Prime cost of Kashagan oil higher than current oil prices, says expert

The current oil prices are not in favor of Kazakhstan's Kashagan field, since the prime cost of the production at this field is significantly higher than the current $45-$50 per barrel of oil, said Aivar Baikenov, director of Research Department of the country's Asyl-Invest brokerage and investment company.

The expert said that in order to ensure the project's profitability, the oil prices should be no less than $90-$100 per barrel, according to some estimates.

If the situation in markets doesn't change, there will be prerequisites for postponing the resumption of oil production or wider production at the field to a later date, according to Baikenov.

"In such conditions, a quite tough confrontation will emerge between the operator of the project together with the foreign participants (which will delay the launch) and the state (which wants to resolve the problem by starting the production)," said the expert.

“As the field has certain image problems, its commissioning is unlikely to be delayed," he said.

Oil prices will remain in the amount of $40-60 a barrel for the next one to two years as there are no prospects for its significant growth yet the expert said, adding that Kazakhstan would be unable to significantly increase the production of "black gold" without Kashagan oil.

"The peak production has been already reached at many existing oil fields, so they will be closed soon," the expert said. “There are no new fields yet. There are only Kashagan and Tengiz second phase expansion among the major projects."

The production at the Kashagan field started September 2013, but in October 2013, it was ceased after a gas leak in one of the main pipelines.

Analysis conducted over several months, revealed numerous micro-cracks on the pipeline that emerged as a result of the metal's exposure to the associated gas with high sulphur content.

The project's operator – the North Caspian Operating Co. (NCOC) confirmed the need for a complete replacement of gas and oil pipelines at the field, which have a total length of about 200 kilometers.

Initially, Kazakhstan's government planned that the replacement of pipes at the field would take about two years and that production would resume in late 2015.

Recently, Kazakhstan's First Deputy Energy Minister Uzakbai Karabalin said the resumption of production is scheduled for late 2016.

There are also less positive forecasts. For instance, the Standard & Poors expects the resumption of production at Kashagan not before 2018.

In addition, Novosti-Kazakhstan news agency previously reported that Kazakh Ministry of Energy forecasts an increase in oil production in the country to 92 million tons in 2020. In 2014, Kazakhstan produced 80.845 million tons of oil, including gas condensate, which is 1.2 percent less than in 2013.

Kashagan is a large oil and gas field in Kazakhstan, located in the north of the Caspian Sea. The geological reserves of Kashagan are estimated at 4.8 billion metric tons of oil. The total oil reserves amount to 38 billion barrels; some 10 billion out of them are recoverable reserves.

There are large natural gas reserves at the Kashagan field - over one trillion cubic meters.

The project participants are KMG Kashagan BV (16.88 percent), AGIP Caspian Sea BV (nearly 16.81 percent), CNPC Kazakhstan BV (8.33 percent), Exxon Mobil Kazakhstan Inc. (nearly 16.81 percent), INPEX North Caspian Sea Ltd., Shell Kazakhstan Development BV (nearly 16.81 percent), Total E&P Kazakhstan (nearly 16.81 percent).

Source: trend.az