OIL AND GAS FIELDS IN KAZAKHSTAN

OIL AND GAS FIELDS IN KAZAKHSTAN

Kazakhstan reportedly has the greatest number of super-giant oil fields outside the Persian Gulf. The largest oil reserves in the northern Caspian Sea are in Kazakh territory. There are three main oil fields: 1) Tengiz; 2) Karachaganak; and 3) Kashagan in the Caspian Sea.

Kazakhstan is one of the few places where major oil discoveries are still being made. Geologists have been finding more and more oil all the time. The rock formations are "two to three times the thickness of anywhere else in the world and the deposits are so deep that geologist have yet to find their bottom. “

The biggest problem with oil from the Kazakh fields is that they contain high levels of corrosive sulfur. Oil companies have dealt with the problem at the Tengiz field by installing very expensive clean up equipment and producing granulated sulfur which is exported to Mediterranean countries. A facility that opened in 2002 produces 600,000 tons of sulphur a year.

Kaoiran is Kazakhstan’s southernmost field. Another large field, it has reserves of 7 billion barrels. The Tsentraunoye, Khvalinskpye and Kurmangazy fields are along the Russia-Kazakhstan border. The first two are in Russian territory and the latter is in Kazakhstan. The Russian company Rosnef and KazMunaiGaz are developing the Kurmangazy field. It is believed to have reserves fo 240 million tons.

The Kazakhstan government has plans to tender 120 offshore blocs in the Caspian Sea, near the Kashagan field, for exploration. The area may have as much oil as Kashagan. The very strict terms on tax payments have turned many investors off to the idea of exploring there.

Major Oil and Gas Fields in Kazakhstan: Tengiz, Kashagan and Karachaganak

Kazakhstan's major oil and gas fields (field name, companies, start year, liquids production, natural gas production): 1) Tengiz (& Korolev): Chevron, ExxonMobil, KazMunaiGaz, LukArco (Lukoil and BP); 1991; 581 thousand barrels a day total liquids production in 2013 (over 800 thousand barrels a day potential total liquids production with further development); 252 Bcf dry marketed gas production in 2013. [Source: U.S. Energy Information Administration based on data from TengizChevroil, Chevron, Karachaganak Petroleum Operating (KPO), ExxonMobil, and Eni]

2) Karachaganak: BG, Eni, Chevron, Lukoil, KazMunaiGaz; 1984; 222 thousand barrels a day total liquids production in 2013 (an expansion project is under consideration, but potential production volumes are uncertain); 289 Bcf raw marketed and 3 Bcf dry marketed gas production in 2013.

3) Kashagan: KazMunaiGaz, Eni, ExxonMobil, Shell, Total, China National Petroleum Corporation, Inpex; 2016/2017 (expected); 370 thousand barrels a day liquids processing capacity with current development (1,500 thousand barrels a day potential liquids production with further development); Over 100 Bcf gas production capacity (most gas to be used internally at Kashagan).

The Karachagansk site lies close to the Russian border in northwest Kazakhstan. Discovered in 1979, it is smaller than Tengiz and Kashagan but is still one of the world’s top oil and gas sites, with more than 1.2 billion metric tons of oil and 1.35 trillion cubic meters of gas. It is being developed by British Gas and Agip SpA of Italy. It is reliant on Russian pipelines for delivery and has attracted people from all over Kazakhstan desperate for work.

Tengiz Oil Field

The Tengiz field is an onshore oil field near the Caspian Sea. It is one of the ten largest oil and gas fields in the world. It holds 6 billion to 9 billion barrels in proven reserves. It yields over 500,000 barrels day, which works out to several billions worth of oil a year. Production was expected to increase to 700,000 barrels a day by 2010. It has over 800 thousand barrels a day potential total liquids production with further development. Korolevs is an oil field adjacent to Tengiz being developed by Chevron.

Tengiz (& Korolev) is worked by Chevron, ExxonMobil, KazMunaiGaz, LukArco (Lukoil and BP). Production started in 1991. It produced 581 thousand barrels a day total liquids production in 2013. It produced 252 Bcf of dry marketed gas in 2013. [Source: U.S. Energy Information Administration based on data from TengizChevroil, Chevron, ExxonMobil, and Eni]

In the 1990s, Tengiz Field was the largest oil strike in 20 years. It was initially developed and managed by Tengizchevoil, a joint venture involving Chevron and Mobil. Both Chevron-Texaco as well as Exxon-Mobile invested billions to develop the site.

