Atyrau Oil & Gas
Exceptional Kashagan – Terms and Prospects
The Kashagan oilfield, located offshore in the northern Caspian Sea, is one of Kazakhstan's most significant energy assets and a cornerstone of its oil production. It is the second-largest producer in Kazakhstan by volume but holds the largest reserves, accounting for almost half of the country's recoverable oil reserves.
Operated by the North Caspian Operating Company [NCOC], Kashagan significantly contributes to the country's oil reserves and output, alongside other major oilfields like Tengiz and Karachaganak. The Production Sharing Agreement for Kashagan [PSA], extending until 2041, provides a long-term framework for international collaboration. However, the Kashagan development project [the Project] faces challenges, including technical complexities, arbitration disputes, and the need for continued investment to ensure its success. Currently, the Kazakhstan government is engaged in arbitration with the consortium of Kashagan investors [the Consortium], having filed arbitration claims totaling to over $160 bln.
The development of the Kashagan oilfield not only contributes to the national budget but also plays a crucial role in unlocking the growth potential of the country's natural gas industry. Thus, the upcoming Kashagan expansion projects [1 and 2.5 bcma, Phases 2B and 3] hold strategic significance for the country as the source of natural gas for increasing internal demand by population and petrochemistry. However, delays in decision- making regarding these projects hinder the ability to meet these needs and, when considering the time value of money, negatively impact the Project's economic attractiveness.
Additionally, the terms of the PSA often become subjects of speculation both online and within the walls of the Parliament, making it crucial for the people of Kazakhstan to understand the Project's specifics, benefits, and potential. Addressing these issues is crucial for maintaining Kashagan's role in Kazakhstan's economic growth and energy security.
Kashagan and its footprint in Kazakhstan
Kashagan is operated through NCOC by a consortium of international oil companies. The Project's investors include KazMunayGaz, TotalEnergies, Shell, ExxonMobil, ENI, CNPC, and Inpex.
The oilfield's technical complexity, including shallow water depths, high reservoir pressures, and high concentrations of H2S and CO2, presents unique challenges. These factors necessitate the construction of artificial islands and specialized infrastructure to manage the harsh environmental conditions and technical demands. The oilfield's location in the northern Caspian Sea, with water depths of only 10 meters, requires complex engineering solutions. Given that the Caspian Sea is a drainless water body, it is crucial to approach the construction of engineering structures with great care to prevent accidents, as the Caspian Sea, unlike an ocean, cannot naturally cleanse itself. The presence of high-pressure reservoirs, with pressures exceeding 75 megapascals [11,000 psi], demands advanced drilling techniques and robust infrastructure to ensure safety and efficiency. The high concentrations of H2S and CO2 in the well stream fluids pose additional risks, necessitating the use of corrosion- resistant materials and comprehensive safety protocols to protect personnel and equipment.
NCOC is Kazakhstan's second largest oil producer behind Tengizchevroil [TCO]. Kashagan's oil production started on September 11, 2013, marking a significant milestone for one of the world's largest oilfields. However, shortly after the commencement of production, operations were halted in October 2013 due to critical technical issues. The primary reason for this interruption was the discovery of gas leaks in the pipelines used to transport oil and gas from the offshore oilfield to the onshore processing facilities.
The extensive pipeline replacement and the need to address other technical challenges delayed the resumption of production until November 2016. During this period, the Consortium focused on enhancing the oilfield's infrastructure to prevent similar issues in the future. The delay also allowed improvements in the oilfield's operational reliability and safety measures, ensuring that it could be sustained when production resumed without further interruptions.
In November 2016, the Kashagan oilfield successfully restarted production, initially from four wells, with output gradually increasing as more wells were brought online. This cautious approach was necessary to ensure that the new infrastructure could handle the oilfield's challenging conditions and to prevent any recurrence of the issues that had previously halted production.
| Oil production, mln tons | 2016 | 2017 | 2018 | 2019 | 2020 | 2021 | 2022 | 2023 |
|---|---|---|---|---|---|---|---|---|
| Kazakhstan | 78 | 86 | 90 | 91 | 86 | 86 | 84 | 90 |
| NCOC | 1 | 8 | 13 | 14 | 15 | 16 | 13 | 19 |
| NCOC's share, % | 1% | 10% | 15% | 16% | 18% | 19% | 15% | 21% |
Source: compiled by ENERGY Insight & Analytics