Mastering the Challenges of the Nord Stream Project

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1 Mastering the Challenges of the Nord Stream Project Ruurd Hoekstra, Deputy Project Director Construction, Nord Stream AG Speech for the Scottish Oil Club Edinburgh, 11 th October 2012

2 Energy Infrastructure for Europe Nord Stream > Two parallel offshore pipelines of 1,224 km through the Baltic Sea > Transport capacity 55 bcm per year > A direct and fixed link between Russia s vast proven gas reserves and the European Union > An additional route complementing existing network and other planned pipelines Gas transported by Nord Stream can > Provide 26 million European households with electricity and heating fuel > Make a substantial contribution to EU climate protection goals > Supply consumers since November

3 The Challenges Technical Commercial Permitting Communications Financing Environment Time 3

4 Technical Challenges > Biggest international Offshore Pipeline Project to date > Enormous amounts of steel needed > Very limited number of companies and potential partners specialised in pipe laying > Challenging pipe laying process due to size and weight of the pipes > 1,200 km of pipe laying WITHOUT platform > Smart systems and solutions needed to develop a successful logistics system > Technically challenging hyperbaric tie-ins to complete construction 4

5 Commercial Challenges As a result of the technical challenges: > Purchase of enormous quantities of steel > Companies and partners specialised in pipe laying to be found and contracted Challenges deriving from the general conditions of the project: > Project launch in 2006 (before Financial Crisis) > Strong competition with other planned projects > Tight schedule of the project demanded early commitments to partners and timely blocking of production capacities > Commitments and start of production without guarantee of national permits for construction and operation of the pipeline Challenging financial situation: > 7.4 billion Euro project budget to be secured > Budget to be entirely privately financed 5

6 Permitting, Environmental and Communicative Challenges Time-Driven Permitting Process > Five countries to grant necessary national permits for construction > Nine Baltic Sea states involved in biggest international consultations so far > Positive results mandatory for realising the project Environmental Challenges > 1,224 km route with least impact to be determined > EIAs and extensive surveys and monitoring programmes to prove low environmental impact of construction and 50 years of operation Open & Transparent Communications Needed > Interests of 13 countries to be recognized in communications > Find an appropriate approach for various target audiences 6

7 The Nord Stream Project Implementation on Time and Within Budget Feasibility Study Pipeline design EIA Applications & Permitting Financing Phase I & II Laying Line 1 Start of Operations Line 1 Laying Line 2 Pre- Commissioning Line 2 Commissioning Line

8 A Strong Consortium to Face the Challenges 51% 15.5% 15.5% 9% 9% An independent company with strong shareholders to find the best solutions and experts for succeeding 8

9 Outstanding Design and Logistics Outstanding Technical Design: > Twin subsea pipelines with a length of more than 1,200 km > Diameter: 48 inch > Inlet pressure at Russian landfall: 220 bar > Pipeline s design allows operation without intermediate compressor stations > Pipe wall thickness reduced in two steps as gas pressure drops during transport Reduces the amount of steel required Allows faster pipe laying Efficient and Environmentally-Sound Logistics > 202,000 pipes put in place > Optimized transport routes saved 60 million Euros and reduced 200,000 tons of CO 2 design pressure: thickness: KP 0 KP 297 KP 675 KP 1, bar 200 bar bar 100 bar 34.6 mm 30.9 mm 26.8 mm 9

10 Safety and Reliability of Construction and Operation Safety Track Record: > Adherence to highest international safety standards during construction of the pipeline > Well over 22 million project work hours have been performed > Only 48 lost time incidents > Zero fatalities occurred > Pipe delivery for Line 2 only suspended for a total of 24 hours Safe and Reliable Operations: > 24/7 monitoring system will guarantee safe and reliable gas transportation for the upcoming 50 years 10

11 Construction Facts and Figures Pipe Laying > 1,224 km, 48 subsea pipeline > 2 shore pulls in Germany and Russia > 199,755 pipe joints welded > 724 (0.7%) welding repairs for Line 1 > Over 700 laying days by the three pipe lay vessels for both lines (including transit and waiting on weather days) > 138,850 welds performed for both lines by the C6 between April 2010 and April 2012 > Lay rate on average 2.7 km per day > 2 minutes per pipe needed for ship-2-ship handling in Slite > Line 1 completed on schedule in 13 months, Line 2 completed a few weeks ahead of schedule > 20,000 work hours for pipe laying activities for Line 2 > Pipe delivery for Line 2 only suspended for a total of 24 hours during exceptionally cold winter > Line 2 start of operations in Q

12 Pipe Laying of Both Lines of the Pipeline Completed 2011 May KP 297 June July Solitaire C6 KP 487 KP 470 KP 350 Aug. Sep. Oct. Nov. KP 675 Dec Jan. Feb. March April May KP 1195 * KP = Kilometre Point 12

13 Hyperbaric Tie-Ins Complete the Pipeline Zone 2, Central Offshore section KP 297 KP 675, WT 30.9 mm design pressure of 200 bar Zone 1, Gulf of Finland KP* 0 KP 297, WT 34.6 mm design pressure of 220 bar > After completion of pipe laying, the three sections of the pipelines were welded together under water > Zone 1 and 2: connected at a depth of approx. 80 metres > Zone 2 and 3: connected at a depth of approx. 110 metres Tie-Ins for Line 2 completed in June 2012 Zone 3, South-Western section KP 675 KP 1,224, WT 26.8 mm design pressure of bar * KP = Kilometre Point; WT = Wall thickness 13

14 Mastering the Commercial Challenges Committed Business Partners: > No-turn-key contracting strategy > Worldwide tendering for main procurement packages > Early commitments and start of production was a high risk, but key factor for successful completion of the project! > Excellent cooperation between specialised Nord Stream teams and the industry's leading contractors Solid Financial Structure: > Nord Stream secured a 7.4 billion CAPEX budget > 2/3 of financing provided by banks, 1/3 by the shareholders > External Financing structured in two phases, both phases successfully completed > Financing for both phases 60% oversubscribed > In total, 26 banks are participating in Nord Stream 14

15 Mastering the Permitting, Environmental and Communicative Challenges Meticulous Compliance & Permitting: > Challenging process, lasting 4 years > Five countries granted necessary national permits for construction > In sum, nine Baltic states involved in international consultations Focus on Environment: > In-depth survey of 40,000 km of the Baltic Sea > 140 million Euros invested into environmental studies, planning, route design and monitoring > 1,000 sample locations along the pipeline route proved no unexpected environmental effects Open Dialogue & Transparency: > 450 meetings, 16 international consultations and 25 public hearings were organised > Comprehensive project information published (Espoo-Report, newsletters, brochures, website, YouTube channel) > Sufficient support for gaining national permits for construction of the pipeline 15

16 A Project by the Book: Nord Stream Realised on Time and Within Budget > Nord Stream transports natural gas from Russia to the European Union since November 2011 > Line 1 finished on time and within budget > Line 1 already delivering Russian natural gas to the European Union > Line 2 on track within timetable and budget > Project completion in 2012 Further major import pipelines needed to secure European gas import requirements in the future 16