The largest deposit at Tengiz begins at more than 12,000 feet below the ground, and as of the early 2000s, oil companies had yet to locate its bottom. One Chevron executive told the New Yorker in 2001, “It’s a mother of an oil field, and we still don't know much oil is in it.” Over a 40 year period Chevron Texaco and the Kazakhstan government planned to invest $20 billion to develop the field. [Source: The New Yorker]

In the early 2000s, foreign workers in the Tengiz fields lived in prefabricated buildings in military-base-like compounds, where almost everything was trucked in from western Europe: food, entertainment and furniture. It seems like nothing was purchased from the local population except sex and souvenirs.

Promise and Obstacles at Tengiz

In 1998, Martha M. Hamilton wrote in the Washington Post: “Around the edges of the Caspian Sea in Central Asia lies a largely untapped subterranean treasure — vast oil and natural gas reserves that may exceed those of the United States or the North Sea. The possibility of bringing those huge energy reserves to market has touched off a scramble by international oil and gas companies to get in on what may be one of the world's last great energy plays -- with estimated reserves of 100 billion to 200 billion barrels of oil, which would make it the third-largest reserve in the world, after the Persian Gulf and Siberia. [Source: Martha M. Hamilton, Washington Post, April 26, 1998 ^-^]

“But to realize the region's potential, oil companies must overcome major obstacles -- including the usual uncertainties of looking for oil and gas; a huge need for investment; sanctions that prevent U.S. companies from doing business with Iran; disputes over transportation routes; political and ethnic conflicts; the absence of infrastructure for exploration or commerce; and, more prosaically, a shortage of drilling equipment.^-^

William Scoggins, Mobil Corp.'s president for international exploration and producing, told the Washington Post :"The Caspian has that same kind of romance and flavor to it and potential. In 10, 20, 30 years, people will say that it was one of the special moments in the history of the industry that was significant.""It's the oil, plus the political intrigue and the excitement and the feeling that it's a frontier," said Laurent Ruseckas, associate director for Caspian research for Cambridge Energy Research Associates. ^-^

"Right now it is the number-one prize in world oil," said Daniel Yergin, president of Cambridge Energy Research Associates and the author of "The Prize," a Pulitzer-winning account of the international oil industry. "If you're a major player, you have to be in the Caspian." But companies are finding that practical problems loom almost as large as the area's potential -- especially the question of how to move resources from the landlocked region to market. "If there is a great game in the area, it's the transportation game," Yergin said. ^-^

Tengiz Oil Field Pollution

Oil pumped from Tengiz Field contains high levels of hydrogen sulfide. Processing it generates huge pools of blood red sulfur that dries into 11-meter tall yellow slabs that are stacked neatly and sold to chemical companies and other buyers. As of 2001, about 4.4 million tons of sulfur had been produced.

Exxon and Chevron, who have a 75 percent stake in Tengiz, insist the sulfur doesn’t cause any long term health problems. Environmentalist disagree. They say that workers at the field and people that live in the area have unusually high mortality rates.

Soviet exploitation of Tengiz Field was sloppy and poorly managed. As a reminder of this there are many pools of oil scum on the steppe. In 1985 a well caught on fire and burned for a year, producing bright shards of crystallized sand and oily plumes that drifted to the north and was picked up by satellites. The disaster killed more than a million birds.

The operations managed by Western companies are much more environmentally friendly. Pollutants are burned in gas flares and water bodies around the oil complex are home to flamingos and other birds.

Kashagan Field

Kashagan field is the world’s fifth largest oil field in terms of reserves. Described as the biggest find since Prudoe Bay in Alaska and dubbed the “Kuwait of Central Asia,” the Kashagan field was discovered off the Caspian Sea coast in 2000. By some estimates it holds three times the reserves of the Tengiz field. The total geological reserves are estimated at 35 million barrels. The natural gas reserves are estimated at over 1 trillion cubic meters.

