Kashagan Production Could be Delayed for Years

Last Week Oil Price reported on the mounting problems at the massive Kashagan oil field in Kazakhstan. The latest developments seem to be much worse than previously thought, as Steve LeVine at Quartz noted in an article on April 6. He wrote that the Kashagan field is in a state of commercial crisis, and the field could remain closed for two more years. This news comes as the field has already suffered several years and billions of dollars in delays and cost overruns. The consortium involved – including ExxonMobil, Shell, and Eni – have already dumped $50 billion in the project.

But, the problem of toxic hydrogen sulfide (H2S) is posing severe engineering problems that may be difficult to overcome. About 17% of the natural gas coming out of the field is H2S, which is corroding the pipelines. After briefly starting production last fall, the project was shut down after engineers discovered the pipeline damage. The consortium may have to replace two 55-mile pipelines with a special nickel alloy could take two years, meaning the Kashagan field could remain shut in until late 2016 at the earliest, and possibly not until 2017.

Related Article: How Will the Crimea Debacle Affect $170 Billion FDI Investment in Kazakhstan?

Kashagan has been an enormous headache for the companies involved. They were originally required to bring production online back in 2005, but the technical difficulties involved set that date all the way back until late 2013. They brought 75,000 barrels per day online in September, but shut it down in October. It is now unclear when, if ever, they will be able to get production up to the projected 1.6 million bpd. The delay will cost the oil companies, as well as the Kazakh government, billions of dollars in lost revenue. “This is a very complex project, which I believe will start working in the end. But the question is: how much it is going to cost and who is going to pay for these flaws and mistakes,” a Kazakh government official who declined to be identified, told Reuters.

By Joao Peixe of Oilprice.com