MONTREAL - Kazakhstan's huge offshore Kashagan deposit may be developed earlier
than previously expected, according to Bolat Akchulakov, the head of
Kazakhstan's state company KazMunaiGaz (KMG). The field's expansion for
so-called "primary production" may be accomplished by 2017-2018 instead of two
years later as currently projected, he said recently, on condition that the
consortium partners decide the strategic plan for that expansion within the
next few months, subject to government approval.
Therein lies the rub - one of the Kashagan consortium members, said to be
ExxonMobil, is persistently reported to want out, a reflection of the fluidity
in the development and production consortium that militates against streamlined
decision making. Smaller-scale "industrial" production is currently scheduled
to
begin at the end of 2012, but even this looks increasingly like wishful
thinking.
An Indian consortium led by ONGC Videsh Ltd (OVL, the foreign arm of Oil and
Natural Gas Corp) and including Gas Authority of India Ltd (GAIL) and a third
partner that is itself a consortium of two other companies had expressed an
interest in ExxonMobil's present stake in Kashagan.
This week, however, that third partner, comprising Indian Oil Corp (IOC) and
Oil India Ltd (OIL), dropped plans to participate in any such buyout, saying
that it would cost too much, produce little value added, and yield too small a
share of the overall pie to be worthwhile.
OVL and GAIL continue nevertheless to be interested; a separate report mentions
the State Oil Company of the Azerbaijani Republic (SOCAR) as another potential
bidder, although this remains to be confirmed.
The Kashagan oilfield in the north of the Caspian Sea, discovered in 2000, is
the largest discovery worldwide since Prudhoe Bay (Alaska) more than 40 years
ago. It is in very shallow water and topped by a very high pressure gas dome
that is in turn sealed by a salt dome. External temperature extremes range from
minus 30 Celsius in winter to plus 40 Celsius in summer, and sulfur content is
estimated at 16-20%, presenting a significant threat of pipeline corrosion.
All these circumstances have presented significant technical challenges,
particular in view of Kazakhstani law that does not allow the gas to be flared
into the atmosphere.
Kashagan's reserves are estimated at 38 billion barrels, of which a maximum of
one-third are thought to be recoverable. It was originally scheduled to enter
into production in 2005, but the date has been continually postponed over
technical challenges and issues about the nature of participation by KMG. Also
there were complaints over delays in implementing production plants, increasing
costs and disputes over how to cover them, and allegations of environmental
violations.
Kazakhstan enacted in 2007 a law permitting the government to revise or revoke
natural resource contracts deemed to be at cross-purposes with national
security. In the negotiations that followed, KMG increased its stake to 16.81%
while other major shareholders - Eni, ExxonMobil, Royal Dutch Shell, and Total
- acquiesced in theirs falling to 16.66%; ConocoPhillips and Inpex hold still
smaller stakes. (BG Group, formerly British Gas, had already sold its stake in
the original project consortium in 2004.)
The consortium was also restructured in 2008 to give KMG a larger management
role: it provides the permanent secretariat while the titular operatorship of
the consortium rotates among the other major stakeholders.
The end-of-decade date currently estimated for Kashagan primary production was
bruited after French companies (including Total, a major stakeholder in the
Kashagan consortium) failed a year ago to follow through on their option to
pursue planning for construction of the Kazakhstan-Caspian Transportation
System (KCTS) project, which would have taken Kashagan oil onshore to Kuryk,
near Aqtau. It would have been shipped from there across the Caspian Sea to
Azerbaijan for insertion into the Baku-Tbilisi-Ceyhan pipeline to the eastern
Mediterranean.
French President Nicolas Sarkozy had hoped that the KCTS would provide jobs for
his country's metallurgical and manufacturing industry.
For transiting Kazakhstan's (or Turkmenistan's) oil across the surface, a few
relatively small tankers have been built, and a few more are still to be built
in a new Baku shipyard. However, Kazakhstan stopped sending oil to Azerbaijan
last year in a dispute over transportation fees, and Turkmenistan took up the
slack.
Other oil from Kazakhstan has in small quantities for years transited
Azerbaijan either for insertion into the still-existing Baku-Novorossiisk
pipeline or for carriage across Georgia to Batumi, whence to Romania where KMG
bought the Rompetrol Group several years ago.
KMG's exploration and production arm has, for its part, announced plans to
acquire as much as $2 billion to $2.5 billion of oil and gas assets in Iraq,
the Middle East, Russia, and Turkmenistan. Increasing its own stake in Kashagan
is excluded from that basket, but it is set to include "fields previously owned
by MangistauMunaiGaz", probably meaning the Kashagan-associated offshore
Kalamkas deposit among others.
Dr Robert M Cutler (http://www.robertcutler.org),
educated at the Massachusetts Institute of Technology and The University of
Michigan, has researched and taught at universities in the United States,
Canada, France, Switzerland, and Russia. Now senior research fellow in the
Institute of European, Russian and Eurasian Studies, Carleton University,
Canada, he also consults privately in a variety of fields.
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