The Kashagan field, the largest known oil field outside the Middle East, is located 80 kilometers off the northern shore of the Caspian Sea near the city of Atyrau, Kazakhstan. Kashagan's recoverable reserves are estimated at 7 to 13 billion barrels of crude oil. On September 11, 2013, production from the super-giant field commenced, eight years after the original scheduled startup date. In October 2013, just a few weeks after production began, production had to be halted because of leaks in the pipeline that transports natural gas from the field to shore. Production is not expected to resume until the second half of 2016 at the earliest. [Source: U.S. Energy Information Administration (EIA)]

Kashagan is being developed by KazMunaiGaz, Eni, ExxonMobil, Shell, Total, China National Petroleum Corporation and Inpex. It is expected to start production in 2017. It hopes to produce 370 thousand barrels a day from processing capacity with current development (1,500 thousand barrels a day potential liquids production with further development). The field is expected have a 100 Bcf gas production capacity (most gas to be used internally at Kashagan). [Source: U.S. Energy Information Administration based on data from TengizChevroil, Chevron, ExxonMobil, and Eni]

According to Offshore Energy Today: “The Kashagan field represents the largest oil accumulation in the North Caspian Sea with estimated reserves of approximately 35 billion barrels of oil in place. Water depths range from 2 to 6 meters, and temperatures fluctuate between -40̊C and +40̊C throughout the year. The shareholders have reportedly splashed over $50 billion on the development of the field but according to CNN Money, Kashagan is the world’s most expensive energy project valued at $116 billion. [Source: Offshore Energy Today, June 17, 2015 ==]

The Kashagan field was initially developed by Agip KCO, a consortium led by the Italian company by Agip, .which was expected to become a leader in Kazakhstan’s oil industry. It controlled a concession area consisting of five prospective blocks, whose reserves were assessed in 2004 as having 28 billion barrels of oil. Production was supposed to start in 2004 but was delayed until 2007 and delayed again several times after that. The field was predicted inexpect to produce about 1 million barrels of oil a day.

Challenges of Developing Kashagan

Kashagan field is a dog-bone-shaped field located in shallow waters under a massive salt dome about 40 kilometers offshore in the Caspian Sea. It presents many challenges for oil developers. It is very deep. The oil is under high pressure and is laced with poisonous hydrogen sulfide, which requires special, expensive equipment and handling to remove. The field lies in the last stronghold of the endangered beluga sturgeon and the waters are too shallow for ordinary ships and oil platforms.

Much of the repeated delays at Kashagan were the result of the field's adverse operating environment and complexity, resulting in significant cost overruns. The Kashagan reservoir is located more than 13,000 feet below the seabed and is under very high pressure (770 pounds per square inch). The hydrogen sulfide is both highly toxic and highly corrosive and has been blamed for the pipeline leaks. [Source: U.S. Energy Information Administration (EIA) <>]

Tengri News reports: “ The northern part of the Caspian Sea is covered with ice for almost 6 months of the year and because of shallow waters oil production requires construction of artificial islands. Temperatures in the area fluctuate from -40 degrees Centigrade in winter to 40 decrees Centigrade in summer. Ice drifts and ice scouring place heavy constraints on construction activities. High pressure in the oil bearing layers and high content of highly toxic and corrosive hydrogen sulphide (H2S) make extraction extremely complicated and technologically demanding.” [Source: Tengri News, November 29, 2012]

Conventional drilling and production technologies such as fixed or floating platforms cannot be used because of the shallow water and cold climate. Instead, offshore facilities are installed on artificial islands (drilling and hub islands) that house drilling and processing equipment. The processing facilities separate recovered liquid from the gas, then reinject a portion of the gas, sending the liquids and the remainder of the gas to shore for further processing. Before production can restart, these pipelines connecting the field with the onshore processing facilities will have to be replaced using higher grade materials that are more resistant to corrosion. <>

The Wall Street Journal reported: “ The project lies in shallow water that freezes all the way to the sea floor in winter, making drilling with conventional rigs impossible. The companies had to build artificial islands of rock and rubble and drill through these. The oil far below is under high pressure from natural gas high in toxic, corrosive hydrogen sulfide. That meant building a sulfur-removal system onshore, reached by a pipeline, for the portion of the gas to be recovered. Heavy pipe-laying machines sometimes broke down in the cold.” [Source: Selina Williams, Géraldine Amiel and Justin Scheck, Wall Street Journal, March 31, 2014]

