Further Delay to Caspian Project

Continuing uncertainty about when Kazakstan’s biggest new oilfield will begin producing is making energy experts ask why the start date keeps being put off. One theory is that initial estimates of Kashagan field’s reserves were set too high.



The launch date has already been postponed twice, from 2005 to 2007, and then to the end of 2009, as NBCentralAsia reported in August. The Agip KCO consortium developing the Kashagan deposit ascribed the delay to technical problems relating to the offshore Caspian shelf where the field is located.



At the annual Kazakstan International Oil and Gas Exhibition and Conference last week, Agip KCO representatives stated that production would start in 2009 or 2010.



However, Zhaksybek Kulekeev, the first deputy director of the state oil company KazMunaiGaz – a member of the consortium – introduced a degree of uncertainty when he told journalists at the conference that the launch “would be probably postponed to a later date”. Kulekeev predicted “certain significant changes to the technical provision on the oilfield”, which he said would “entail a certain amount of additional costs and time”.



Discovered in 2000, Kashagan is described as the largest deposit in the Caspian Sea, with reserves estimated at between 38 and 51 billion barrels of oil (5.2-6.9 million tons).



The field is being managed by Agip KCO (formerly known as OKIOC), and includes major western oil companies such as Exxon Mobil, Royal Dutch Shell, Total, ConocoPhillips, as well as Kazakstan’s KazMunaiGaz.



Energy analysts interviewed by NBCentralAsia suggest that Kulekeev’s remarks indicate there is to be a further delay to the start of production. They speculate that preliminary estimates of the deposit’s reserves may have been overstated and that subsequent surveys may have revealed that it contains less than anticipated.



If this proves the case, revenues from the whole project would be hit, especially since start-up costs have been high.



Furthermore, if the forecasts for Kashagan do not come true, Kazakstan will have to revise all its oil export plans, which envisage annual volumes of 110-120 million tons rising to 150 million tons by 2015.



This substantial growth in production was calculated on the basis of estimates of future production at Kashagan and another field, Tengiz. However, the energy analysts to whom NBCentralAsia spoke do not place much hope in the Tengiz field: even after second-generation extraction equipment has been put in place there, the increase in production will not be marked.



If production at Kashagan does not begin soon, it is questionable whether Kazakstan will be able to contemplate participating in the Baku-Tbilisi-Ceyhan pipeline or the projected Atasu-Alashankou route, each of involves exporting up to 20 million tons of Kazak oil a year, to the West and the Far east, respectively.



According to NBCentralAsia’s sources, Kazak oil production is expected to rise by just half a million tons this year – the lowest year-on-year increase in a decade.



(News Briefing Central Asia draws comment and analysis from a broad range of political observers across the region.)