Kazakhstan: Kashagan restart unlikely until 2016

Kazakhstan’s new deputy energy minister, Uzakbay Karabalin, has told the media that the restart of commercial production at Kashagan is planned for 2016. In his view, this optimistic scenario foresees the re-launch of oil production in the first half of the year. 

However, he warned that should the North Caspian Operating Company (NCOC) consortium fail to repair the damaged pipes by the end of next year, the re-launch should not be expected before the latter half of 2016. The Kazakh authorities had previously speculated that Kashagan’s oil could come online as early as the end of 2015.

Karabalin continued that, were it to be delayed, the NCOC will be fined US$30million for each half-year. The company is also expected to cover the costs related to the repair of the oil and gas pipelines between the island’s deposits and the mainland, and the commissioning of associated infrastructure. Earlier in July, Karabalin was quoted as saying that the specific technological conditions of Kashagan were the main cause of the current production disruption. 

“In our sector of the Caspian Sea, ice is very movable… We know that many world-class oil companies work close to the Polar circle but they have a major warm current near there, the Gulfstream. They have no such ice as here. Moreover, Kashagan’s situation is complicated by high concentrations of sour gas and high reservoir pressures. As you can see, all these difficulties are inherent in one project”, elaborated the former oil and gas minister.

Karabalin also highlighted serious environmental risks that need to be taken into account by the NCOC: “One should remember that Kashagan is located within a protected area where there are over 75% of Kazakhstan’s sturgeons. Swimming birds build their nests in the vicinity of the oilfield. Thus, under the existing law, oil companies that participate in the project can work on it only after the birth of chicks. On the other hand, they cannot physically work beyond the formation of an ice cover. This said, we have serious schedule constraints in a single place”, he added.

The Kazakh authorities’ headache at Kashagan adds to the growing fears about the country’s macroeconomic stability. According to the official data, Kazakhstan’s GDP grew by 3.9% in January-June 2014, down from 5.1% last year. The IMF estimates that its economic growth would accelerate in the second half of the year to reach 4.8% at year end. 

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© 2014 Menas Associates