Kashagan: the World's Most Expensive Energy Project

In November 2012, CNN Money labeled the Kashagan oil and gas field as the most expensive energy project in the world. At the project has already eaten up $116 billion.Tengri News reported: “The field is located in Kazakhstan in the northern part of the Caspian Sea which makes oil transportation challenging. The logistics of the land locked area requires a network of railroad lines, pipelines and sea routes. Local sharp continental climate makes it a problem as well. [Source: Tengri News, November 29, 2012]

Phase 1 of this project provides for production of around 370 thousand barrels of oil a day with a possible increase to 450 thousand barrels a day. Phase 2 will increase the production to 375 thousand barrels a day and keep it flat for at least 3 years.The consortium developing the field comprises Eni, Shell, ExxonMobil, Total and KazMunaiGaz (with a 16.81 percent stake each) as well as ConocoPhillips (8.4 percent) and Japan's Inpex (7.56 percent).

The world's most expensive energy projects according to CNN Money: 1) Kashagan, Kazakhstan ($116 billion); 2) Gorgon, Australia ($57 billion); 3) Ichthys, Australia ($43 billion); 4) Bovanenkovskoye, Russia ($41 billion); 5) Australia Pacific LNG, Australia ($37 billion); 6) Wheatstone, Australia ($35 billion); 7) Queensland Curtis LNG, Australia ($34 billion); 8) Kearl, Canada ($33 billion); 9) GLNG, Australia ($30 billion); 10) Three Gorges Dam, China ($28 billion).

Kashagan: a Marriage Made in Hell?

By 2014, the Kashagan Project was more than $30 billion over budget. The Wall Street Journal reported: “Kashagan is one of the world's most ambitious oil developments and the biggest new field in decades. But despite $50 billion in investment by some of the world's largest oil companies and the Kazakhstan government, the Caspian Sea-based project isn't working. The companies clearly misgauged the time and cost of surmounting such obstacles. Kazakhstan has responded by levying financial penalties, in one case by increasing its ownership stake.[Source: Selina Williams, Géraldine Amiel and Justin Scheck, Wall Street Journal, March 31, 2014 ^|^]

“Tantalizing rewards were envisioned for both sides from the oil project... Royal Dutch Shell PLC and other international companies would deploy their expertise and reap profits; Kazakh President Nursultan Nazarbayev would pry open the doors of a former Soviet republic to modernize the economy of a nation of steppes. Oil would flow in 2005 and eventually reach 1.5 million barrels a day, roughly equal to the U.K.'s daily use. ^|^

“Instead, the project has been plagued by budget blowouts, engineering missteps and management disputes extending from offshore roughnecks to top government and corporate leaders. Miles of leaky pipeline make up what is arguably the world's most expensive plumbing problem. The project is years late, more than $30 billion over budget and now halted indefinitely. ^|^

“Both sides are straining to understand what went wrong. They complain about an unwieldy management structure. Western oil executives say the Kazakh government has held up decisions and imposed onerous requirements for employing local workers. The Kazakhs say the companies made mistakes that included underestimating the challenge of corrosive gas, making plans that needed frequent revision and not doing the welding right. Eni Chief Executive Paolo Scaroni said his company's relationship with the government "has been excellent" considering the years of trouble. A senior official of Kazakhstan's state-owned KazMunaiGas, or kilometersG, disagreed. "It's a marriage that is made in hell," he said. ^|^

“Within Kazakhstan, an earlier and smaller oil project has fared better. Tengiz, about 80 miles east of Kashagan, has helped the country raise its oil production through the years to over 1.6 million barrels a day. But Tengiz didn't have several rival oil companies with equal shares jousting for position—Chevron Corp. is the dominant partner—and it is on land, not offshore. ^|^

“As much as Kashagan's costs have risen, they don't necessarily mean the project can't someday be profitable, given that oil prices have also climbed sharply since it began. The costs of $50 billion or so—about $42 billion for development plus $8 billion spent toward the second, production phase—have been paid by all of the oil companies involved, including state-owned kilometersG. The deal gives most production to the oil companies until their development costs are recovered. ^|^

