Baku, Azerbaijan, Oct. 18
By Elena Kosolapova – Trend:
A new milestone began in Kazakhstan’s oil history in October – after many years of waiting, the country finally began to produce oil at the giant oil field Kashagan in the shallow water part of the Caspian Sea.
Kashagan is the biggest oil field opened in the last 40 years; it is among the ten largest oil fields in the world and ranks first for volume among oil fields in the post-Soviet space.
Kazakhstan has not held celebrations on this occasion yet; the country's leadership and shareholders of the project refrain from loud statements. However, at the end of last week, the Energy Ministry said that several wells have been commissioned at the field and the first small batch of the Kashagan oil, extracted within the balancing and commissioning, has been exported.
Indeed, there is very important information behind these modest messages: there is oil at the Kashagan field; despite the huge sulfur content and complex geological conditions, it is possible to extract oil at the field, refine and export; equipments at the field work, and it seems that after a number of delays, Kashagan will finally start to operate.
With its total oil reserves of 38 billion barrels, including 9-13 billion barrels of recoverable reserves, Kashagan field will have a significant impact on the oil sector of both Kazakhstan and the world as a whole.
The majority of oil fields have already reached the production peak in Kazakhstan and oil output is reducing for several years.
Kazakhstan is implementing the subsoil exploration projects onshore and offshore in the hope of discovering new oil fields, but their prospects are still vague. Kashagan field is the only real source of oil for Kazakhstan today, allowing increasing production. According to the analytical agencies’ estimates, oil production growth will be noticeable due to Kashagan field in the country.
Thus, according to the forecasts by the US Energy Information Administration (EIA) at the end of last week, oil production will reach 1.81 million barrels per day in Kazakhstan in 2017 compared to 1.72 million barrels in 2016.
However, the forecast for 2017 increased by 70,000 barrels per day only amid the news about the beginning of the commissioning work compared to the forecast of the previous month. It is planned to produce 75,000 barrels on the field per day with further increase only at the initial stage of development. After the stable production is achieved on the field, the forecast is likely to grow even more.
The Kazakh government expects Kashagan field to allow the country to join ten largest oil producers in the world. According to BP, only 1.8 percent of the world oil production accounted for Kazakhstan in 2015.
However, the amount of dividends to be obtained by Kazakhstan from Kashagan field remains uncertain.
According to the Kazakh Ministry of Energy, the average prime cost of oil is about $50 per barrel in the country. The cost of Kashagan oil is more than the average prime cost of oil throughout the country. According to the estimations as of 2012, Kashagan became the most expensive field in the world. Afterwards, the investments were still made in the field.
Kazakhstan will have to compensate for multibillion expenses of shareholders on the development of this field for decades. The prime cost of Kashagan oil is not officially known, however in 2015, Chairman of the Management Board of the national oil and gas company of Kazakhstan ‘KazMunayGas’ Sauat Mynbayev expressed opinion that the limit of payback at Kashagan is about $80-100 per barrel.
For example, Goldman Sachs investment bank believes that oil prices should be in the range of $120- $130 per barrel for Kazakhstan to make a profit from the sale of oil from Kashagan.
Even if Mynbayev and several foreign analysts were mistaken in their calculations a bit, it is clear that the profit from Kashagan will be very small, given the current oil prices around $50 per barrel.
However, Kazakh Deputy Energy Minister Magzum Mirzagaliev has recently said that Kashagan will be profitable for Kazakhstan at any oil price, because the government will receive royalties and taxes from this project.
Mirzagaliev left unanswered the question how profitable this project will be for its shareholders, including the national oil and gas company ‘KazMunayGas’, which represents Kazakhstan.
Regarding the impact of Kashagan oil to the global oil market, the majority of analytical agencies mention Kashagan among the reasons that lead to an increase in oil supplies to the global market in the coming years.
In the current situation, when oversupply is observed in the market, Kashagan oil will be another factor hindering the achievement of balance in the world market and, as a consequence, preventing the rise in oil prices Kashagan shareholders are interested in perhaps more than all the rest manufacturers.
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Elena Kosolapova is Trend Agency’s staff journalist, follow her on Twitter: @E_Kosolapova