First oil from Kashagan not far off, says Kazakh energy minister

Feb 07. New Europe. ASTANA

First oil from Kashagan not far off, says Kazakh energy ministerHaving become one of the largest (16.81%) shareholders in the North-Caspian project (Kashagan field,) Kazakhstan has started paying closer attention to the costs associated with the development of this major and much promising project. Kazakhstan’s Minister of Energy and Mineral Resources Sauat Mynbayev, in an interview with New Europe’s Kazakhstan correspondent Kulpash Konyrova, said that accurate calculation is required, as exceeding the Kashagan project development budget will automatically increase the country’s budget spending. He said this year’s spending on the project is expected to be cut by $3 billion.

Mynbayev also talked about the oil pipeline Eskene-Kuryk and the Trans-Caspian project. Last fall, during an official visit of French President Nicolas Sarkozy to Kazakhstan, the national company KazMunaiGas and a French company SPIKAPAG signed a memorandum of understanding. KazMunaiGas also signed a memorandum with two other French companies, one of which would supply pipes for the oil pipeline Eskene-Kuryk, and the other would install the pipes and provide technical support. The oil pipeline Eskene – Kuryk is expected to connect Kazakhstan’s oil fields Tengiz and Kashagan with Baku, from where crude will go by the oil pipeline Baku-Ceyhan to the ports of the Black Sea. Eskene-Kuryk is planned to be about 950 kilometers long, including the connecting pipeline from the oil field Tengiz. The oil pipeline is expected to move 56 to 80 million tons a year.

Minister, according to your own information, last year’s Kashagan budget was cut by one billion dollars. This year, the cut is three-fold. What is the reason for such saving?

Yes, last year the project budget was reduced by one billion dollars, and this is a closed subject now. In 2010, the project budget is planned to be reduced by three billion dollars, out of the total budget of about 10 billion US dollars for the Kashagan oil field pilot and commercial development project for this year. But as far as I remember, this concerns not only the first, but also the second, phase of the project. In addition, according to the agreements that we (the government of Kazakhstan) achieved in 2007 as a result of lengthy negotiations with the members of the consortium, we have now come to a common decision that for each phase we should have a comprehensive and definite technical configuration of the project.

And based on the technical configuration, a precise budget for each phase should be formed. If the budget is exceeded, as you know, automatic compensation of costs by Kazakhstan in proportion to its share in the project may be triggered, which is not desirable for us (the Republic’s share on the project has increased from 8.33% to 16.81%.)

This is why, both we – the Kazakh side, and the members of the consortium should calculate the budget very carefully. It must be clear and precise, because, obviously, for us it is a question of recoverability and non-recoverability of money spent in excess of the budget.

A few days ago you said that there were unresolved issues with respect to some transport projects, in particular, the construction of an oil pipeline Eskene-Kuryk through the Caspian Sea. Can you elaborate on this?

Yes, it is this project that still has outstanding questions concerning financing by foreign banks that seem to support the French company SPIKAPAG (KazMunaiGas’ partner in this project). And so long as nothing is signed on financing, the implementation of the project is in suspense, because the situation with finances, as a saying goes, is still quite up in the air.

You have also said that for KazMunaiGas, as the main negotiator, 2010 will become both key and crucial for both the oil pipeline Eskene-Kuryk and the Trans-Caspian project. Why did you use the word “crucial?”

What I meant was that 2012, the year of the first oil from our main Caspian field, Kashagan, is not far off. And by using the word “crucial,” I meant the readiness of these projects for the big oil. Anyway, there is some time reserve for the members of these two projects, as the international consortium that will develop Kashagan will still transport some part of its crude by railway and some part by the CPC (Caspian Pipeline Consortium, an oil pipeline through Russia) which is under expansion. In addition, as is known, we have a Chinese pipeline. However, in any case, to avoid any rush in the case of considerable volumes from Kashagan, both these projects should be ready by then.

How long will it take to build, for example, such a pipeline as Eskene-Kuryk?

It can well be built as quickly as in one year. However, one should not forget that all those preparatory and organizational tasks take, as a rule, considerable time.