Thursday, 8 September 2011

Kashagan to come onstream by end of 2012

According to project operator Eni, Kazakhstan's enormous Kashagan oilfield is due to begin producing by the end of 2012 - several months earlier than expected.

The Italian energy major announced the news on 4th September, with Chairman Giuseppe Recchi revealing that “phase one of the Kashagan project has been completed by over 90 per cent”. The first phase is expected to produce 300,000 barrels per day (b/d), with production reaching 1 million b/d in the second phase and 1.5 million b/d in the third phase.

The announcement is something of a last-minute victory for Eni and its partners in the North Caspian Operating Company (NCOC), a consortium which also includes Royal Dutch Shell Plc, ExxonMobil Corp, Total, KazMunaiGas, ConocoPhillips and Inpex Holdings Inc. As recently as July, the consortium was allegedly considering requesting the Kazakh government for an extension to the 2013 deadline for pumping the first oil. Last year senior Kazakh officials suggested that the second phase might not start until 2020. In March, a source told the energy analysts Platts that Kashagan “is in complete disarray.”

The government's Oil Ministry has threatened to slap the consortium with financial penalties if it fails to meet the deadline, having rejected an improvised plan to begin pumping 50,000 b/d by bypassing unfinished processing facilities.

The project has been delayed for both political and technical reasons. On the political side an uncertain tax environment and an increasing tendency towards resource nationalism by the Kazakh government have sown uncertainty among the consortium's international members. On the technical side, geological peculiarities and the area's environment – freezing cold in winter, beset by huge chunks of ice and high winds – have led to a steady increase in the cost and time of recovering oil.

There are reasons to be sceptical about Eni's latest statement, however. In May the company was adamant that Kashagan would begin producing by the end of 2012 or early 2013, before it began discussing the possible need for an extension. So although hopes have been raised by Eni's announcement, it remains to be seen whether the consortium can deliver on its latest promise.

Sources: Central Asia Newswire, Platts

For more news and expert analysis about the Caspian region, please see Caspian Focus.

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