Kazakhstan No. 3 field Karachaganak to maintain stable output, boost CPC volumes: KMG

Kazakhstan's third highest producing oil field, Karachaganak, is expected to maintain liquids output at current levels in the medium term, helping underpin an expected increase in CPC Blend crude exports, state-owned KazMunaiGaz has told S&P Global Commodity Insights.

KMG played down the prospect of oil output decline at Karachaganak, a vast gas condensate field in the northwest of the country that relies on processing facilities in nearby Russia and produced 221,000 b/d of liquids in 2022, level with the previous year.

The national producer's comments belie more downbeat views from the likes of state gas producer QazaqGaz, and warnings of minimal liquids output by the time the field's production sharing contract expires in 2037.

On stream since 1984 and now operated by Shell and Italy's Eni, Karachaganak is one of the world's largest gas and condensate fields, with initial condensate reserves estimated at 2.4 billion barrels. Huge volumes of gas are reinjected to support liquids production: 11.1 Bcm of gas were reinjected in 2022, 57% of the gas output from the field that year.

Relying on Russia

Uncertainty over the field's prospects stem in part from its reliance on gas processing facilities across the country's northern border in Russia, near the city of Orenburg, from where some gas is sent back to the Kazakh market. The Orenburg facility suffered performance problems in 2022. However, new injection and processing facilities approved for development at Karachaganak last year are expected to boost liquids output by increasing gas reinjection to 21 Bcm/year from around 2026.

"We anticipate that liquid production will remain relatively stable over the next few years, with no decline expected," KMG told S&P Global Commodity Insights in a statement. It follows output levels of 240,000 b/d in the first half of 2023.

KMG voiced confidence that exports will increase for Kazakhstan's flagship 1.4 million b/d CPC Blend crude grade, to which Karachaganak is the third largest contributor, after Tengiz and offshore field Kashagan. The Karachaganak liquids, being mainly condensate, are exempt from OPEC+ crude output quotas.

"Due to the completion of the Future Growth Project (FGP) at the Tengiz field in 2024, the volume of oil delivered to the CPC system will increase," KMG said. "As for production volumes at Karachaganak, there is no decline in volumes over the next five years."

Chevron, the lead partner at the Tengiz field, has said the $45 billion expansion project there will entail gradual, non-linear production increases, with two turnarounds planned in 2024 before capacity reaches over 1 million b/d of oil equivalent in 2025, including natural gas and LPG.

Analysts at S&P Global Commodity Insights forecast Kazakh oil production will reach a plateau of 105 million mt, or some 2.2 million b/d, around the middle of the current decade, followed by gradual decline, but concur Karachaganak production should stay stable through the decade, helped by new processing capacity.

Operated production

On its overall export plans, KMG noted a five-year agreement signed in 2022 with Azerbaijan's SOCAR to ship 1.5 million mt of Kazakh crude across the Caspian to Baku and through the BTC pipeline to Turkey's coast -- part of an effort to diversify exports and ease reliance on the CPC route.

"We see the potential to increase our cooperation in this direction," KMG said.

Asked about the company's operated production, much of it from mature, heavy oil fields onshore in western Kazakhstan, and whether it plans to accelerate decommissioning, KMG said it "takes measures to maintain appropriate levels of oil production and optimize costs."

It acknowledged sensitivities around its operations following the unrest that swept Kazakhstan in January 2022, reportedly sparked by protests in the oil city of Zhanaozen over LPG price reforms.

The company highlighted its efforts to tackle water scarcity in western Kazakhstan, where heavy oil operations have traditionally involved injecting water brought by pipeline from the Volga River in southern Russia to support production.

Producers such as the Kashagan operator, NCOC, have reported sharp falls in Caspian seawater levels in recent years, likely exacerbated by global warming. Heavy oil producer Karazhanbasmunai -- a Kazakh-Chinese joint venture -- has been testing new facilities that will use desalinated "formation water" rather than the piped water from Russia. KMG has said separately it is looking at polymer flooding as an additional enhanced oil recovery technique.

"Water scarcity of western regions [is] to be solved by implementing a number of projects, such as the construction of new desalination plants and reconstruction of existing water pipelines," KMG told S&P Global Commodity Insights.