one of five contractors asked to prequalify for the GBS contract, explains Gulbrandsen, who on the day of the contract signing handed over the mantle of project director to Astor Nyborg. The project is organized as an integrated team comprising Aker Kvaerner, QuattroGemini and the Finnish company RROffshore Oy, which will undertake the main mechanical outfitting. Aker Marine Contractors has been nominated for tow-out and installation of the substructures, which is an option in the contract. The steering team committee which coordinates the consortium’s work is headed by Risto Neuvo, Aker Kvaerner’s senior vice president FSU.

Bids for the two concrete structures – LUN-A for the Lunskoye field and PA-B for Piltun-Astokhskoye – were submitted in December 2002. In February the consortium was awarded a USD 20 million preliminary works agreement. "We won the contract because we had the best price and the best technical solution," says Gulbrandsen. "We took a very proactive approach to optimizing the structures and getting the price down. We also showed that we are fully committed to HSES – health, safety, environment and security of our personnel, a vital element for both the client and ourselves."

Maximizing Local Content
Sakhalin Energy selected concrete as offering the best means of maximizing Russian content, both in terms of materials and man-hours. Gulbrandsen is confident that the project’s target of 70 per cent Russian content in terms of material and personnel can be met. Russian subcontractors will be responsible for activities such as building the casting basin and site facilities, material deliveries and prefabrication of mechanical outfitting, concrete construction and deliveries of cement, rebars, sand and aggregate, and the installation of mechanical outfitting. Peak requirements of 1,400–1,500 persons is due to be reached in September 2004. Most of the engineering will be carried out in Norway and Finland.

Work has already begun on excavating 42.4 million cubic feet (1.2 million cubic meters) of soil to form the casting basin at Vostochny Port at Nakhodka near Vladivostok. Concrete construction begins next December and the GBSs are due to be completed by spring 2005. Tow-out and field installation – Aker Marine Contractors’ first job in Russia – will take place that summer.

Gulbrandsen welcomes the opportunity to put the group’s long experience in concrete to be used again. The previous Aker subsidiary Norwegian Contractors was after all the dominant force in the design, construction and installation of concrete-base platforms in the North Sea from the 1970s to the early 1990s, when Troll A, the last of the Condeep giants, was installed. Gulbrandsen himself was involved in developing the Condeep design in the early 1970s, and before that in the construction of the Doris-designed Ekofisk Tank. The group’s most recent involvement in a concrete platform project was the Hibernia GBS off eastern Canada for Mobil in the late 1990s.

The Sakhalin concrete structures differ considerably from the Condeeps. They are designed for shallow water depths – 98.4 feet (30 meters) for PA-B and 157 feet (48 meters) for LUN-A – have no oil storage facilities, and will have their topsides installed on the field by float-over between the four shafts. The topside loads will be heavy – 28000 tonnes for LUN-A and 35000 tonnes for PA-B. The substructures have been designed to withstand testing environmental conditions. Not only is the region subject to seismic activity, but for eight months in the year the sea is covered with pack ice three meters thick on average, drifting from the Sea of Okhotsk to the north.

Market Potential
The current contract marks an important step forward for Aker Kvaerner’s aim of establishing itself as a leading contractor in the Russian oil and gas market. There is an enormous potential to be exploited in this market, both onshore and offshore. There are substantial offshore reserves, both in the Sakhalin region and off the northern coast. However, the only offshore development so far has been at Sakhalin, where there is currently one platform installed, which is also operated by Sakhalin Energy.

Over the last decade, Aker Kvaerner has worked to establish its credentials in Russia through a number of smaller projects. These include an early involvement in the Sakhalin I project, an environmental study of the Barents Sea for Agip and Neste, a study of Arctic transportation systems for Conoco and a study of an LNG export terminal for Gazprom. It also includes various studies for Norsk Hydro on the Shtockman field in Barents and some substantial deliveries to the Caspian Sea. We have a representative office in Moscow and are considering opening an engineering activity there as well.

According to Mr Neuvo the group feels it is well positioned to move on to a more substantial involvement. "We think the technology the group possesses is very suitable for Russia," he says. "We are used to tackling projects in harsh conditions and cold climate with a high level of environmental performance. We also have a good understanding of the Russian legislative system, including classification society regulations, which is important."

Among the areas of expertise the group has to offer is ice technology. Kvaerner Masa-Yards, which has a world-leading ice laboratory in Finland, is well qualified to tackle the challenges of offshore production in ice conditions. The group’s concrete expertise could also prove highly relevant, in Neuvo’s view – not only does it enable high local content requirements to be met, but it can be used in environments where steel may not be the best solution.

Cultivating Partners
The group has developed its relationship with several Russian contractors and suppliers to the point where Neuvo calls them ‘partners’. He stresses the importance of long-term working relationships, so that when a project opportunity arises, the partners are comfortable working together. Aker Kvaerner has also been attentive to building relationships with the Russian oil and gas companies Gazprom, Lukoil and Yukos. "These are important customers for us – they are growing in size and will have a key role in future Russian developments," Neuvo notes.

There are challenges to be faced, such as the different business culture and the fact that English is not widely spoken in Russia, nor Russian in Norway. But none of them is insuperable, according to Eva-Irmelin Helgesen, Aker Kvaerner Technology’s administration coordinator for the project. A fluent Russian speaker herself, Helgesen has had a close involvement in the group’s activities in Russia for 10 years. She believes Aker Kvaerner’s Finnish arm has a role to play in bridging the gap between the two sides, as many Finns have a good knowledge of the Russian language and culture.

So there is optimism in the group that the Sakhalin GBS contract will prove an important building block in the establishment of the group as a long-term contributor to the development of Russia’s oil and gas reserves. "We have the technology, we have the partners, and we have the desire," says Gulbrandsen, who will now dedicate himself to business development in Russia. "We intend to do a first-class job on the Sakhalin contract, and hope that this will lead on to more heavy-weight assignments in Russia."

The Sakhalin II project comprises two fields in the sea of Okhotsk offshore Sakhalin Island:

• the Piltun-Astokhskoye field which is primarily an oil field with some associated gas;

• the Lunskoye field which has large reserves of gas and some oil.

The two fields together contain in place reserves of approximately 140 million tonnes (1 billion barrels) oil and 550 billion cubic meters (20 trillion cubic feet) natural gas. The oil reserves equate to more than one year of crude oil exports from Russia at the current level of around 2.5 million barrels per day (16 560 m3/hr).

The gas reserves represent nearly five years of Russian gas exports to Europe, or enough to supply current global LNG demand for four years. The fields are located approximately 9 miles

(15 kilometers) off the north-east coast of Sakhalin in waters frozen for six months of the year.

http://www.sakhalinenergy.com/project/index.htm