The impact of a hole in a pipe

By Saule Tasboulatova

NCOC promised to publish examination results of reasons and nature of cracks on the pipeline laid from D Island to Bolashak plant at the end of January or the beginning of February. But as of February 12 it seems that the Consortium received no news from the experts of Cambridge institute of welding (TWI). Sometimes silence can mean that the received news are very unpleasant and time is required to identify what to do next. I mean the need to replace all pipes that would require, probably, several years during which Kashagan will stand idle and Kazakhstan will lose the largest source of revenues for the same period.

In his interview to our newspaper the economist Pyotr Svoik (see “Kazakhstan daily losing $18-20m from Kashagan stoppage – expert”) said that Kashagan delay may provoke tenge devaluation: “The matter is that the external balance of payments of Kazakhstan all these years was steadily supported by positive balance due to high prices of oil, and also due to a positive difference between inflow of foreign investments and export of income from investments made earlier. And this export, by the way, is already very big. According to last year datq – about 28bn dollars a year. But inflow of new investments, thanks God, so far is even bigger. Respectively, we have no troubles with the general balance of payments of Kazakhstan. And where does this inflow come from? Mainly. from Kashagan. Massive investments into Kashagan during its construction supported the positive balance of payments of Kazakhstan and, respectively, a steady rate of tenge. Delays with Kashagan start-up don't contribute to oil revenues to the country, and in combination with reduction of investment volumes they create a certain risk. I mean tenge rate which has already devaluated in a creeping way. It is unclear when, but all the same it is necessary to devaluate tenge. Probably after the time when the president implements the plan of power transfer. But reduction of investment volumes into Kazakhstan may play a role of a catalyst, when, probably, it would be necessary to devaluate tenge even earlier.”

Svoik, probably, hit the nail on the head. So far, I don’t see any other more convincing reasons for tenge rate collapse on February 11, 2014.

But is NCOC really facing the need for replacement of the whole pipeline? When the official information is not available, then we have to refer to informal sources that also confirm that, most likely, soon the issue of full replacement of pipes will be raised. We were told about it in the fall by a pipelines expert when there were leaks on the gas pipeline: “If we are talking about sulphide stress cracking, then full replacement of the system is inevitable.” Later NCOC press service confirmed that sulfide stress cracking (SSC) became the direct reason of leaks on the gas pipeline.

One of the latest NCOC messages confirmed that the problems were not only with the gas pipeline, but also with the parallel crude oil pipeline. The intelligent pig inspection performed on January 11, 2014 showed the presence of a small amount of diesel fuel on onshore part of the oil pipeline, near Bolashak onshore processing facility. “Soil was excavated and the given pipeline section was isolated. It was confirmed that fuel leaked in the area of a welded seam,”- read the message. If the worst expectations are confirmed, then about 200 km of pipes, including gas and  oil pipelines need to be replaced. This scope would require about a year, a year and a half of continuous repair works.

If Pyotr Svoik is right, then it could be assumed that that the representatives of Consortium showed the results of analyses to the RoK Government, which understood that they shouldn't wait for revenues to the budget from Kashagan oil, and accepted tenge devaluation in order to  artificially inflate the monetary mass and close holes in the budget. According to Olzhas Khudaybergenov, the director of the Center of macroeconomic researches, who  in his interview to “Ak Zhaik’ newspaper said that Kazakhstan economy looses on a daily basis about $18-20mln. Those amounts equals to the volume of not extracted oil from Kashagtan.

P. S. In the morning, Feb 12, a message was published in the network with reference to the short-term forecast by Management of energy information of USA (EIA) that production in Kashagan may restart in the 2nd half of the year. It is also noted that the production volumes until the end of 2015 will be below the target indicator, planned for the first stage, in the volume of 370 thousand barrels per day because of technical difficulties and high expenses which won't allow increasing the production. “Meanwhile, if production in Kashagan is resumed only next year, the general forecast of growth of oil production in Kazakhstan for the next two years will be lowered, - reads the EIA message.