Oil output from Kazakhstan’s immense Kashagan field has gradually picked up following power disruptions at its onshore portion and the subsequent halt to an offshore plant two days later, the country’s Energy Ministry stated. According to a report released by the International Energy Agency (IEA) on January 19, Kashagan’s ongoing ramp-up could achieve an envisaged plateau of 370kbbl/d in 2018 from the 250kbbl/d produced by the end of 2017. Such an increase, attained providing that the presently deployed gas reinjection goes well, would more than double Kazakhstan’s present liquids output of approximately 1,7MMbbl/d. After completion of an expansion project, Phase One production capacity is set to extend at a target level of 450kbbl/d. As for the decision-making on the project’s second phase, this one has slid to 2019 in hopes of a much-anticipated oil price recovery. Up until November 2017, production at Kashagan had reached 7,3 million tons, exceeding the annual plan by 46%. Overall production from the field in 2017 is said to have surpassed expectations by 66%, the Kazakh Energy Ministry estimates.
Kashagan, located some 50 miles offshore in the northeast of the Caspian Sea, is the largest single oilfield discovered in the world since 1968. With its first vertical well drilled back in 2000, the field is being developed by a group of companies including Eni, KazMunayGas, Shell, Total, ExxonMobil (each holding a 16.81% stake), CNPC (8.4%) and Inpex (7.56%). It took about 16 years and around $55bn of investments in order for the field to start commercial output. Growth from Kashagan constitutes the main reason why Kazakhstan has often ended up in the list of the non-compliant petrostates, along with the UAE, Malaysia and Iraq, despite its pledge to cut domestic output by 20kbbl/d under the OPEC+ Declaration of Cooperation. In fact, Kazakhstan’s total oil production in 2017 has reportedly risen by 10.5% to 86,2 million tons, Economy Minister Timur Suleimenov said on January 11, although the Ministry of Energy initially projected an increase of 85,5 million tons for the same year. Moreover, in November and December 2017, Kazakhstan was pumping 130kbbl/d over its target, managing to take Iraq’s place as OPEC’s first biggest over-producer. The latter overran its production quota by 100kbbl/d during the same period. However, Kazakhstan’s overall production fell by almost 300kbbl/d as of January 2018, the country’s Energy Ministry announced.
The issue of Kazakhstan’s conformity with the voluntary adjustments in oil production, dictated by the recently prolonged OPEC/non-OPEC pact, has spurred intensified discussion. Serving as an example of how overreliance on revenues from the oil sector reveals the commodity producer’s vulnerability to external commodity price fluctuations, Kazakhstan’s protracted fiscal challenges have brought OPEC restraint commitments into sharper focus for the national economy. Nevertheless, Kazakhstan has chosen to view its 20kbbl/d production cut goal more as a symbolic move, in comparison with promises made -and in many instances not kept- by oil leaders like Russia and Saudi Arabia. In the words of the Astana-based Energy Ministry, Kazakhstan is determined to keep up cooperation with OPEC and its associates, while at the same time trying not to infringe ‘’contractual obligations to partners-investors working at large oil and gas developments.’’
Kashagan is, of course, considered such a large-scale project, and one that also attracts significant US investment interest. During his last week’s meeting with the US Secretary of Energy Rick Perry in Washington, the Kazakh President Nursultan Nazarbayev expressed satisfaction regarding bilateral collaboration in Kazakhstan’s oil and gas industry, underlying the need for further coordination among investors towards crude oil processing. It is true that key projects of American interest in Kazakhstan have to do with oil. Except for Kashagan, Tengiz reservoir is deemed by Chevron to be its second most important investment behind the company’s Permian wells. Production from the Tengizchevroil project is planned to rise by a further 260kbbl/d within 2018. Chevron likewise participates in the Karachaganak Petroleum Operating with an 18% stake, behind Eni and Shell, who hold a 29.25% each. An output boost at Karachaganak field is equally scheduled to be activated after a nearly 2% reduction observed in 2016, once a dispute between the consortium and the Kazakh government over profit sharing in the project is settled, casting extra doubts on Kazakhstan’s ability to continue with OPEC cuts on the same terms.
Still, it is worth mentioning a discerned investment fatigue from the part of most private oil majors (with the addition of those from the US) in relation to new subsoil discoveries in Kazakhstan.
This is shown by their notable absence from the newly formed consortium targeting deep-water oil reserves in the Caspian Depression. The revival of the so-called Eurasian Project is going to be put into effect mostly by state-controlled firms (Rosneft, CNPC, KazMunayGas, SOCAR), with the exception of the majority private-owned Eni. This sort of tendency can be associated with the general dearth of capital investments in upstream projects because of the volatile oil prices, as well as with a decision of the sector’s giants to look towards renewables seeking survival in the transition to a low-carbon world. In spite of the particular drift by its primary investors, Kazakhstan in December 2017 adopted a new piece of legislation, which lifts previously existing barriers to the subsoil user’s activity. In addition, the country in no way withdraws the permanent request for OPEC’s leniency on projects like Kashagan, remaining resolute in its efforts to keep its offshore oil business alive and thriving.
Available online at: http://www.caspianpolicy.org/energy/caspian-energy-insight-january-25-2018/#4