Kazakh gas plant deal a boost for Kashagan oil output prospects: QazaqGaz CEO

Investors in Kazakhstan's giant Kashagan oil field are set to benefit from Kazakh plans to provide new gas processing facilities to feed gas from the field to the national grid in a "win-win" that will significantly boost oil output, Sanzhar Zharkeshov, CEO of state-owned QazaqGaz, told S&P Global Commodity Insights.

Speaking on the sidelines of the KIOGE conference, Zharkeshov reiterated each additional 1 Bcm/year of gas processing capacity for the Caspian field will facilitate another 25,000 b/d of crude output.

Plans agreed this year between Kazakhstan and Qatar's UCC Holding to build two additional gas plants may help increase Kashagan's crude output toward an interim target of 500,000 b/d, up from 408,000 b/d in 2023, based on Zharkeshov's forecast.

Thus, Zharkeshov said, the new gas processing plants will help meet both Kazakhstan's gas needs, and benefit the seven-member Kashagan operator. The North Caspian Operating Company comprises Shell, TotalEnergies, ExxonMobil, Italy's Eni, China's CNPC, Japan's Inpex and state-owned KazMunaiGaz.

NCOC has long planned to increase production at the 9 billion-13 billion barrel field, which is the second-largest contributor to CPC Blend crude loaded at Novorossiisk. CPC Blend was assessed at a 32-cent/b premium to Platts Dated Brent on Sept. 26.

An existing project to add 1 Bcm/year of gas processing capacity is set to enable an additional 25,000 b/d of crude production from mid-2026, implying an increase to more than 425,000 b/d. NCOC began building a gas pipeline to that gas processing plant in September 2023.

However, NCOC has yet to publicly comment on this year's Kazakh initiative to independently build the two additional gas processing plants for Kashagan gas under the agreement between QazaqGaz and UCC Holding -- neither of them part of NCOC.

Relations between NCOC and Kazakh authorities have been strained by a dispute over development spending in which Kazakhstan is claiming as much as $150 billion -- currently subject to arbitration -- as well as a $5 billion environmental fine in 2023, which the consortium disputed. NCOC revenues have yet to cover the project's development expenditure, according to Commodity Insights analysts.

Zharkeshov conceded NCOC was "not advertising" its support for the Qatari tie-up to build gas processing plants with capacities of 1 Bcm/year and 2.5 Bcm/year, due to start operating in 2026 and 2028-29, respectively.

However, "every technical professional who understands how associated gas is produced in Kazakhstan, they know that if you want to produce more liquids, which means oil or condensate, you have to produce more associated gas," he said.

"It's very definite, so they can load an additional 75,000 b/d [of crude], it means 3 Bcm/year of gas processing capacity is needed," he said.

"You have to build a lot of gas processing plants, and they [NCOC] know that, so it means they have a vested interest to build these gas processing plants. The question about who's going to do that: the answer is they could have done it themselves, but we offered them, the [energy] ministry offered them an alternative."

Win-win deal

Zharkeshov's forecast of the additional oil production enabled by the planned gas plants suggests output could reach 500,000 b/d toward the end of the decade -- falling short of Kazakh ambitions, but still a significant boost.

Production rates have at times been higher than the 2023 average of 408,000 b/d stated in the annual report of KazMunaiGaz. They tend to fluctuate, with hot summer weather reducing the capacity of turbines, for example.

However, Zharkeshov said there was no conflict between plans to source more Kashagan gas and NCOC's oil output goals. NCOC will be expected to provide the gas for free to the new processing plants as a quid pro quo for higher oil output, a separate source close to the situation said.

"I think it's a win-win for everybody -- we need more gas, we need more oil," Zharkeshov said.

NCOC has been carrying out Front End Engineering and Design on a Phase 2A expansion largely comprised of a new gas pipeline to shore. Expansion beyond 500,000 b/d under a proposed "2B" project is seen as more capital intensive, requiring additional oil processing facilities.

NCOC was yet to reply to a request for comment.