Kashagan economically viable with prices for oil at $100 per barrel

Kashagan oil project in the Caspian offshore will be economically viable with oil rices standing at $100 per barrel, tengrinews.kz reports, citing Sauat Mynbayev, KazMunaiGas Chairman of the Board.

“When it comes to economic viability of the Kashagan project, it is a complicated project calling for susbtantial investments. To the best of my knowlege, it can be economically viable with oil prices standing at $100 per barrel. In the long term the figures are acceptable for the subcontractors (...) the formal contract life is up to 2041; however, the actual production could be extended for another 50 years. Both Tengiz and Karachaganak oilfields are effective projects, with the break even point being much lower that of Kashagan. Both projects are profitable even with the current prices for oil in place”, he said.

He also reminded that the works to have the damaged pipelines fixed and have the oilfield producing oil again could be completed in the second half of 2016.

“A respective contract is ready. The project participating oil majors have already taken all the required decisions and approved of the contract. As far as I understand, the contract covers laying the pipes, their dispatch (…) Given the negative experience [of pipes being damaged], there will be a special welding technique applied. The works to have all the pipes running from the D artificial island to the Bolashak treatment facility could be completed in the H2 2016. With the all prep works completed and the contract in place, nothing is going to disrupt the timeframe. At the same time the consortium of oil majors developing the oilfield will be carrying out a comprehensive stocktaking of the entire equipment both on the D island and at the Bolashak facility”, he elaborated.

“I want to emphasize that the expenses to be incurred by the participating companies to have the damaged pipes replaced will not be compensated for by the Government, in line with a special addendum to the contract signed back in 2008. Therefore, it serves the interests of the participating companies to have the pipes replaced within a shortest possible time at lowest possible expenses”.

Commercial production at Kashagan started September 11, 2013. However, it was suspended 2 weeks later due to a gas leakage. The production process was resumed shortly. However, another leakage was detected in October.

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.

“We expect Kashagan to come on stream shortly. The volume of crude to be produced hinges on the period of repairs currently under way. Our estimates stand at about 2 million tons for 2014”, Tengrinews.kz reported mid-January 2014, quoting the country’s Oil and Gas Minister Uzakbai Karabalin as saying at a press-conference following the sitting of KAZENERGY petroleum association.