Clare Nuttall in Astana -

Rig shortages are already delaying drilling in the Caspian Sea, a trend that could intensify as drilling increases over the next decade. But because the Caspian is isolated from international waters, national oil companies are having to invest in their own rig production to alleviate shortages.

Between 2012 and 2020, drilling activity in the Caspian is expected to increase by 39%, with at least 217 wells to be drilled, compared with 156 in the previous eight years, according to a new report from the consultancy Wood Mackenzie. The Caspian's combination of deep and extremely shallow waters requires all types of units including ultra-shallow water barges, conventional jack-ups and deeper water semi-submersibles.

A rig shortage has already led to drilling delays. "In Kazakhstan, for example, the state company KazMunaiGas has an ambitious exploration programme for the Caspian Sea, which for several reasons, including the slow process of licensing the blocks and finding partners to help drilling in the Caspian, has barely started," Matthew Shaw, senior analyst at Wood Mackenzie, tells bne. "Against the background of the slow pace of negotiations, has been the fact that there have been very few rigs available in the last few years, so there has been no rush to sign contracts."

The report points out that faced with an acute shortage of rigs, "a number of new units have been commissioned and more are planned." However, the Caspian is a closed market, unlike the fluid market for rigs on international waters. "When drilling in any other part of the world, whether it's the North Sea, the Gulf of Mexico or South East Asia, it's possible to bring in rigs very easily - albeit at a cost - from another part of the world," Shaw points out.

However, it's far more difficult and expensive to transport new rigs to the Caspian. "The isolated rig market can lead to large fluctuations in day rates as units move in and out of work. Overall well costs remain high owing to the expense (and long lead times) of importing materials and equipment," the report says.

Rigs can be transported to the Caspian from the Mediterranean through the Bosporus Straits into the Black Sea and then along the Don river, the Volga-Don canal and the Volga into the Caspian Sea at Astrakhan. However, they have to be cut into pieces to fit under the Bosporus bridges and along the Volga-Don canal, which considerably adds to the cost of transportation.

Until recently, the only rig-building yard in the region was at Astrakhan, but both Azerbaijan and Kazakhstan have recently started production. Kazakhstan's KazMunaiGas has sought to address the problem by persuading international companies negotiating for the rights to exploration blocks to help it build rigs. The first Kazakh rig was built with the help of the Korean consortium exploring the Zhambyl block, and KazMunaiGas now has a second rig under construction.