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Fitch Ratings on oil production at Kashagan

16 september 2013, 14:29
Kashagan oilfield in Kazakhstan, September 2013. ©Reuters
Kashagan oilfield in Kazakhstan, September 2013. ©Reuters
The production of the first oil from the giant Kashagan oilfield field this week is positive for Kazakhstan and KazMunayGas, Fitch Ratings said in a statement issued September 13.

“The onset of production is one reason we expect Kazakhstan's economic growth rate to recover after a slight slowdown in 2012”, according to Fitch Ratings.

GDP growth in Kazakhstan in the H1 2013 made up 5.1%, Tengrinews.kz reported earlier. “Despite the lingering uncertainty of the global economy, Kazakhstan’s economy has been stable, with the GDP growing 5.1% in the H1 2013. The annual inflation stands at 5.9%”, Economic Affairs Minister Erbolat Dossayev said late July 2013.

Kazakhstan's economic growth slowed to 5.0 percent in 2012 from 7.5 percent a year earlier as the general instability of the global economy dealt it a blow, the country’s Prime Minister Serik Akhmetov said late January 2013.

“The full impact [on the country’s economy] will depend on how quickly production ramps up after this week's initial output. Kazakh officials have stated that it would take between three weeks and one month to launch commercial output from the field. Eni, lead member of North Caspian Operating Company, which is developing Kashagan, said Wednesday that in the initial 2013-2014 phase, output will grow to 180,000 barrels per day, compared with current output from Kazakh oil fields of 1.6 million barrels per day” the Fitch Ratings’ statement reads.

“The impact of Kashagan is already incorporated in our Kazakhstan real GDP growth forecasts of 5.3% for 2013 and 6.0% for 2014, up from 5.0% last year. Higher commodity exports support our expectation that Kazakhstan's economy will grow more quickly than the 'BBB' category median over the medium term”,according to Fitch Ratings.
September 11, Kashagan, tagged the most expensive energy project in the world, saw the start of oil production.

The Kashagan field, named after a 19th century Kazakh poet from Mangistau, is located in the Kazakhstan sector of the Caspian Sea and extends over a surface area of approximately 75 kilometers by 45 kilometers. The reservoir lies some 4,200 meters below the shallow waters of the northern part of the Caspian Sea and is highly pressured (770 bar of initial pressure). The crude oil that it contains has high ‘sour gas’ content.

The development of Kashagan, in the harsh offshore environment of the northern part of the Caspian Sea, represents a unique combination of technical and supply chain complexity. The combined safety, engineering, logistical and environmental challenges make it one of the largest and most complex industrial projects currently being developed anywhere in the world.

According to Kazakhstan geologists, geological reserves of Kashagan are estimated at 4.8 billion tons of oil. According to the project’s operator, the oilfield’s reserves are estimated at 38 billion barrels, with 10 billion barrels being recoverable. Besides, natural gas reserves are estimated at over 1 trillion cubic meters. The consortium developing the field comprises Eni, Shell, ExxonMobil, Total and KazMunaiGaz (all with a 16.81% stake) as well as ConocoPhillips (8.4%) and Japan's Inpex (7.56%).

NCOC, a consortium developing the giant Kashagan oilfield, plans to produce 75 000 barrels of oil per day at the initial production stage, Tengrinews.kz reported mid-May 2012, citing NCOC Vice Managing Director Zhakyp Marabayev as saying on the sidelines of a CIS summit on oil and gas.

According to him, plans are there to bring the production figure up to 350 000 barrels a day or even up to 450 000 barrels a day at the first stage of the oilfield development.

“The current facilities enable to produce up to 350 000 barrels a day (…) Should the gas injection capacities be expanded, we could produce up to 450 000 barrels a day”, he said at that time.

“Increased oil exports from Kashagan will also support Kazakhstan's current account surplus, which had been stagnating thanks to lower oil prices. However, foreign direct investment may decline as the first round of capital investment into the field slows”, Fitch Ratings believes.

“Plans to increase production will depend on current or future developers' appetite for the significant additional costs involved in the second phase of the project. Phase 1 suffered several delays and cost around USD46bn. Kazakh officials estimate that if Phase 2 is completed total domestic production may increase to about 2.2mmboe/d in 2018”, Fitch Ratings elaborated.

“What's more, China National Petroleum Company became a shareholder in Kashagan with an 8.3% stake on 7 September 2013. This should help Kazakhstan over time increase its oil supplies to China, which are currently constrained by pipeline capacity. The existing capacity of the Kazakhstan-China pipeline is 14 million tons per annum, and exports to China reached 10mtpa in 2012, or 12% of output. KazTransOil, Kazakhstan's national oil pipeline operator said earlier this year that Kazakhstan will boost oil exports to China by 20% to 12mtpa (or 240 mboe/d) in 2013 and it hopes to further increase capacity to 20mtpa, or by over 40%”, Fitch Ratings believes.

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