Baku, Azerbaijan, Jan. 22
By Elena Kosolapova - Trend: Kashagan oil and gas field in Kazakhstan was described as one of the most attractive projects in the world just several years ago. Nowadays the project experiences a number of problems and faces a risk to convert into unprofitable.
The last hard blow for the project's operators was Kazakh authorities' decision to fine them for delay in oil production at the field and environmental damage due to an accident. These plans were announced by Kazakh Minister of Oil and Gas Uzakbai Karabalin last week. The sum of the fine was not announced yet. However reasoning from the cost of the project itself the sum will likely be quite considerable.
Oil production at Kashagan will be much more expensive than in Iraq, Iran or any other countries, Sergei Smirnov an expert of Kazakhstan's Almaty Institute for Political Solutions told Trend on Jan. 21.
"If the project continues to rise in price, it may not have enough oil to pay the cost of investors," Smirnov said.
Meanwhile he reminded that project's operators will pay for further development of the field on their own and these costs would not reimbursed by Kazakhstan, according to the bilateral agreement.
Moreover the project is experiencing great technological problems and the scale of these problems has not even clear yet, the expert noted.
"The gas pipeline at Kashagan field cracked under the influence of sulfide compounds. However Kashagan's oil pumping through the pipelines also contains sulfur. Therefore, the same problems may occur in oil pipeline," Smirnov said.
That is why there will hardly be any new companies willing to enter the project and its shares will likely fall in price, Smirnov said.
Meanwhile delays in oil production at Kashagan will not have serious impact on Kazakhstan economy, the expert believes.
"Kashagan's problem will not affect Kazakhstan's budget. All oil revenues go not to the budget but to the National Oil Fund. And the fund invests in foreign securities with 4-5 percent dividend yield, which is even lower than inflation," he said.
Therefore, even if Kazakhstan gets money from Kashagan they will depreciate in the National Fund, Smirnov said.
However problems in Kashagan field will hinder Kazakh authorities' intention to enter the top ten largest oil-producing countries, he added.
Kashagan is one of the largest oil and gas fields of the world. The total oil reserves of the field amount to 38 billion barrels, while some 10 billion out of them are recoverable reserves. There are large natural gas reserves at the Kashagan field - over one trillion cubic meters.
However due to its difficult geological structure Kashagan experienced several delays in oil production since 2005 due complicated structure of the field. Eventually oil production at the field was launched on September 11, 2013 and was suspended on September 24, though following detection of gas leak in the onshore section of the gas pipeline running from D Island to the onshore processing facility Bolashak. Oil production was resumed on October 6 as the affected joint was repaired and stopped again on October 9 after another seep was detected. The consortium developing the field launched thorough investigation of the pipelines. The direct cause of pipeline leaks was cracking under the influence of sulfide compounds, according to the preliminary results. The final results of analyzes of steel samples of pipelines from the Kashagan are expected to be ready in late January-early February.
"The time of resumption of production depends on the amount of necessary repair work, which can be assessed only after the results of the research into the causes of cracking held by TWI, and the results of the analysis carried out with the diagnostic pig are available," the consortium said.