Kashagan running out of time

By Laura Suleimenova

Emergency fuel gas flaring at Karabatan, August 26, 2013

The moment of truth has come - October 1 is the deadline for the start of commercial crude output at the Kashagan offshore field - otherwise, the consortium's expenses will not be compensated by the oil produced. 

The top of Kazakhstan's oil industry and NCOC managers have stated the first oil is to flow within days. But the consortium's media service is keeping silence.

At that, days ahead of the promised launch, the onshore oil and gas treatment complex Bolashak saw an emergency situation with full evacuation of staff.

'ISSUE FOR CONCERN OR NORMAL SITUATION?'

The oblast's ecology department deputy chief Ruslan Tukenov said the incident happened August 26, 18.50 Astana time.

The information came from the Prosecutorate of Makat District and the province's National Security Department.

According to preliminary information, sensors detected a fracture in flange fittings that led to a fuel gas leak.

Although Agip KCO managers assured public environmentalists that nothing serious had happened, an unscheduled probe was initiated into the case so to investigate reasons for the abnormal situation and calculate the environmental damage. 

As we learnt, the gas pressure reached 13 bars. Once the alarm was beaten, the entire plant personnel was evacuated and gathered in muster points.

To recall, the project's both onshore and offshore facilities were taking pressure test with H2S-free gas delivered from the Makat gas distribution system. If the H2S saturated oil from Kashagan was in the plant's pipelines, the consequences would be far more drastic.

NCOC media service has promised to release an official comment on the fact within days. For now, verbally, they have said the matter can be classified as a standard situation in a commissioning process, no way an emergency.

Credible sources at the place say "Everyone in Karabatan was confused that day. Security had no idea what to do. Safety staff acted inadequately. Transportation staff would allow no contractor employees get in the buses. So they ran not knowing where to escape. Panic took everybody. All Agip staff was taken to the Samal camp and then Agip vehicles drove to the plant to collect contractors. Agip employees reached the city by 22.00. Things worked not the way it used to be at drills. If it was H2S, very many would die. NOBODY HERE IS READY FOR EVEN A SMALL INCIDENT." 

'X DAY'

September 7, the head of Kazmunaygas Sauat Mynbayev announced the first oil would go next Monday, September 9, adding that it might take nearly three weeks between the commissioning and the commercial output. That is October 1.

Following this, Kazakhstan's oil minister Uzakbai Karabalin stated the consortium had postponed the commissioning to a later day, which is unknown at the moment.

"We expect it any day now," he told journalists on the sidelines of a government sitting in Astana. 

The company's media officers refused to call the exact date. Yet it is believed that no more delays will be announced, unless a serious incident happens during a test launch.

The thing is the second addendum to the product share agreement signed on October 31, 2008, according to which the consortium's expenses will not be compensated if commercial crude production fails to start before October 1, 2013.  

'MULTIPLICATION TABLE'

Given this, the budget of Kashagan field development project has been numerously revised upwards.

"Due to poor management on the part of Kazakh government" experts say. 

As the result, Kashagan costs have grown from initial $30 billion to beat the record at $130 billion now.

NCOC has been issuing various explanations like "due to underestimation of costs in the construction of man-made islands and housing for personnel in the area where harsh conditions last almost six months a year in parallel with the increasing construction costs".

The other time, they cited "a necessity to carry out works by a revised design and a modified layout for arranging the offshore part of the field, which (allegedly) failed to meet international standards on safety if toxic H2S leaks happen".

Oil products spill, west of D Island, near Valentina dock, August 17, 2013

'WILL DELAY UNTIL SPRING?'

Despite multiple increase of funding, experts believe the field is still not prepared for October 1, 2013.

In the opinion of Oleg Yegorov, the chief research officer at Economics Institute of Kazakhstan's Science and Education Ministry, some pipes at the field need repair.

"Earlier, 272 breaches were discovered there. If operations start in October anyhow, all this stuff may be destructive for the Caspian Sea," he said.

Others say, a part of hardware both onshore and offshore have hopelessly grown old over years of delays since 2006.

In the best scenario, the commercial oil will flow in December 2013, Mr Yegorov says.

The sea freezes by December. So experts believe the more realistic date for the first oil falls on spring 2014.

Mr Yegorov assumed that on September 9 they will pump out a few tons of crude to send it nowhere but store in tanks.

...

Questioned if the department of ecology was among state agencies signing the plant's act of acceptance, Mr Tukenov said:

"It is not a school or a kindergarten, but a giant global standard production complex. Acts of acceptance are being signed over the past two years. Some units had been approved before my assignment to the post, the other part is being approved at the moment."

L.S.: Shouldn't your staff environmentalists be present both at the plant and the islands all the time?

R.T.: Maybe, but the company cites strict safety requirements, especially during this period. Our inspectors need to pass their safety inductions, also on H2S. Therefore, we may not enter there now, even after the latest abnormal situation. We have scheduled an audit for November for which the inspectors are preparing. The results will be announced by December.