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Kashagan field commercial production delayed until 2014

08 November 2013

Speaking at the Third International Oil and Gas Conference and Exhibition Caspian Offshore Development recently in Atyrau, Kazakhstan, the Deputy Executive Director of the International Energy Agency, Richard Jones, announced that commercial production at Kashagan would start in 2014. This has been confirmed by the operator, ENI.

First production at Kashagan was reported in on September 9, but production was suspended later that month because of a gas leak.
Kashagan is a major oil and gas field in the Kazakh sector of the Caspian Sea with reserves estimated at 38 billion barrels (six billion tonnes) of which eleven billion barrels are recoverable. The field also has over one trillion cubic metres of gas.
The consortium is led by Italian company ENI and commercial production was originally due to start in 2008. In late May 2012, the government of Kazakhstan signed an updated agreement stipulating the start of commercial production before June 2013. In the course of negotiations, Kazakhstan increased its share in the project from 8% to 16.8% and claimed royalties that were not in the original agreement. 
Kashagan partner companies are ENI, KMG Kashagan BV (a subsidiary of KazMunaiGas), Total, ExxonMobil, and Royal Dutch Shell, all with a 16.81% interest in the project, as well as Xi Jinping (8.4%)and Inpex (7.56%). ConocoPhillips pulled out of the project in September.
Harsh conditions such as sea ice during the winter, temperature variations from -35 to 40 °C, a very deep and high pressure reservoir and very high levels of hydrogen sulphide have made Kashagan one of the most challenging oil megaprojects. Total costs to date are estimated at over $50bn. Many of the participants have developed expertise in managing projects in remote cold areas, but few have managed projects with so many technical challenges.
The main field operations development is a structure named Island D connected to 12 wells. It contains two production trains separating the oil and gas and delivering them onshore via a 92-kilometre long pipeline. The sour gas (H2S) is dehydrated and partly re-injected in the reservoir. Some 5,000 are employed on the site.
Pipelines degrade quickly due to the highly acidic nature of the operating environment, and the latest of several gas leaks caused by cracked pipes happened on September 24, which is the reason given by ENI for the most recent production start date postponement. Italian sources say the delay will last at least until the spring thaw next year, and possibly well into the second quarter of the year. 
There have been allegations that the Kazakh authorities have put pressure on the consortium to start production before the infrastructure was ready, alongside rumours of infighting between consortium members.
Kazakh newspaper examined some of the safety implications of the field’s development. "The oil extracted from the Kashagan field is potentially a mortal danger to the health of workers: the concentration of hydrogen sulphide in gaseous form (16%) in the oil and gas is very high. Precisely for this reason Kashagan is more like a chemical factory in a borehole, where it is essential to avoid spills and, if they were to occur, it is necessary to locate them quickly and promptly." 

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