North Caspian Operating Company (NCOC), a consortium of six foreign companies and Kazakhstan’s national company KazMunayGaz, is going to start next year to develop a basic design of the second phase of the Kashagan project. It is expected that the production level will surge at least twofold.
The first stage of the project at a cost of $55 billion has been implemented since 2016 and will last until the end of 2024.
So far, Kashagan produces about 400,000 barrels of oil per day. Once the first stage of the expansion is completed, the peak of production might reach 450,000 barrels per day or 22-23 million tons by 2024.
For comparison: Kashagan produced 15.1 million tons (18% of all oil produced in the country) last year; the outlook for 2021 is 14.5 million tons.
To keep business going, NCOC is going to start developing the basic design of the second phase, according to Kaznefteservice, an oilfield service company in Atyrau.
On the cusp of a new stage
The target indicator for the second phase at Kashagan is 500,000 barrels per day (about 8.7-9 million tons per year) by 2027 and 700,000 barrels per day (about 29.5-30 million tons per year) by 2030-2031.
The second phase is split into two parts (A and B). In stage A, NCOC is going to increase the technical potential of the current infrastructure while stage B will require quite a lot of investment to build a new island for drilling, a pipeline and an oil and gas treatment plant on the shore. The associated gas extracted at Kashagan is going to be processed by a third company. It is expected that during the second phase Kashagan will start supplying acid gas in the amount of 1.55 billion cubic meters of gas at first and 6.2 billion cubic meters of gas by 2030.
The first stage: modernization
Stage A is going to last from 2024 to 2026; the basic design development is expected to be done in 2022-2023. NCOC plans to increase oil output at Kashagan up to 500,000 barrels per day based on modernization of the current sea and land production infrastructure. The consortium has gone out of its way to reaching target indicators with no big investments, the company said. However, some new pipeline to transport acid gas from an island to Bolashak, an oil and gas treatment plant run by NCOC and further to a gas processing plant run by a third party will be needed.
“As the preliminary basiс design shows our plan is achievable and commercially attractive. At the end of 2023 NCOC shareholders are going to make a final decision about investments. Once the decision is made we will launch the first phase of the project in 2024–2026,” the consortium spokesperson added.
During the stage B over 2030-2031, the oil output at Kashagan must be increased to 700,000 barrels per day. The basic design development of this stage is going to start next year. Its implementation should start in 2024. In contrast to the current way of production at Kashagan, at the stage B company won’t re-inject the gas into the reservoirs. It means that the company will be able to produce about 6.0-6.2 billion cubic meters of gas by 2030-2031.
“The final decision on investments must be taken in 2024 while the very first oil is expected to be produced in 2030 or even in 2031 because the project needs some time for the implementation,” said Adilbek Akesh, a project supervisor.
So far, there are five artificial islands at Kashagan: a hub on island D, A island, and EPC-2, EPC-3 and EPC-4 islands, according to KazMunayGaz data. Within the new project, NCOC plans to build a sixth island for drilling and a new pipeline for gas fluid transportation to a new processing plant.
Kashagan after 2030
NCOC is going to make a final decision about potential investments into A and B stages of the project over the next two or three years. However, the government of Kazakhstan wants foreign investors to approve a massive production plan for 2055-2060 now.
During this year at least three times President Kassym-JomartTokayev stated that there is no room for waiting and the sea project must be implemented as soon as possible. The government is interested in the long-term plan for the project implementation with clear obligations that investors should officially accept. However, amidst uncertainty in the oil market investors prefer to play for time.
“The production sharing agreement on Kashagan will expire in 2041. But this is a massive oil field and Kazakhstan wants to make sure that the implementation of the project will continue. About seven or eight years ago ExxonMobil and Shell has asked the government to expand the agreement on 20 years but they were offered to wait until the start of the production,” said Nurlan Zhumagulov, director-general of the Union of Oilfield Service Companies in Kazakhstan.
The preliminary concept published on the website of the natural resources department of the Atyrau region says that the output at Kashagan may reach 889,000 barrels per day by 2042 and more than one million barrels per day beyond that point. If the consortium’s participants accept these obligations, the government would be able to manage the cash flow generated by the project more precisely. It would also help the National Wealth Fund to feel better.
Another important part of the Kashagan project is providing Kazakhstani contractors with orders. They also want to know how long the project may last for better planning of their businesses.