Nord Stream and OMK sign a contract for offshore pipes
Nov. 6, 2007 | Zug | Nord Stream AG, Zug, Switzerland, and United Metallurgical Company (OMK), Vyksa, today signed a contract for the supply of steel pipes for the construction of the pipeline through the Baltic Sea. OMK will supply 25 per cent of the pipes for the first line of the 1,200 kilometre pipeline from Vyborg in Russia to Greifswald in Germany. 75 per cent of the volume needed for the first pipeline has been awarded to the EUROPIPE, based in Mülheim on the Ruhr, Germany.
The order awarded to OMK covers over 280,000 tonnes of high quality steel pipes. In total, Nord Stream AG is investing more than 1 billion Euros in the pipes for the first pipeline. By signing this contract for pipe supplies up to the beginning of 2010, Nord Stream has secured pipes for the first pipeline to ensure security for its supplies.
For the first time, a Russian pipe producer was contracted to supply high-quality pipes for a major offshore pipeline. As OMK is a new player on the offshore pipe market, its trial production was tested and certified by the independent DNV (Det Norske Veritas). This certification guarantees the highest international standard.
Result of a world-wide call for tender
The world-wide call for tender for the supply of pipes was made at the end of November 2006. Nord Stream, together with its shareholders, had already conducted an international study aimed at identifying possible suppliers. On the basis of this study, six manufacturers in Germany, Russia and Japan were invited to bid. The companies participating had to prove that they were able to supply high pressure-proof steel pipes with a large diameter for offshore use, in accordance with international quality standards and in the volume required. Four companies met these criteria. After examining their offers, one quarter of the order volume was allocated to the Russian pipe mill OMK, and three-quarters to the German manufacturer, EUROPIPE. Both companies are DNV-certified. They have the necessary capacity to manufacture and supply the pipes ordered in the years up to the beginning of 2010. Technical, commercial and capacity related criteria determined the split between the suppliers.
A new pipe supply tender will be held for the second pipeline. By then, the number of technically qualified pipe mills is expected to increase.
Important project step
The contractual agreement is an important intermediate step for the intended completion of the first pipeline in 2010. One-third of the pipes to be laid, i.e. more than 400 kilometres, must be available at various logistic sites when construction starts in 2009. By then, the entire production chain must have been completed – starting with steel production, plate and pipe production, up to and including the transport to coating and marshalling yards for the offshore installation.
Budgetary planning
As soon as the major contracts have been signed, Nord Stream will be able to use the prices contained in the bids received for the supply of pipes and the provision of logistics services and installation capacity as a real costing basis for a detailed project budget for the 1,200 kilometre pipeline. At the moment, Nord Stream calculates at least 5 billion Euros. A long-term cost comparison shows the economic benefits of laying the pipeline across the Baltic Sea rather than onshore. Total costs for Nord Stream, including operating costs for a period of 25 years, are estimated to be around 15 per cent below those for an equivalent onshore pipeline with the same transport capacity. The saving is mainly due to the compressor stations needed for an onshore pipeline which contribute to comparatively high operating costs.
The shareholders have injected equity into Nord Stream AG as required by the estimated project budget. This has been recorded in the Commercial Register. Further equity increases will be undertaken as required by the project budget in 2008 thus ensuring that Nord Stream has the necessary capital to meet its cash flow commitments.
