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No End in Sight for Kashagan Oilfield Woes

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It’s one of the world’s largest but also most challenging oil fields, still plagued by technical difficulties, mistakes and delays. It is unclear when production at the giant Kashagan oil field in Kazakhstan will restart as the companies involved in the consortium running the project are still awaiting a report on a gas leak that closed the field last October.

The North Caspian Operating Company (NCOC), the operator of the North Caspian Sea Project (Kashagan field), said in a press release on 31 March that the report into the causes of gas leakage in a pipeline running from Kashagan has been suspended till April.

“The results of the tests on the steel samples at TWI and other specialised laboratories in France and Italy are expected in April 2014,” NCOC said. Investigation results were initially expected in early 2014, but the timeframe was postponed to March.

“After the tests it will be clear what the expenses will be. If they need to reconstruct the whole pipeline expenses will be $10 billion,” a well-informed source in Astana told New Europe on 4 April. “If they need to repair only a part of the pipe, of course, it will be less.”

Following the start of production from Kashagan on 11 September 2013, the operations had to be stopped on 24 September, due to a gas leak in the onshore section of the gas pipeline running from D Island to Bolashak, NCOC said. After repairs, production was resumed, but had to be stopped again on 9 October after a detection of a gas leak.

Julian Lee, a senior energy analyst at London’s Centre for Global Energy Studies (CGES), told New Europe on 4 April Kashagan has proved much more challenging to develop than investors ever thought it would, although the project has also been plagued by mistakes along the way. “Even under the best circumstances, production is unlikely to be resumed until late in the third quarter and a delay until 2015 remains a real possibility,” Lee said.

Resuming output is important so the companies, which include Exxon Mobil, Royal Dutch Shell, France’s Total and Italy’s ENI can start generating revenue to recoup some of the $50 billion they have already poured into Kashagan’s development. It is also important for the Kazakh government, which had based its economic forecasts on revenue from Kashagan.

Kashagan’s oil will be exported to Europe through Russia and via the Baku-Tbilisi-Ceyhan pipeline. There are also ongoing negotiations to export some of Kashagan’s oil to China through the Kazakhstan-China pipeline.

Kazakh officials have said they have no plans to nationalise the Kashagan project so far. Kashagan is a very expensive and difficult project. That is why Kazakhstan’s state oil and gas company KazMunaiGaz (KMG) increased its share up to 16.8% but they do not to increase because Kazakhstan cannot develop this project alone.

Lee agreed. “I don’t think that a nationalisation of the project is likely, it would simply transfer the problems to KMG. “What the project really needs is a single, technically competent operator,” he said. “The consortium structure with multiple equal shareholders has been shown not to work and may have contributed to the problems experienced in developing the field.”

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Co-founder / Director of Energy & Climate Policy and Security at NE Global Media

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