Production at Kazakhstan’s Kashagan field unprofitable at current oil prices

Feb. 3. Trend

By Elena Kosolapova

Production at Kazakhstan’s Kashagan field unprofitable at current oil pricesOil production at the oil and gas field ‘Kashagan’ in the Kazakh sector of the Caspian Sea is unprofitable at current oil prices, Sergey Smirnov, an expert of the Institute of Political Solutions of Kazakhstan, told Trend.

The world oil prices dropped from almost $110 per barrel to below $ 50 in recent months. In case with Kazakhstan, the country heavily depends on oil revenues, which is its main source of income.

Smirnov recalled that earlier the vice minister of energy of Kazakhstan, Uzakbai Karabalin said the average cost of oil in the country is about $50 per barrel.

“But this is so when the onshore fields are included. Marine projects, especially the Kashagan project, are significantly more expensive. Given the difficult geological conditions at the field, the price of the Kashagan oil will clearly be above $50, given the costs that have already been realized. Therefore, at $50-$60 per barrel, the production will be unprofitable,” said Smirnov.

Kashagan is a large oil and gas field in Kazakhstan, located in the north of the Caspian Sea. The production at the field was stopped in September 2013, two weeks after the start due to a gas leak. Another leak was discovered almost immediately after the resumption of production in October 2013. The analysis revealed numerous cracks in the pipeline, which needed to be completely replaced. The replacement was said to take at least two years.

Smirnov reminded that Kazakhstan’s energy minister, Vladimir Shkolnik, said earlier that the production at Kashagan is expected to start by late 2016.

Smirnov believes that if the oil prices will remain at the current level, the project will not be launched in the defined time due to being unprofitable.

“Even if the project is launched, the production volume will not be at the earlier planned level, but just a launch for the sake of showing off, as it was in September 2013,” said the expert.

He added that in this situation, Kazakh government and the shareholders of the project for the development of Kashagan will have to come to an agreement and the time of launching will again become negotiable.

The geological reserves of Kashagan are estimated at 4.8 billion metric tons of oil. The total oil reserves amount to 38 billion barrels, some 10 billion out of them are recoverable reserves. There are large natural gas reserves at the Kashagan field – over one trillion cubic meters.

Smirnov reminded that currently, many countries and foreign oil companies are reducing the volume of investment projects. He believes the consortium engaged in the development of Kashagan will also have to reduce the investments in the project.

The expert added that with the delays in starting the oil production at Kashagan, Kazakhstan will not be able to increase the production volume higher than the current level (81 million metric tons of oil and condensate per year).

“Kazakhstan doesn’t have so many new fields,” he said. “Mainly, old onshore fields are under development and additional exploration of old fields is underway. Large new volumes cannot be opened in old fields. This exploration work can at best save production at current levels.”

In addition, mostly stranded oil, which requires expensive production technologies, is left in Kazakhstan, he said.

“For example, the production cost in Mangyshlak is $80,” the expert said.

Given such prime cost of oil, in case of maintaining the current level of oil prices, decrease in production in the country is quite possible, according to Smirnov.

At the same time, in his opinion, low oil prices may hold on for long enough.

“In Saudi Arabia, the production volumes of which affect the situation now, the production cost of oil is up to $10 per barrel. So they can survive with such prices for 2-3 years if they wish,” said Smirnov.

At the same time, a lot of factors affect the price of oil, including speculative and especially political one, he said. Therefore, it is very difficult to predict anything in this field.

http://en.trend.az/casia/kazakhstan/2361166.html

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