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Kashagan: lost profit, new challenges

Kashagan: lost profit, new challenges
22:32 19 İyun 2015
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Baku, Azerbaijan, June 19

By Elena Kosolapova – Trend:

For years, Kashagan oil and gas field was the hope and pride of Kazakhstan.

It was described as a “super-giant and super prospective”, which promised super profits to developers and the country. Plans for the future were made in view of the oil revenues from this field, projects on the development of the national economy of the country were being developed and its state budget constituted.

Due to production from this field, Kazakhstan planned to become one of the largest oil producers in the world.

However, this project gives less cause for optimism with every passing year. Kazakhstan, which planned to receive the first oil from Kashagan in the mid-2000s, is still waiting.

After the long-awaited launch of production at the field in September 2013 and the cracking of pipes that happened later, Kashagan again stopped for several years.

The state officials in Kazakhstan said that the production at the field is planned to be resumed in late 2016 - early 2017. The Prime Minister of Kazakhstan Karim Massimov also mentioned these terms at a joint session of parliament held a few days ago.

However, this statement was not made as confident as a few years ago. It seems that a number of delays in the production at the field over the past 10 years has seriously shaken confidence in it of not only ordinary citizens, but also the higher ranks.

To date, the prefix “super” in relation to this project is increasingly used in combination with the word “expensive.” In the ranking, compiled by CNN Money, Kashagan has been recognized as the most expensive energy project in the world.

However, since the date of compilation of the rating, at the time of publication of which the cost of Kashagan was estimated at $116 billion, it “grew up” in price for another few billion dollars. The costs for the project continue to grow.

Earlier, First Deputy Energy Minister of Kazakhstan Uzakbai Karabalin said that the cost of the complete replacement of nearly 200 kilometers of pipes at the Kashagan, the decision on which was taken after their cracking, will amount to more than $3 billion.

But where is the guarantee that after replacing the pipes, Kashagan won’t demand additional investments and bring profit? The largest and experienced energy companies of the world have been working at the field for almost 20 years already and seemingly, these companies were supposed to do everything at the highest level. However, this didn’t save the project from the fatal mistakes, miscalculations in design and incorrect calculations. Where is the guarantee that the mistakes will eventually be corrected?

In this situation, a growing number of experts share the opinion that even if Kashagan eventually starts operating, it won’t bring large amounts of profits to its developers and Kazakhstan, moreover, it is possible that Kashagan won’t justify the investments all the more so, currently, when the oil prices are far from the maximum level.

By putting Kashagan into operation five years ago, Kazakhstan could get large amounts of revenues due to the high oil prices. However, the country failed to start the production and the opportunity to get revenues was irretrievably missed. Today, the majority of analytical agencies forecast that there is no point to expect oil prices to reach $100 per barrel or more in the medium term.

What will Kazakhstan do in this situation with its Kashagan oil with very high prime cost?

Furthermore, additional delays will only lead to additional expenditures. The equipment that was installed at the field with the expectation of starting the production 5-10 years ago is getting older every year and thus, requires more expenditures on modernization and check-up and possibly, replacement as well.

Taking into account the ecological vulnerability of the northern part of the Caspian Sea where the field is located, skimping on safety can make matters worse.

It turns out that the Kashagan is like a suitcase without a handle: hard to throw out for sentimental reasons, but also hard to carry.

Edited by CN
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Elena Kosolapova is Trend Agency’s staff journalist, follow her on Twitter: @E_Kosolapova

Follow us on Twitter @TRENDNewsAgency


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