The Kashagan offshore field is situated 80 kilometers southeast of the city of Atyrau in the northern part of the Caspian Sea. It has a surface extension of approximately 75 kilometers by 45 kilometers and its reservoir is located around 4.2 kilometers below the seabed. The field is estimated to be one of the largest in the world, with commercial reserves estimated at anywhere from 9 billion to 16 billion bbl. The field is currently ranked by the International Energy Agency (IEA) as the sixth largest in the world, with the largest reserves of any oil field outside the Middle East. Its discovery in 2000 was considered one of the most important since Prudhoe Bay in Alaska. However, due to the particular chemical composition of the crude oil contained in the reservoir, where the highly toxic and corrosive hydrogen sulfide and other components are present, its full development represents a challenge for the oil industry to ameliorate any possible negative effects on the environment.
The development of the Kashagan field will initially be composed of two phases. Phase I is at the construction stage and should be concluded in 2016, according to a 2011 declaration from KazMunayGas (KMG), the national oil and gas company of Kazakhstan. Phase II is in the design stage, and has been postponed until 2018-2019. In addition, other development phases are still under concept selection. The delay in the conclusion of Phase I, and the rescheduling of the launch of Phase II stems from the decision to cut back project costs and increase affordability. Indeed, due to the harsh environment where the field is located, full-field development is encountering numerous technical and supply chain issues. Ice in the winter and temperatures ranging from -35 °C to 40 °C represent the biggest obstacles for the operation. Moreover, the crude oil contained in the reservoir is highly pressured—approximately 800 bar—and the presence of gas requires a complex and high-tech re-injection system. For these reasons, the first oil deadline, scheduled initially for 2005, has been delayed several times in concert with the constantly increasing amount of resources invested in its development. The entire project is expected to cost up to $187 billion, but this amount could be reviewed due to the challenges faced in the development of the field.
Since Kazakhstan’s independence in 1991, Kashagan has sparked the interest of numerous international companies, while contracts for exploration and field development have been managed under different agreements. Initially, the Kashagan Field was operated by a joint venture headed by the Italian firm ENI under the name of AGIP KCO (Agip Kazakhstan North Caspian Operating Company). At present the field is operated by the North Caspian Operating Company (NCOC), composed of seven companies, including ENI, Shell, Total, ExxonMobil, and KazMunayGas, each holding a 16.81% share, as well as ConocoPhilips with a 8.4% share, and Inpex with a 7.56% share. Operations have been continuing under the North Caspian Sea Production Agreement (NCPSA) since 2009 when the operatorship was transferred from AGIP KCO to NCOC, which is in charge of defining the strategy of the joint venture under the NCSPSA and ensuring the relationships with stakeholders and the authorities.
THE WAY TO EXPORT
The development of the field is strictly tied to the installation of infrastructure that will allow the oil to reach international markets. About 80% of Kazakhstan’s oil reaches the international markets through Russia. The main export routes for Kazakhstan’s oil are the pipeline from Atyrau to Novorossiysk, and the Northern Atyrau-Samara pipeline. Additionally, there is an export route to China through the Atyrau-Alashankou pipeline. In order to bypass Russia and to find new ways for export to the West, other transportation routes are in progress to be created. The Kazakh Caspian Transportation System (KCTS) is a project that aims to transport crude oil from the Kashagan Field to Azerbaijan. It consists of an onshore pipeline starting from Eskene and heading to Kuryk, where an oil terminal is set to be created in order to ship the crude oil across the Caspian Sea to a future new marine terminal in Baku. From there Kashagan’s oil will reach international markets through the existing Baku-Tbilisi-Ceyhan Pipeline (BTC). However, this project has been postponed until Phase II of development.
Despite difficulties and delays in the full development of the Kashagan field, the project is crucial for the Kazakhstani oil industry. In concert with new infrastructure, it will allow for the diversification of Kazakhstan’s energy partners, bypassing Russia.
By the end of Phase I, the Kashagan field will produce an annual output of 365 million bbl, which will contribute to the modernization of the Kazakhstani economy through diversification schemes. This will improve the socioeconomic development of the country and help to make Kazakhstan an important player in Central Asia, decreasing the current bargaining power the Russian Federation has over the country’s energy industry.
© The Business Year