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Commercial production at Kashagan will not benefit Kazakhstan: industry source

19 august 2013, 12:24
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©REUTERS
©REUTERS
Commercial production of crude at the giant Kashagan oilfield will not benefit Kazakhstan, KazTag reports, citing an industry source.

“Excluding somewhat bigger tax revenues, Kazakhstan will gain no benefits from commercial production at Kashagan. Everyone had been expecting the project to be a blessing; however, it’s not the case: in line with the PSA, the project participants will have their investments recouped in the form of crude”, the source said.

“The cost of all the project works was bloated several times, which is by billions of US Dollars”, according to the source.

“Until the investments are recouped, the Government will have no profits from the oil produced. And even the profits that follow will only be in the form of tax revenues for the state coffers”, the source elaborated, adding that “all the money coming from the oilfield will go to recoup the investments, which will take decades”.

“And we are not sure what prices for crude will be like down the road. We don’t know what the shipping costs will be. Should prices be excessively low, the crude might be exported in minor volumes for decades: then Kazakhstan will see no profits at all”, the source said.

According to the source, “the PSA signed at the dawn of Kazakhstan’s independence doesn’t favor Kazakhstan”.
“It was a high price to pay. Back then there was no other way to attract foreign investments into the economy. The rest of the world has seen tough competition for development rights and for investment opportunities”, the source summed up.

Commercial production at the giant Kashagan oilfield is to start as early as in October, KazTAG reported July 18, citing the country’s newly appointed oil and gas minister Uazakbai Karabalin as saying.

“The project is 98% complete. We have inspected the readiness of the artificial islands that are home to drilling equipment. Hopefully, the commercial production will start this coming October”, the minister said while on a working tour round Atyrau oblast, a major oilbearing area in the West of Kazakhstan.

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.

ConocoPhillips will sell its 8.4-percent stake in Kashagan to KazMunaiGas for $5 billion, Tengrinews.kz reported July 3, citing the company’s official website.

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