Kazakhstan daily losing $18-20m from Kashagan stoppage - expert

By Saule Tasbulatova

The consortium is tight-lipped as the production stalling at Kashagan is likely to continue indefinitely, and the longer the silence is the worse are forecasts.

Addendum. The last warning?

The backstory begins in 2007 when Eni proposed to delay oil flow at the field from 2008 to 2010 and increase the project budget from $57bn to $136bn causing sharp response of Kazakh authorities who, in turn, demanded an appropriate compensation and a greater role in the project for the national oil and gas company KMG.

On October 31, 2008, Kazakhstan achieved signing a document in addition to the production share agreement to strengthen influence in the Kashagan project by raising KMG's share from 8.33% to 16.81%; toughening control over budget and project completion schedules, that is, if commercial output failed to begin until October 1, 2013, spendings of the consortium would not be repaid by Kazakhstan; and toughening sanctions for delay of commercial output after 2008 from annual $50m to $120m in 2012.     

Kashagan: not the sole trust

Asked on the situation emerged around Kashagan and possible consequences of delay, the director of Macroeconomic Studies Center Olzhas Kudaibergenov says:

"$136bn is the total budget of the Kashagan project, of which nearly $43bn have already been spent. These include the Phase 1 spending that ensures output between 370,000-450,000 barrels a day. Given this, Phase 1 operations are still unfinished. The most part of the remainder will go to Phase 2 that envisages full completion of the project eyed to finish in 2018-2019. Then, production will grow by another 1 million barrels.

Olzhas Kudaibergenov, Macroeconomic Studies Center

Of $43bn about $10bn was spent on local goods and services. Seemingly, the proportion applies to the whole budget.

As to general profitability of the project can comment the company's representatives only. I can say, given $100 per barrel, the revenue side in the volume of extractable reserves can be estimated at $600bn. Have no idea concerning the expense side."

Will possible delay at Kashagan affect the country's economy?

"It is planned to pump out 370,000-450.000 barrels a day in the first stage, that's 18-22 million tons in a year. We have two scenarios of economical impact: first - if the production at 'mature' fields remains stable, the country's oil production won't be affected and the economy won't suffer from the stoppage. Just the expected boost will be postponed. But if production decreases, the export will also fall entailing economical growth reduction. As production at 'mature' fields is being recovered, the first scenario is more likely to happen." 

When full return of the consortium's expenses is expected? Is it expected at all?

"With account of the spending spree and uncertainty in production rate, payback time will of course be longer than expected, I can't say how long. The money will certainly return, if a barrel of oil costs no less than $100."

Considering that one of the project participants is the national company - KMG - how much the Kazakh economy is losing in a day while the output at Kashagan remains stopped?

"The loss is equal to the cost of unproduced oil. At the starting phase the output had to make nearly 180,000 barrels a day, that means we are losing roughly $18-20m every day."

How realistic, do you think, is the oil price of $90 for a barrel envisioned in Kazakhstan's budget for the next three years?

"At large, it is realistic. They even were slightly skeptical when taking this sum. We will know the trends of prices at the beginning of the next year when will happen events that affect oil prices."