History of the Kashagan Project

The Wall Street Journal reported: “The Kashagan story dates to 1989, when Mr. Nazarbayev, then Communist boss of the Kazakh Soviet Socialist Republic, traveled to Colorado to study cattle ranching. There, he met Jack Grynberg, a Polish-born Holocaust survivor and self-made oil man, who showed the Kazakh leader his oil wells. The following year, Mr. Grynberg said, he took Mr. Nazarbayev to Venezuela's Lake Maracaibo oil fields, where shallow waters are reminiscent of the northern Caspian. "He was inspired by what he saw," Mr. Grynberg said. "He said he wanted Kazakhstan to be bigger than Venezuela." Mr. Nazarbayev declined to be interviewed. Mr. Grynberg has since claimed he should have a percentage of Kashagan, in lawsuits against oil companies, one of which resulted in a settlement. [Source: Selina Williams, Géraldine Amiel and Justin Scheck, Wall Street Journal, March 31, 2014 ^|^]

“After the 1991 Soviet collapse, Western oil companies sought exploration permits. Kazakhstan didn't want to involve the companies, according to people involved with the project's early stages. But it needed their skills, said Daniyar Berlibayev, deputy chairman of the state oil company, kilometersG. Foreign companies began seismic tests in 1993, and in 1997 Kazakhstan struck a 44-year deal with firms including Eni, Shell, Total SA and predecessor companies of ConocoPhillips and Exxon Mobil Corp. Shell drillers in 2000 confirmed the field was an "elephant," one of the biggest oil discoveries in decades.^|^

“That set off a competition to be lead operator. A tentative deal put Exxon in the lead, and its employees soon had cards calling Exxon "operator designate." But Shell's chairman, Phil Watts, told another Shell official he didn't want his biggest rival in control, according to the other official. The deal disintegrated. Mr. Watts, now a parish priest in rural England, declined to comment. "This is a long time in history for me," he said. The companies agreed in 2001 that instead of Exxon, the far smaller Eni would lead development. Each company, including kilometersG, got veto power over major planning decisions. ^|^

“Eni estimated it would cost $10 billion to develop Kashagan, and oil production would begin in 2005. By 2003, Mr. Nazarbayev was airing frustration with the pace. "We will demand that the investor meets his contractual obligations," he said that year. By the time companies made final plans to move ahead with Kashagan in 2004, they had been assessed millions of dollars in penalties for delays.

Companies Developing Kashagan Field

The consortium developing the Kashagan is comprised of Eni, Shell, ExxonMobil and Total (each with a 16.8 percent stake); KazMunaiGaz (KMG) with a 16.87 percent stake; as well as China National Petroleum Corp (CNCP, 8.33 percent) and Japan's Inpex (7.5 percent). "Nobody's happy with the governance, and I don't think anybody's happy with the operatorship," Shell Chief Financial Officer Simon Henry told the Wall Street Journal.

In 2013, longtime partner ConocoPhillips sold its stake in the project to kilometersG, which later resold it to CNPC. "We got our $5.5 billion in the bank and got out of Kashagan," Al Hirshberg told the Wall Street Journal. "It feels good to be out of it." [Source: Selina Williams, Géraldine Amiel and Justin Scheck, Wall Street Journal, March 31, 2014 ^|^]

Earlier Tengri News reported that ConocoPhillips was intending to sell its stake in Kashagan project to Indian ONGC Videsh Limited. However, Kazakhstan Oil and Gas Minister Sauat Mynbayev declared that ConocoPhillips did not officially notify the Kazakhstan’s Government about this deal. [Source: Tengri News, November 29, 2012 */*]

Kazakhstan independent oil analyst Olzhas Baidildinov believes that ONGC’s entry into the project is unlikely and the announcement is going to prompt China into action: “I believe that considering the escalation of conflict between China and India, ONGC is like a “red flag” to Chinese state corporations. I think that seeing ONGC’s offer, Chinese CNPC and CNOOC will be ready to overpay for this asset or will more willingly make concessions. Entry of Chinese state corporation into this project is more beneficial for Kazakhstan. */*

