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Daily production from the Kashagan oil field has fallen by 60 percent. according to the Kazakh Ministry of Energyamid planned maintenance work, contributing to a 13 percent nationwide production decline.
Last month the ministry asked partners in the North Caspian Operating Company (NCOC) consortium that operates Kashagan to postpone planned maintenance work – which was due to start in October – until next year.
When the Kashagan field was discovered in 2000, it was the second largest known oil field in the world. The recoverable reserves are estimated at 9 to 13 billion barrels of oil. When consistent commercial production began in 2016, the project was dramatically behind schedule and more than $30 billion over budget. (Production had actually started in 2013, but the field was closed within a month as a result of leaks in a pipeline.)
Currently, the Kashagan field is managed by NCOC, in which a large number of major oil subsidiaries are shareholders: KMG Kashagan BV, a subsidiary of KazMunayGas (16.877 percent), Shell Kazakhstan (16.807 percent), Total EP Kazakhstan (16.807 percent), AgipCaspian Sea BV (16.807 percent), ExxonMobil Kazakhstan (16.807 percent), CNPC Kazakhstan BV (8.333 percent) and Inpex North-Caspian Sea Ltd. (7.563 percent).
It is said that the Kashagan field typically produces 400,000 barrels per day.
Maintenance work in Kashagan was supposed to start on October 3, but has already started October 7.
Energy Minister Almasadam Satkaliyev said repair work is expected to take between 30 and 40 days.
“The Ministry of Energy has approved the planned maintenance for a duration of 40 days; However, the consortium management (NCOC) has indicated that it plans to complete the repairs in a shorter time frame of 30 days,” he said.
Despite Kazakhstan’s efforts to reschedule the Kashagan maintenance, the production drop conveniently forces Astana to honor the commitments it made to OPEC+ to reduce oil production.
If Reuters reported last week: “Kazakhstan has been one of the laggards in the OPEC+ deal to curb oil production, continually exceeding the group’s production quotas.”
Production rose in September, Reuters reported, “thanks to a 30% increase in production at the Tengiz field” following the completion of maintenance work there.
The Tengiz oil field began production in 1993 and is considered the sixth largest oil field in the world. Tengiz is currently operated by Tengizchevroil with various stakeholders: Chevron Corporation (50 percent), ExxonMobil Kazakhstan (25 percent), KazMunayGas (20 percent) and Lukoil (5 percent).
Although Kashagan is technically the bigger field, Tengiz outperforms it in production announced targets for 2023 around 608,000 barrels per day.
This is not the first time that Kazakhstan has disappointed its OPEC+ partners production overruns.
The maintenance work also comes as Astana looks to settle a dispute over a $5 billion environmental fine with its Kashagan partners. As Bloomberg reported last week: “Oil giants including Eni SpA, Shell Plc, Exxon Mobil Corp. and TotalEnergies SE, have prepared proposals regarding allegations that they stored too much sulfur in the field.”
The square root of the environmental fine is a Inspection 2022 by the Ministry of Ecology of the Atyrau region, which claimed to have determined that the field had significantly exceeded sulfur storage limits. According to Bloomberg reporting, the Kashagan partners are offering to make additional investments in social projects ($110 million over two years), have established a million-dollar social development fund and made additional payments “related to the supply of liquefied petroleum gas to the government.”
The proposal, in turn, seeks the withdrawal of the “sulfur damage claims in Kazakhstan and all environmental damage claims in international arbitration” and changes to Kazakh law to prevent future claims. The partners also would not admit to any wrongdoing in any future settlement.
In one special caseKazakhstan strives for one $160 billion claim v Eni SpA, Shell Plc, Exxon Mobil Corp. and TotalEnergies SE. That figure has soared since Kazakhstan’s government first sought $16.5 billion in compensation for production and revenue-sharing disputes in June 2023. Kazakhstan claims that despite promises, proceeds from production have never been fully transferred to the government.
Bloomberg’s sources linked the escalating claim to allegations of corruption.
Almost ten years ago, Casey Michel wrote here The diplomat that Kashagan was the white whale of Kazakhstan” – “always in sight, but always just out of reach.” The age of white whales may be over, but it’s worth remembering what ultimately happened to Ahab.
In 2020, Kazakhstan announced its intention to achieve “carbon neutrality” by 2060. Some analysts argue that the target is ambitious but achievable. But for now, fossil fuels continue to play a central role in Kazakhstan’s economy and energy mix.