Kazakh Kashagan may not resume until 2017

Oct 03. Kazpravda

Kazakh Kashagan may not resume until 2017Kazakhstan’s bid to become one of the world’s top oil producers has been blown off course by the disaster unfolding around the giant offshore Kashagan field which may not come back on stream until 2017 — more than 10 years later than initially planned, sources close to the project say, International Oil Daily reported.

Kazakh officials admit that until Kashagan finally starts up, oil production will remain stuck at around 1.6 million barrels per day and may even decline as levels drop off at mature onshore fields. The delays leave a big hole in the Kazakh budget, which had been based around abundant oil flows from the 9 billion barrel reservoir.

After years of missed deadlines, the international consortium overseeing Kashagan began producing first oil in September last year, only to discover to their horror that gas was seeping from one of the offshore pipelines. Operations were suspended pending the results of a full investigation into the leakage, but it soon became apparent that the pipes were defective and needed to be replaced in their entirety. The consortium, known as the North Caspian Operating Co. (NCOC), has not said when production is likely to come back on stream. But Kazakhstan’s deputy energy minister, Magzum Mirgazaliyev, speaking at the annual KIOGE conference in Almaty, said he expects that to happen in the second half of 2016.

But industry sources familiar with the project say the timing is optimistic and that the repair work, which is hampered by the extreme cold of the North Caspian and the presence of deadly hydrogen sulfide in the reservoir, is already behind schedule.

“They have to get this one right — there can’t be any more screw-ups,” the source says.

Another source involved with Kashagan admitted that the schedule was tight and said meetings would soon be held with the government to assess the progress made so far.

When it finally kicks off, Kashagan Phase 1 is due to produce around 50,000 b/d and then ramp up to around 370,000 b/d of crude within two years. So far, the partners have spent close to $50 billion, making Kashagan the world’s most expensive oil project by some distance. There is no indication about the timing of a second phase, which would push production up toward 1 million b/d, and some sources doubt that it will ever go ahead given the project’s tortured history.

“It’s not going to happen, no way”, a source close to the consortium says, although other observers say the Kazakh government will not allow its flagship project to be cut short. They say the government has no choice but to extend the production sharing contract beyond its expiry date of 2041, however reluctant it is do so.

The seemingly endless problems at Kashagan have prompted a restructuring at NCOC, which as of last month was turned into a joint operatorship in which all decisions are made collectively by the seven partners — Exxon Mobil, Total, Royal Dutch Shell, Eni and Kazmunaigas each with 16.81% and China National Petroleum Corp. and Inpex in junior roles — and all subsidiary companies are placed under the NCOC umbrella.