[The Turkmen govt. almost blew its composure when Russian analysts revealed that gas from the over-hyped Lolotan gas field in Turkmenistan would be prohibitively high, due to the same sulfur-related production problems cited in the ATIMES report below (SEE: Nabucco contention). It seems that the new Turkmen field, a.k.a., South Yolotan – Osman, is just another overblown “bonanza,” promised by the Obama Administration (like the TAPI pipeline and the “Silk Roads” delusion), to lure greedy opportunists into the serpent’s lair. The Kashagan offshore Caspian is the first to run-up against environmental regulations and an army of international lawyers defending them. Any state or oil corporation that tries to ram risky pipeline or production schemes through, without meeting the regulations which protect us all, or tries to ignore the problematic sulfur/corrosion issues, will see its bully plans come to ruin. President Berdymukhammedov has been just another American pawn, used to lure Karzai, Zardari and Singh into a proper “queue,” waiting for the imaginary American-promised hand-out called TAPI, which will never come to fruition. Central Asian gas is more than it seems and a whole lot less. The long list of hidden costs may make the underground payload too expensive, versus other supplies, to make it profitable to harvest at this time. The major investments that will be needed in non-existent infrastructure to harvest the high-pressure, high-sulfur eastern Caspian gas will take several years to create–about as long as it will take to resolve environmental issues and to produce fair contracts for all stake-holders. As usual, the American side has gotten things all screwed around, putting the cart before the horse. Once the legal issues are hashed-out then the drilling and the right-of-way negotiations can get underway. There is no reason for all the major players to cut each others’ throats over drilling and right-of-way rights for gas that may not be available for a decade or more.]

Kashagan feels growing pains

By Robert M Cutler

ATIMES

MONTREAL – Kazakhstan’s huge offshore Kashagan deposit may be developed earlier than previously expected, according to Bolat Akchulakov, the head of Kazakhstan’s state company KazMunaiGaz (KMG). The field’s expansion for so-called “primary production” may be accomplished by 2017-2018 instead of two years later as currently projected, he said recently, on condition that the consortium partners decide the strategic plan for that expansion within the next few months, subject to government approval.

Therein lies the rub – one of the Kashagan consortium members, said to be ExxonMobil, is persistently reported to want out, a reflection of the fluidity in the development and production consortium that militates against streamlined decision making. Smaller-scale “industrial” production is currently scheduled to begin at the end of 2012, but even this looks increasingly like wishful thinking.

An Indian consortium led by ONGC Videsh Ltd (OVL, the foreign arm of Oil and Natural Gas Corp) and including Gas Authority of India Ltd (GAIL) and a third partner that is itself a consortium of two other companies had expressed an interest in ExxonMobil’s present stake in Kashagan.

This week, however, that third partner, comprising Indian Oil Corp (IOC) and Oil India Ltd (OIL), dropped plans to participate in any such buyout, saying that it would cost too much, produce little value added, and yield too small a share of the overall pie to be worthwhile.

OVL and GAIL continue nevertheless to be interested; a separate report mentions the State Oil Company of the Azerbaijani Republic (SOCAR) as another potential bidder, although this remains to be confirmed.

The Kashagan oilfield in the north of the Caspian Sea, discovered in 2000, is the largest discovery worldwide since Prudhoe Bay (Alaska) more than 40 years ago. It is in very shallow water and topped by a very high pressure gas dome that is in turn sealed by a salt dome. External temperature extremes range from minus 30 Celsius in winter to plus 40 Celsius in summer, and sulfur content is estimated at 16-20%, presenting a significant threat of pipeline corrosion.

All these circumstances have presented significant technical challenges, particular in view of Kazakhstani law that does not allow the gas to be flared into the atmosphere.

Kashagan’s reserves are estimated at 38 billion barrels, of which a maximum of one-third are thought to be recoverable. It was originally scheduled to enter into production in 2005, but the date has been continually postponed over technical challenges and issues about the nature of participation by KMG. Also there were complaints over delays in implementing production plants, increasing costs and disputes over how to cover them, and allegations of environmental violations.

Kazakhstan enacted in 2007 a law permitting the government to revise or revoke natural resource contracts deemed to be at cross-purposes with national security. In the negotiations that followed, KMG increased its stake to 16.81% while other major shareholders – Eni, ExxonMobil, Royal Dutch Shell, and Total – acquiesced in theirs falling to 16.66%; ConocoPhillips and Inpex hold still smaller stakes. (BG Group, formerly British Gas, had already sold its stake in the original project consortium in 2004.)

The consortium was also restructured in 2008 to give KMG a larger management role: it provides the permanent secretariat while the titular operatorship of the consortium rotates among the other major stakeholders.

The end-of-decade date currently estimated for Kashagan primary production was bruited after French companies (including Total, a major stakeholder in the Kashagan consortium) failed a year ago to follow through on their option to pursue planning for construction of the Kazakhstan-Caspian Transportation System (KCTS) project, which would have taken Kashagan oil onshore to Kuryk, near Aqtau. It would have been shipped from there across the Caspian Sea to Azerbaijan for insertion into the Baku-Tbilisi-Ceyhan pipeline to the eastern Mediterranean.

French President Nicolas Sarkozy had hoped that the KCTS would provide jobs for his country’s metallurgical and manufacturing industry.

For transiting Kazakhstan’s (or Turkmenistan’s) oil across the surface, a few relatively small tankers have been built, and a few more are still to be built in a new Baku shipyard. However, Kazakhstan stopped sending oil to Azerbaijan last year in a dispute over transportation fees, and Turkmenistan took up the slack.

Other oil from Kazakhstan has in small quantities for years transited Azerbaijan either for insertion into the still-existing Baku-Novorossiisk pipeline or for carriage across Georgia to Batumi, whence to Romania where KMG bought the Rompetrol Group several years ago.

KMG’s exploration and production arm has, for its part, announced plans to acquire as much as $2 billion to $2.5 billion of oil and gas assets in Iraq, the Middle East, Russia, and Turkmenistan. Increasing its own stake in Kashagan is excluded from that basket, but it is set to include “fields previously owned by MangistauMunaiGaz”, probably meaning the Kashagan-associated offshore Kalamkas deposit among others.

Dr Robert M Cutler (http://www.robertcutler.org), educated at the Massachusetts Institute of Technology and The University of Michigan, has researched and taught at universities in the United States, Canada, France, Switzerland, and Russia. Now senior research fellow in the Institute of European, Russian and Eurasian Studies, Carleton University, Canada, he also consults privately in a variety of fields.