Problems with Kashagan Infrastructure and Workers

The Wall Street Journal reported: The deal required the foreign oil companies “to hire Kazakhs for many tasks, including some desk jobs. One former official recalled hiring hundreds of enthusiastic locals who had "never sat in front of a computer." For other jobs, the companies imported experienced workers. Floating barracks, made of old Soviet cruise ships, were a modern-day Babel, with laborers speaking Kazakh, supervisors speaking Italian and welders speaking Turkish, Chinese and other tongues.” [Source: Selina Williams, Géraldine Amiel and Justin Scheck, Wall Street Journal, March 31, 2014 ^|^]

Once, “Kazakh workers were recuperating from the frigid temperatures of the Caspian Sea over cups of tea when their Italian supervisor interrupted their break, demanding they return to work. The workers restrained the supervisor—a manager working for Eni SpA—and put a plastic bag over his head. He fled, packed his bags and left Kazakhstan. ...Asked about the 2011 incident, which was described by Western oil-company managers, a senior Eni executive said that he wasn't familiar with it but that friction between workers and management is a periodic occurrence.^|^

“Underground, the situation was complex. In exploration wells drilled to 13,000 feet, gas associated with the oil proved to be more than 17 percent hydrogen sulfide, said officials from two companies. It took operators nearly two years to factor this level of sour gas into infrastructure design, as engineers made errors and argued over specifications, a senior engineer said. ^|^

“Besides construction-worker barracks, offshore accommodations for the permanent staff were needed. Around 2005, Eni's partners realized that plans for these put them too near a production site. Eni redesigned the accommodations, delaying construction by a year. The Eni spokesman said the housing was redesigned at the same time as other facilities to increase Kashagan's production capacity. Eni also has blamed engineering challenges for the rising costs. Meanwhile, Kazakh officials were complaining that kilometersG people had no roles in upper management of the project, said a kilometersG executive. In 2008, the Kazakhs and foreign executives struck a deal pushing the date of the first oil production far out to 2013—and levying more penalties for delay.” ^|^

Environmental and Political Problems at Kashagan and Seeking a Larger Share of Profits

In 2009, Kazakhstan suspended work at Kashagan oilfield., mainly citing ecology issues. Reuters reported: Kazakh officials accused the group of a host of violations, including environmental issues and fire safety, but analysts said the key impetus was Kazakhstan's pursuit of higher revenues from the project. [Source: Raushan Nurshayeva, Reuters, August 27, 2009 ~~]

“Outlining ecological violations, Ecology Minister Nurlan Iskakov said Kazakhstan was suspending Kashagan, the world's biggest oil find in decades, for at least three months. "The permit for 2007 has been suspended. That is, we are suspending work for three months on our part," he said. Kashagan's start-up delays and cost overruns have long irked Kazakhstan. In a related development, President Nursultan Nazarbayev fired his energy minister -- a key figure overseeing Kashagan. ~~

“A senior government source said the mission of a new minister, Sauat Mynbayev, was to "solve the Kashagan question as quickly as possible." Under his predecessor the consortium announced its latest two-year start-up delay to 2010. "He is known as a tough manager," the source said. "It's obvious that the 'Kashagan story' has grown out of an economic conflict into a political one." ~~

“Adding fuel to the row, the Kazakh Emergency Ministry said separately it was suing Kashagan operators due to violations of fire safety rules. It said it would seek to halt construction of an oil and gas processing facility there. The Finance Ministry's customs committee said it had uncovered customs violations at the deposit, concerning imports of two helicopters, and was opening a criminal case against unidentified consortium officials. "The actions by a number of officials at the AgipKCO branch contain criminal activity ... that is, evasion of significant customs payments," it said in a statement, adding that it had found other "serious violations". ~~

“Iskakov did not specify the nature of the environmental problems but a ministry official said earlier it concerned deaths among baby seals and fish in the Caspian Sea. Laurent Paris, an Oddo-Pinatton analyst, said the move by the Kazakh government was part of its efforts to put "maximum pressure" on the Eni-led consortium. "They are doing everything they can to renegotiate to get better terms," he said. The former energy minister, Baktykozha Izmukhambetov, said in July the government was in talks to revise the share of profit oil for Kazakhstan to 40 percent from 10 percent.

