Crude Oil, Refined Products, Gasoline

October 14, 2024

Kazakhstan’s Kashagan operator says gas company should ‘focus’ on construction task

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HIGHLIGHTS

NCOC continues to ‘study opportunities’ for output growth

Delayed gas processing plant 23% complete as of Aug

Kazakh oil output ambitions in tension with OPEC+

The international operator of Kazakhstan’s Kashagan oil field has rebuffed projections by the national gas company of additional oil output to result from building new gas processing facilities, saying the gas company, QazaqGaz should “focus” on its own role in building the processing facilities, which are behind schedule.

The comment from the North Caspian Operating Company follows assertions by QazaqGaz CEO Sanzhar Zharkeshov that oil output from Kashagan will increase by 25,000 b/d for every 1 Bcm/year of gas processing capacity added, under ambitious expansion plans outlined by the gas company that envisage oil output hitting an interim target of 500,000 b/d.

Kashagan, with a current production of around 400,000 b/d, is the second-highest contributor to the country’s CPC Blend oil exports, shipped from the Black Sea port of Novorossiisk. CPC Blend has of late sold at prices close to the Platts Dated Brent benchmark, reflecting the light sweet quality of the crude.

However, progress on increasing oil output has been slow, and the project has been plagued by disputes over alleged environmental violations and the recovery of development costs. NCOC comprises ExxonMobil, Shell, TotalEnergies, Italy’s Eni, China’s CNPC, Japan’s Inpex and state-owned KazMunaiGaz.

QazaqGaz holds no stake, but is involved in adding gas processing capacity. Zharkeshov’s comments may reflect a broader impatience at the lack of progress on raising Kashagan production -- expressed in a recent national development plan -- as well as national gas supply goals.

Zharkeshov has described the addition of more gas processing facilities as the main means for increasing Kashagan oil production, and his company is already building a 1 Bcm/year processing plant as part of the first phase of Kashagan development.

However, construction of that part is delayed. It was only 23% complete as of Aug. 2, according to a statement from the prime minister’s office, and is now due on stream in the second quarter of 2026, rather than the first quarter of 2025 as envisaged, according to KazMunaiGaz.

And there has been no sign of NCOC taking a final investment decision on a proposed phase 2 expansion at Kashagan, which is likely to be split into two parts: A and B, with part A expected to help hit the output goal of 500,000 b/d.

QazaqGaz’s widely publicized plans for additional gas processing plants to support phase 2 -- and forecasts by Zharkeshov of how much oil this will bring -- have yet to be endorsed by NCOC.

“Kashagan will be contributing to Kazakhstan’s economy over a production life of decades,” NCOC said. NCOC, with its shareholders, partners and the authorities, “continues to study opportunities for further growth,” it said.

“In this regard, cooperation with QazaqGas will allow NCOC to increase oil production when QazaqGaz will focus on delivering of the gas processing plant, while NCOC will focus on the upstream scope,” NCOC told S&P Global Commodity Insights.

Vocal QazaqGaz

QazaqGaz’s increasingly public stance on Kashagan growth follows its signing of deals in 2024 with a Qatari entity, UCC Holding, on the construction of two gas processing plants it says will be dedicated to Kashagan gas, with capacities of 1 Bcm/year and 2.5 Bcm/year, and commissioning to take place in 2026 and 2028-29, respectively.

Zharkeshov described the planned additional plants as a “win-win” for all sides that would bring additional gas and oil production, on Sept. 27. The gas is expected to be provided to the plants by NCOC for free, sources close to the situation have said.

NCOC has previously identified its main task under the proposed 2A expansion as being construction of a gas pipeline from the offshore field to the planned onshore gas processing facilities.

However, it remains unclear if there is unanimity in NCOC on how much gas may be released to the domestic grid, as opposed to reinjecting gas to maintain reservoir pressures and maximize oil recovery.

Kashagan is currently undergoing a month-long planned maintenance shutdown, NCOC announced Oct. 7.

The planned shutdown attracted discussion as it is central to Kazakhstan’s plans to compensate for exceeding quotas under its membership of the OPEC+ producer group.

Platts, part of Commodity Insights, last assessed CPC Blend at a 45 cent/barrel discount to Dated Brent on Oct. 11.


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