Kashagan Field Plans Pipeline Replacement

After weeks of review, the operators of Kazakhstan's giant Kashagan oil field have concluded that pipelines carrying oil and gas will need to be replaced due to extensive damage.

The consortium -- which includes Eni, Total, Royal Dutch Shell and ExxonMobil -- has been repeatedly frustrated by delays and engineering obstacles. With the discovery of the severely corroded pipelines, the project, which was shut down in October 2013 after a brief start, is now closed indefinitely.

The consortium is preparing a report that will be finalized in June, but company officials say full replacement of at least one pipeline is needed.

"The investigations are still ongoing offshore - it's the last piece of information that will give us an idea if we need to replace both pipelines at once or on a phased basis," said Zhakyp Marabayev, deputy managing director of the North Caspian Operating Company.

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Toxic hydrogen sulfide (H2S), which is present in the hydrocarbons that come out of the formation, is highly corrosive pipelines, so the consortium will have to use new materials in its replacement that can withstand H2S. Production will almost certainly not resume this year, and probably not in 2015 either, according to Total's Yves-Louis Darricarrere.

The companies involved have already sunk $50 billion in the project, which was supposed to have been up and running back in 2005, with production levels eventually rising to 1.6 million barrels per day. The delays have angered the Kazakh government, which has threatened to not reimburse the private companies for construction costs.

With this latest delay, the companies will forgo untold billions more in lost revenue while the field remains offline. Kashagan remains a huge prize, with 13 billion barrels of recoverable oil.

By James Burgess of Oilprice.com