Kazakhstan Kashagan expansion projects progressing 'well,' amid legal battle

The partners at Kazakhstan's giant Kashagan oil field continue to make progress on projects to boost gas handling capacity and crude production, the consortium told S&P Global Commodity Insights, amid a number of legal disputes.

A series of projects have been outlined to expand capacity at the giant field off the Caspian coast and associated onshore facilities, entailing either reinjection or offtake of the major amounts of sour gas that accompany the crude production. The field is the second-highest contributor to the 1.5 million b/d CPC Blend crude export grade, loaded at the Russian port of Novorossiisk, and reserves are thought sufficient to continue producing into the next century.

However, the authorities are now in a dispute with the partnership over recovery of project costs. The development is estimated to have cost over $50 billion by the time of the full launch of commercial production in 2016. Arbitration proceedings are reported to be underway in Geneva, with billions of dollars at issue, while a similar process is underway in relation to the separate Karachaganak field.

Patrick Pouyanne, CEO of TotalEnergies, one of the Kashagan partners, previously vowed to "fight" the claims, saying on April 27 the partners — which also include ExxonMobil, Shell and Italy's Eni — were "really united" in their position.

Kazakhstan's ecology ministry has also launched proceedings against Kashagan operator the North Caspian Operating Company over emissions from the project, although NCOC has said it abides strictly by environmental standards.

A project now underway to increase gas supply to a third-party processing plant, with capacity of 1 Bcm/year, will enable an increase in Kashagan crude output to 450,000 b/d, the consortium confirmed in comments to S&P Global Commodity Insights.

Current crude capacity is somewhat over 400,000 b/d.

Progress is also being made on the Phase 2A and 2B expansion projects, now at the Front End Engineering & Design and pre-FEED stages respectively, NCOC said, adding that further gas handling capacity increases were under consideration.

Phase 2A, with 2 Bcm/year of gas handling capacity, is expected to increase crude production capacity from the field to 500,000 b/d, with startup expected around the middle of the decade, the consortium said earlier.

NCOC said "a number of disputes" were ongoing between Kazakhstan and the partners over the production sharing contract, adding the contracting companies considered they had acted in accordance with the agreement, Kazakh laws, applicable standards and best practice.

As regards Phases 2A and 2B, "NCOC is progressing its scope of works well, including feasibility assessments of additional scope, such as a raw gas processing plant," the partnership said.

"Discussions between the... government and the... shareholders continue on Kashagan future growth projects."

The CPC pipeline through Russia remains Kazakhstan's main crude export route even as the country tries to diversify routes following the invasion of Ukraine and a number of disruptions in 2022.

Platts, part of S&P Global Commodity Insights, assessed CPC Blend at $2.65/b discount to Dated Brent on a Cost Insurance Freight (CIF) basis on June 15, a 25 cent increase in the discount from a day earlier.

The other NCOC partners are state-owned KazMunaiGaz, with smaller stakes held by China's CNPC and Japan's Inpex.