Kashagan delay dashes Kazakh hopes of raising oil output before 2016

By bne IntelliNews October 2, 2014

Naubet Bisenov in Almaty -


Delays in the resumption of oil production from the giant offshore Kashagan field have dashed the Kazakh government's hopes of increasing oil output before 2016. Fearing that the delay in the start of Kashagan’s commercial production will damage economic performance, the government is trying to compensate for the shortfall by increasing output from other fields.

Kazakhstan will maintain oil output at last year's 81.8m tonnes this year and next year, Magzum Mirzagaliyev, deputy energy minister, told journalists at the KIOGE oil and gas conference in Almaty on October 1. "Our plans for this year remain at 81.8m tonnes. We expect we will fulfil the plans," Mirzagaliyev said. "We are now looking for reserves, particularly, TCO [Tengizchevroil] has a great impact on the [total oil] output." Tengizchevroil, which is developing the onshore giant Tengiz field, is expected to produce 27m tonnes of oil this year, he noted. TCO is planning repairs in October that are expected to be completed quickly, Mirzagaliyev explained.

The deputy energy minister said that the government was in talks with other oil producers to increase their output. "We are closely working with each licence holder to issue necessary permissions and consider necessary project documentation as quickly as possible," Mirzagaliyev said.

Production at Kashagan was launched on September 11, 2013, but a leak on the gas pipeline running to the onshore processing facility at Bolashak led production to be halted on September 24. An attempt to restart operations was abandoned on October 9.

Astana expected Kashagan to resume production in July, and forecast it would produce 2.5-3m tonnes of oil by the end of the year. Myrzagaliyev suggested that production would now resume in the field in the second half of 2016. "Judging by information we receive and technical forecasts we see, it [resumption] should be in the second half of 2016," he said.

The Kazakh government is now holding talks with the Kashagan developers on the penalties they will face for delaying commercial production, and costs borne by them since the suspension will not be covered, Mirzagaliyev said. "On September 11, 2013, you remember, the contractor [NCOC] achieved commercial production. Costs borne under the phase one since October will not be compensated for," he said. However, "the sum hasn't yet been determined”.

The Kazakh government had, until recently, been forecasting a major leap in oil output this year on the back of the start of commercial production at Kashagan. Over the next five years, Kazakhstan's oil production was expected to increase by around 25%, from 82m tonnes in 2012 to 102m tonnes in 2017. Kashagan, in the Caspian Sea, was the largest oilfield discovery in the world in the last three decades, and has estimated recoverable reserves of around 13bn barrels of oil.

Kashagan is being developed by the international consortium NCOC. State-owned KazMunaiGas owns an 16.88% stake in the project, Eni, Shell, Total and ExxonMobil hold 16.81% each, with Japan's Inpex owning 7.56%. US major ConocoPhilips sold its 8.33% stake to KazMunaiGas for $5.4bn in 2013, which in turn sold it to China's CNPC.

Chevron holds 50% in TCO, with ExxonMobil owning 25%, KazMunaiGas 20% and Lukarco, controlled by Lukoil, holding 5%.

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