Kashagan Halt Leads Kazakhstan to Cut 2014 Oil Output Forecast

May 28. Business Week

By Nariman Gizitdinov

Kashagan Halt Leads Kazakhstan to Cut 2014 Oil Output ForecastKazakhstan cut its crude oil output forecast for 2014 after a halt at the $48 billion Kashagan project in the Caspian Sea that puts its expansion at risk.

Kazakhstan plans to produce 81.8 million metric tons of oil this year, the same level as in 2013, said Daniyar Berlibayev, deputy chief executive officer of state-owned KazMunaiGaz National Co. That is about or about 1.65 million barrels a day. Kashagan’s suspension wiped 2.4 million tons from the earlier 83 million-ton target for the year, while existing fields will offset some of the shortfall, he said.

Kazakhstan had seen Kashagan, the central Asian country’s biggest oil field, as the ticket to becoming a top-10 global oil exporter. The project was halted in October, a month after output began, because of defects found in pipes carrying lethal sulfur-laden natural gas from the oil field.

“There’s a decision to cease large-scale investments in the second phase of Kashagan development,” Berlibayev said in an interview by e-mail. “All future plans may be contingent on the field exhibiting normal behavior during the experimental phase,” he said, adding that a plan for future development will be decided later.

Berlibayev declined to comment on when oil production at Kashagan may resume before a study of the pipeline defects is completed. Production may resume by the end of next year, Kazakh Economy and Budget Planning Minister Erbolat Dosayev said in April.

Chevron-led Output

Production at fields already operating in Kazakhstan, the biggest energy producer in among former Soviet republics after Russia, will raise output by 1.2 million tons, Berlibayev said, without identifying them. That is lower than an earlier estimate of 1.5 million tons from the economy ministry.

Kazakhstan’s crude output rose to 81.8 million tons last year, with the Chevron Corp.-led Tengizchevroil project producing 27 million tons and the BG Plc, Eni SpA-led Karachaganak field reaching almost 12 million tons, according to the Oil and Gas Ministry’s website.

Tengizchevroil is expected to produce 26.5 million tons of oil this year, with Karachaganak at 11.6 million tons, Berlibayev said. KazMunaiGaz National, a partner in all of the country’s major oil and gas projects, will itself hold output little changed this year at 22.6 million tons, he said.

The Chevron-led partners are considering a more than $20 billion project that would raise annual oil output by 12 million tons by 2020, Berlibayev said. The Tengizchevroil venture plans to submit specific cost data in the third quarter, he said.

China Pipeline

The Karachaganak partners will make a final investment decision on expansion in 2017, he said, adding that financing may come from the project’s earning.

As Kazakhstan seeks to bolster oil output, KazMunaiGaz is holding talks on expanding a pipeline to China. Talks have moved slowly as KazMunaiGaz seeks “acceptable tariffs” from the neighboring country, Berlibayev said. “If a deal is reached, the $1 billion expansion may start this year.”

The expansion may be finished by 2019 with financing expected from Chinese lenders, he said.

Berlibayev declined to comment on whether KazMunaiGaz National Co. would buy out its London-traded unit KazMunaiGas Exploration Production before the state-owned company is included in the government’s plan for share sales. The state company plans to auction a 49 percent stake in oil tanker operator KazMorTransFlot this year, he said.

Kazakh President Nursultan Nazarbayev ordered state property sales this year to cut the government’s share in economy. Central bank governor Kairat Kelimbetov, a deputy prime minister before his appointment in October, said that a KazMunaiGaz IPO “is not beyond the horizon” in an interview this month.