Abakan Inc. News

The growing and critical need for pipelines that can withstand the extreme assault of corrosion.

To our Valued Shareholders,

The Reuters article below on Kashagan, “the world’s biggest oil find in 35 years” is a testament to the growing and critical need for pipelines that can withstand the extreme assault of corrosion as we continue to encounter oilfields with extremely high content of corrosive elements; the International Energy Agency estimates that 7 out of 10 remaining oilfield reserves in the world are highly corrosive.

Among the technological challenges that are being faced to put several oilfields into production; one of the most important challenge is the material selection for the extreme corrosive environments encountered in almost 70% of the remaining oilfields. High pressures and temperatures coupled with high content of corrosive CO₂ and H₂S, leads to the high demand and need for pipes and oilfield components that can withstand the assault of corrosion.

Clad pipes have proven to be the most economically viable option for production and transportation of sour oil and gas. Clad pipe is typically produced by cladding (coating) a low-cost carbon steel pipe with a thin layer of expensive corrosion-resistant stainless steel or nickel alloys; which costs a fraction of using a more expensive solid stainless steel or nickel alloy pipe (8-40 times higher cost). While cladding carbon steel pipes is cheaper than using solid alloy pipe, the conventional technologies used to produce clad pipe have several limitations. Clad pipes manufactured using the CermaClad technology due to its strong metallurgical bond and mechanical properties are easier to inspect, bend, reel, and install unlike the mechanically lined pipes; and provide a seamless cladding unlike the roll bonded plate to pipe alternative. More importantly, there is huge demand for thick-walled clad pipes in Gulf of Mexico and Brazil, and a massive requirement for large-diameter clad pipes in the Asia-Pacific and MENA regions – the mechanically lined pipe and roll bonded plate to pipe alternatives are not ideal for thick-walled and large-diameter clad pipes due to several quality and mechanical limitations. CermaClad pipes provide the ideal solution for thick-walled and large-diameter clad pipes. With a host of value propositions that are a magnitude better than competition, it comes as no surprise to us, that our CermaClad technology was recently honored by National Association of Corrosion Engineers (NACE) with the “Corrosion Innovation of the Year” award for the best anti-corrosion coating technology across the globe.

About five years ago, the average requirement for corrosion-resistant clad pipes was for 3 to 5 kilometers whereas the larger requirement was 20 to 30 kilometers for a single project. However, today we are seeing the average requirement being in the tens of kilometers and the higher end to be hundreds of kilometers of clad pipe for single projects, with single projects requiring close to $500 million worth of clad pipe. Leading oil and gas companies are evaluating capacity and availability of clad pipes for their projects, since several large projects have been delayed due to lack of quality corrosion-resistant clad pipes, which is a testament to the growing requirement for clad pipes.

As we continue to make significant progress with the development and qualification of our corrosion-resistant clad pipe product; we continue to see tremendous growth for corrosion-resistant clad pipes, without which several large projects like Kashagan might come to a grinding halt.

Sincerely,

Robert H. Miller,
CEO, Abakan Inc.

UPDATE 2-Kashagan may fail to restart this year if offshore pipes damaged

Reuters: Mon Apr 7, 2014 6:32am EDT

• Possible cracks offshore may take much longer to fix
• Offshore test results for cracks expected in late May
• Kazakh government running out of patience (Releads, adds government official)

By Raushan Nurshayeva

ASTANA, April 7 (Reuters) - Output at Kazakhstan's huge Kashagan oilfield may fail to restart this year if test results expected in May show cracks in the offshore part of its pipeline network, Kazakh Oil and Gas Minister Uzakbai Karabalin said on Monday.

An inspection of the pipelines is under way and "suspicions have emerged" of microcracks in those laid in the Caspian Sea, Karabalin told reporters.

Kazakhstan, Central Asia's largest economy and the second-largest post-Soviet oil producer after Russia, is pinning hopes for future prosperity on Kashagan, whose recoverable reserves are estimated at 9 billion to 13 billion barrels of oil.

Production at the offshore deposit, the world's biggest oil find in 35 years, started in September but halted in early October after the detection of gas leaks in the $50 billion project's pipeline network.

Asked when output could be restarted, Karabalin said: "It's impossible to say anything right now ... because suspicions have emerged that there may be microcracks in the offshore stretch of the pipeline as well."

He said closer checks of "possible risks offshore" were hampered by ice melting in the shallow Caspian Sea. These checks must be completed in late May, he said.

"Then it will be clear whether there are cracks in the offshore part of the pipeline network. If they really are there, this would lengthen the duration of previously planned work.

"Contractors have various scenarios - the easiest one is if it's just onshore. In this case, this can be mended and then, probably, it (output) will be this year."

However, if cracks are confirmed in offshore pipelines, "we will have to wait for shipping to resume and lay pipelines then", Karabalin said.

"Of course, this would mean a far longer timespan. Now we await a final decision pending the results of the inspection."

DELAYS TRY GOVERNMENT'S PATIENCE
Delayed output at Kashagan has unsettled Kazakh authorities, which have already sued the consortium operating the oilfield for 134 billion tenge ($737 million) over ecological damage.

"This is a very complex project, which I believe will start working in the end. But the question is: how much it is going to cost and who is going to pay for these flaws and mistakes," said a Kazakh government official who declined to be identified.

The consortium said last month it would challenge the fine, potentially raising tensions with the government, which in recent years has become more assertive in dealing with foreign investors and has used legal action as leverage to increase participation in some energy projects.

The multinational group has identified stress cracking due to sulphur-laden gases as "the root cause of the pipeline issues" at Kashagan.

Much of Kashagan is built on artificial islands to avoid damage from pack ice in the Caspian, which freezes for five months a year in temperatures that drop below minus 30 Celsius (-22F).

The North Caspian Operating Company (NCOC) consortium, led by Exxon Mobil, Royal Dutch Shell, Total, Eni and Kazakh state oil firm KazMunaiGas , had to achieve a "commercial output" level of 75,000 barrels per day in October to meet its contractual obligations.

An NCOC spokesman has said the group was in the "ramp-up phase" and achieved this level, but did not sustain it long enough to count it officially as "commercial output" before production stopped.

NCOC also includes Japan's Inpex with 7.56 percent and China National Petroleum Corp (CNPC) with 8.33 percent, which it bought from ConocoPhillips last year.

During Kashagan's development, NCOC had originally planned to increase output gradually to 370,000 barrels per day in the second stage from 180,000 bpd in the first stage in 2013-14.

(Writing by Dmitry Solovyov; Additional reporting by Mariya Gordeyeva in Aalmaty; Editing by Jason Neely and Dale Hudson)