Just a trickle, but oil starts to flow at Kashagan
The first oil to flow from the Kashagan field, in Kazakhstan, was just a trickle. But a consortium of oil companies have ambitious plans to increase production over the next several years.
"This is one of the most complicated projects in the world," said Claudio Descalzi, the chief operating officer for exploration and production at Eni, the Italian oil company involved in the project.
"It's really an historical moment. It's first-quality oil, very light oil, and we are close to countries that present the best markets."
When geologists discovered the field in 2000, it was the largest new deposit since the discovery of the Prudhoe Bay field in Alaska in 1968. And it remains so today, suggesting that such oil sources are becoming harder to find.
But the project has been stalled for years, amid technical problems, disputes with the Kazakh government, and infighting among the oil companies. Such fields have also become less important given the advances in pumping oil from abundant shale reserves.
The companies tapping into the reserve - KazMunayGas, the national oil company of Kazakhstan; Shell, Total, Inpex, Exxon, Conoco and Eni - are taking a slow-and-steady approach.
The initial production is just 26,000 barrels a day, a mere drop in the global oil bucket. Eventually, the project could add about 1.5 million barrels a day to global output. If it reaches that level, the oil will amount to about 1.6 per cent of the world's total, or roughly the amount Libya produces.
The cautious approach reflects the nature of the project. The very characteristics that caused the field to be overlooked for decades - its depth and location in the Caspian Sea - pose major risks.
The oil is under tremendous pressure as it comes out of the ground, and the sea is home to endangered sturgeon and a rare species of seal. The crude is also mixed with poisonous gas.
As part of safety conditions, the companies have piled up artificial islands for drilling pads and laid pipelines on the seabed, which has added to the delays and expenses. The project is already five years behind schedule and has cost $US41 billion ($44 billion).
New York Times
Frequently Asked Questions about this Article…
Kashagan is a huge offshore oil field in the Caspian Sea discovered in 2000 and described in the article as the largest new deposit since Alaska’s Prudhoe Bay. It’s one of the biggest fields outside the Middle East and — if it reaches full capacity — could add about 1.5 million barrels a day to global output (roughly 1.6% of world production). That scale is why the field matters to global oil supply.
The consortium tapping Kashagan includes Kazakhstan’s national oil company KazMunayGas plus major international oil firms Shell, Total, Inpex, Exxon, Conoco and Eni. Eni is quoted in the article through Claudio Descalzi, its chief operating officer for exploration and production, highlighting Eni’s role and view of the project.
Initial production from Kashagan began at a small level — about 26,000 barrels a day, described in the article as a mere drop in the global bucket. The consortium plans a gradual ramp-up with ambitions over the next several years to reach a potential peak of roughly 1.5 million barrels a day, taking a slow-and-steady approach because of the field’s complexity.
The project suffered years of delays and cost overruns due to a mix of technical challenges, disputes with the Kazakh government and infighting among the oil companies. Building safety infrastructure — such as artificial islands for drilling pads and pipelines laid on the seabed — added to delays and expense. The project was already five years behind schedule and has cost about US$41 billion (around $44 billion).
Kashagan presents several safety and environmental challenges: the oil comes up under high pressure, it’s mixed with poisonous gas, and the Caspian Sea near the field is home to endangered sturgeon and a rare species of seal. To manage risks, companies have built artificial islands and seabed pipelines — measures that have also contributed to delays and costs.
According to the article, Kashagan produces ‘first-quality’ very light oil. The article notes this is a positive attribute, and that the field’s proximity to good markets is an advantage — both points that matter when considering the commercial value and transport logistics of the crude.
At the moment the field’s output is tiny (about 26,000 barrels a day), so its immediate impact on markets is limited. However, if Kashagan reaches its potential of about 1.5 million barrels a day over coming years it would be a meaningful addition to global supply (similar in scale to Libya’s output). For investors, that means the project is a long-term supply story rather than a near-term market mover, and its ramp-up will be worth monitoring.
Investors should follow announced production increases, any new technical or safety incidents, cost updates, and progress on the consortium’s timelines. Also watch diplomatic or regulatory developments with the Kazakh government and statements from the major partners (KazMunayGas, Shell, Total, Inpex, Exxon, Conoco and Eni) because delays, disputes or environmental problems could affect the project’s schedule and costs.
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