Problems Mount at Kashagan Oil Field

The massive Kashagan oil project in the Caspian Sea has suffered from huge cost overruns and delays, and the problems do not seem to be going away. It now appears that entire sections of pipeline are “defective,” according to a new Reuters report. Last October, the well was shut down only a month after starting up due to leaks in pipes. The corrosion on the pipeline may actually be much worse than people thought last fall, and replacing the entire section of pipeline could in fact be cheaper than trying to repair it.

This will delay the project further and cost much more. The project has now topped $50 billion and is draining cash from the oil majors involved. It has been 13 years since it originally began. Since the location of the field in the Caspian Sea is in shallow water that freezes for several months out of the year, the oil consortium had to build artificial islands to drill through, in order to avoid ice. Also, the oil contains some of the highest concentrations of toxic hydrogen sulphide ever found in an oil field, a substance that corrodes metal. The hydrogen sulphide appears to be the source of the problem for the damaged pipeline.

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The Kashagan project was supposed to be pumping 180,000 barrels per day at this point, but it remains sidelined. Reuters estimates that the consortium will lose $4 to $12 billion in lost revenue by mid-year. "All the partners have contributed their technical expertise to look at how this challenge of running the pipelines can be addressed. There is no decision yet about how best to do this or when production can be restarted," said Shell’s Chief Financial Officer Simon Henry.

The Reuters article comes only a few days after the Wall Street Journal did an extensive profile of how the project went wrong. The miscommunication and poor collaboration between members of the consortium – ExxonMobil, Shell, Eni, Total SA, ConocoPhillips, and the Kazakh government – has contributed to the years of delay, according to WSJ.

By James Burgess of Oilprice.com