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Beset by low oil prices, the Kashagan saga continues

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Kashagan production was halted after the discovery of gas leaks in the pipeline network.Kashagan production was halted after the discovery of gas leaks in the pipeline network.Kazakhstan says it will not to bear the cost for pipeline replacement at the troubled Caspian offshore project.

Speaking about the current fall in oil prices, it would not be fair not to tell about the fate of Kashagan (North-Caspian project) which is the main trump project of Kazakhstan, reports.

It should be recalled that the government expected to get a significant increase not only in oil, but also the arrival of new investors with this project. However, the pinned hopes have not been realised.

In September 2013, oil production at Kashagan was suspended before it even started due to detection of leaks in oil and gas pipelines. Given the high ground pressure in this part of the Caspian Sea, none of the shareholders of the international consortium, which led development of this world’s largest deposit, did not dare to take risks.

The project was suspended. Investigation of the causes of cracks in pipelines began to find out who is to blame for what happened after billions of dollars had been invested in the field construction.

But there is still no exact answer. All this year between the shareholders of the consortium and Kazakhstan’s government there were long negotiations on two issues: what to do next and who will pay for it? Only towards the end of last year, the parties settled the disputed issues.

On December 13, 2014, the Minister of Energy and representatives of North Caspian Operating Company (NCOC) and participating companies NCSPSA (North-Caspian Sea Production Sharing Agreement) signed an agreement in Astana, the terms of which are confidential.

However, some details of the document became known to journalists. Three days before signing of the Agreement a public hearing on environmental impact assessment (EIA) of “Construction projects in the framework of pilot commercial development of Kashagan field. Flowlines. Adjustment” held in Atyrau.

It is talking about replacing pipelines (oil and gas) over the entire length, connecting the island D of the marine complex with the installation of complex oil and gas preparation Bolashak on land.

NCOC Managing Director Stephane de Mahieu, speaking to the society of the region at public hearings, said that according to the agreement, Kazakh side will not bear the cost of pipeline replacement. But he did not give the exact answer on the question of how much replacement of pipelines to make Kashagan work will cost.

“Before the end of all tender procedures and determination of the general contractor, I will not tell the digits in order to avoid any speculation. I can only say that we are talking about several billion dollars,” Mahieu said.

He added that PSA LLP (controlling 16.8% stake of Kazakhstan in North Caspian Project) and the Ministry of Energy of Kazakhstan will control over expenditure of funds from the Kazakh side.

According to him, the final results of research on the causes of failure of the pipeline will be presented in early 2015.

But at the same time, he said that cracking occurred not only in the “body of pipelines, but also on the welds”. The NCOC Managing Director assured that during pipeline construction and operation there will be taken all precautions.

“We have learned, and in the tender for manufacture of pipes we were guided by other companies, not those who placed orders last time,” Mahieu said.

Representatives of NCOC said the new pipelines will include nickel, which is more resistant to sulfur oil and gas to avoid new leaks. They also assured that a series of measures to protect the environment will be taken during construction of new pipelines.

Public hearing is only the first step towards the resumption of oil production. A lot of work on replacement of pipelines is ahead. And as Ministry of Energy of Kazakhstan promised, Kashagan will recover oil production in the second half of 2016.

According to Kazakh experts, if low oil prices persist until 2016-2017, and the consortium promised to complete the laying of new pipelines by this time, the commercial oil production at Kashagan will not be profitable.

January 26 2015, 18:35

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