Kashagan Production Starts in 2013 and Then Stopped by Leaks

The Wall Street Journal reported: In the summer of 2013, “the companies prepared for a milestone: starting commercial oil production and transferring the role of operator to a Shell-led group. Workers walked the aboveground part of the gas system to inspect valves and compressors, attaching colored stickers to equipment to show each company had signed off. On Sept. 11, the companies announced that oil was flowing. Bond-rating firms predicted an economic boost for Kazakhstan. About two weeks after that, security guards on routine patrol noticed a haze on the horizon along the path of the underground part of the gas pipeline. Oil pumping stopped while workers in masks inspected and found a leak. Crews patched it, and oil pumping resumed. [Source: Selina Williams, Géraldine Amiel and Justin Scheck, Wall Street Journal, March 31, 2014 ^|^]

Two weeks later, the pipeline sprang new leaks. This time, the companies shut down the whole Kashagan operation. "After the first leak we replaced one or two pieces, and I thought, 'That's it, thank God,' " Kazakh Oil Minister Uzakbay Karabalin said in his Astana office. "Then it happened again, and my blood pressure really jumped up." ^|^

“Workers spent the fall excavating parts of the 55-mile pipeline and sending sections for tests at a U.K. lab. Oil company and Kazakh officials sniped at one another. Cracks were found in several places along the pipeline, according to people familiar with the inspection, who said it appeared the metal had lost some of its factory characteristics, possibly through a combination of poor welding practices and the natural gas's hydrogen-sulfide content. ^|^

“Eni's Mr. Scaroni flew to Astana in November for a sober meeting with the CEO of kilometersG, Sauat Mynbayev, but was unable to say for sure why the pipeline failed and when it might be fixed, said a person briefed on the meeting. The companies promised an answer in January. Messrs. Scaroni and Mynbayev declined to discuss the meeting. There were still no explanations by late January, when Mr. Nazarbayev, attending the World Economic Forum in Davos, Switzerland, stepped away to talk with Christophe de Margerie, CEO of France's Total. ^|^

“The two had warm ties going back to the Frenchman's work at Kashagan before becoming Total's chief. They looked dour settling into armchairs in a wood-paneled conference room. Mr. Nazarbayev, after flashing a smile for a photographer, sat stiffly and pressed for assurances output would soon restart. He nodded and fidgeted as Mr. de Margerie said he still didn't know the reason for the leaks or when oil would flow. The companies...suggested forcing all gas back into the reservoir, which would allow oil production even if they couldn't fix the pipeline. Some leaders of kilometersG were skeptical, said an official there, worried this could lower the field's production after Western companies' contract expires in 2041.” ^|^

“In March 2014, “Kazakhstan's environment ministry said it would fine the Kashagan companies about $735 million for burning gas emptied from the pipeline after the leak. A spokesman for the Kashagan consortium, which represents the companies, said it would appeal the fines. While the sides negotiate fixes and penalties, Mr. Karabalin, the oil minister, said he is struck that companies brought in for their engineering prowess were thwarted by a plumbing failure. "It's annoying that the simplest piece of equipment in the project is the one that failed," he said. "The more complex equipment is all working fine," he added, as he knocked on the wooden table and spat over his left shoulder, in a regional gesture to ward off bad luck.” ^|^

Kashagan Could Resume Output in 2017

Kashagan is expected to resume output in 2017. Offshore Energy Today reported: “After several studies into the causes of the leak The North Caspian Operating Company decided to fully replace the affected offshore pipelines. [Source: Offshore Energy Today, June 17, 2015 ==]

According to Kazinform newspaper, the country’s Prime Minister Karim Qajymqanuly Massimov said today that the pipelines replacement would be paid for in full by the consortium running the project, with the replacement scheduled to be completed at the end of 2016. He said production was expected to start soon after the replacement of the pipelines. The contract for new pipelines was awarded to Italy’s Saipem in February 2015. Under the deal valued $1.8 billion, Saipem will build and install two 95 kilometer offshore pipelines. ==

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Text Sources: New York Times, Washington Post, Los Angeles Times, Times of London, Lonely Planet Guides, Library of Congress, U.S. government, Compton’s Encyclopedia, The Guardian, National Geographic, Smithsonian magazine, The New Yorker, Time, Newsweek, Reuters, AP, AFP, Wall Street Journal, The Atlantic Monthly, The Economist, Foreign Policy, Wikipedia, BBC, CNN, and various books, websites and other publications.

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© 2008 Jeffrey Hays

Last updated April 2016

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