Kazakhstan’s offshore Kashagan oilfield is steadily pumping 300,000bbl/d, the country’s Deputy Prime Minister Mahambet Dosmukhambetov said on the sidelines of the CERAWeek Conference. The next step is now for the project to attain a plateau output rate of 370,000bbl/d, Mr. Dosmukhamedov added. It should be reminded that the achievement of full design capacity, in the context of Kashagan’s first development phase, had been previously delayed until 2018. This setback for the Northern Caspian Sea deposit, whose recoverable crude oil reserves are estimated at 10bnbbl, had to do with gas injection issues. The presently deployed reinjection of sour gas into Kashagan’s high-pressure and high-temperature reservoir serves as a secondary oil recovery method facilitating production ramp-up.
Under a planned $2bn-worth expansion project of gas reinjection, the North Caspian Operating Company (NCOC), made up of Eni, KazMunayGas, Shell, Total, ExxonMobil (each holding a 16.81% stake), CNPC (8.4%) and Inpex (7.56%), aim to take production of the field’s notably sulphurous oil up to 450,000bbl/d. For the time being, the pipeline systems of the Caspian Pipeline Consortium (CPC) and of KazTransOil, Kazakhstan’s largest oil transporter, carry out oil export from Kashagan. As soon as Phase 2 is launched, the territory of Azerbaijan will emerge as an additional export corridor for Kashagan’s oil via the Baku-Tbilisi-Ceyhan pipeline. However, decision-making on this second stage of the Kazakh project has slipped to 2019, as a result of the protracted plunge in oil prices.
Asked whether Kazakhstan will be able to comply with its 20,000bbl/d output cut quota, imposed to the country following a 2016 pact between OPEC and non-OPEC producers to trim a global oil glut and push prices up, against the backdrop of US shale surge and a strengthening dollar, the Kazakh Deputy PM simply answered that ‘’we cannot stop (growth from) Kashagan’’. Overall production from the field in 2017 (8.35Mt of oil and 5.1BCM of gas) is said to have surpassed expectations by 66%, according to Energy Ministry data. Moreover, Kazakhstan’s total oil output rose by 10,5% to 86.2Mt in 2017, while in November and December of that same year, the republic was pumping 130kbbl/d over its target, managing to take Iraq’s place as OPEC’s first biggest over-producer. Even though Kazakhstan’s tenacious macroeconomic challenges have brought OPEC restraint commitments into sharper focus, its cooperation with OPEC and allies has often been put to the test because of its resoluteness in observing contractual obligations to investors in large oil and gas projects. The fact that Kazakhstan seeks to benefit from OPEC’s slight laxity in price and production discipline, when it comes to major ventures such as Kashagan, Tengizchevroil and Karachaganak, has led to Kazakhstan getting repeatedly told off by the cartel for willfully deviating from its cut pledge, along with Iraq, Iran, the UAE and Malaysia. However, a revision of the symbolic, as deemed by Kazakhstan if compared to more generous cut engagements taken up by Russia or Saudi Arabia, 20,000bbl/d curb is currently off the table, Mr. Dosmukhambetov explained in Houston.
Nevertheless, the actual government and individual NCOC partners’ views concerning ambitious increases at Kashagan appear somewhat divergent. Kazakhstan’s Energy Minister Kanat Bozumbayev recently specified that some 10.8Mt of oil and 6.8BCM of gas are to be released from the field in 2018. Furthermore, both Mr. Bozumbayev and NCOC managing director Bruno Jardin have declared their intention to soon enough reach the 370,000bbl/d goal. But fresh statements by Shell and Total high-ranking representatives show that international energy companies cautiously appraise future development of Kashagan, in light of oil prices hovering at roughly half their 2014 levels and of technical predicaments getting in the way. They, thus, prefer to derive valuable knowledge from the subsurface of the biggest single oilfield discovered in the world since 1968, instead of hastily moving forward with large-scale investments. With oil and gas sector revenues as the main drivers of the country’s GDP growth, one should normally expect Kazakhstan to set the stakes high in relation to the progress of its offshore business, despite the cut promises made to OPEC/non-OPEC allies. Latest amendments introduced to the national subsoil legislation, which simplify the process of obtaining the subsoil use right and the issuance of the prerequisite permits, indicate the country’s willingness to create even more favorable investment conditions for foreign companies. On the other hand, it seems evident that already active international firms, like NCOC stakeholders, as well as entrants to yet unexplored areas, like Eni in the case of Isatay block, are more inclined to take modest, albeit non-negligible, investing steps amid the new low-price oil environment.
Available online at: http://www.caspianpolicy.org/energy/caspian-energy-insight-march-16-2018/#2
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