Kazakhstan’s giant Kashagan oil field, one of the world’s largest industrial projects, won’t produce any oil until at least 2016 while workers battle against the hostile Caspian Sea to complete massive repairs, according to people familiar with the matter.
The project’s partners, which include Eni SpA, Total SA, Royal Dutch Shell PLC and Exxon Mobil Corp. , have concluded they must entirely replace two 55-mile pipelines before they can restart production, the people said.
Replacing the two pipelines connecting an offshore artificial island to onshore facilities is estimated to cost “a few billion dollars,” they said.
The latest delay is a blow to the Kazakh government, which had based its economic forecasts on revenue from the Caspian Sea oil field, where output was expected to ramp up to 370,000 barrels a day by 2015 from an initial 180,000 barrels a day. Earlier this year, the government devalued its currency, and is now increasing efforts to attract more investment into the onshore oil sector in an attempt to get its economy back on track.
The delay also is a setback for the oil companies developing the fields because they were counting on crude oil from Kashagan to help offset output declines in other parts of the world.
A spokesman for the consortium of Kashagan partners said it was too early to say when production could resume and how much the repairs would cost because investigations were still under way to determine the cause of the pipeline failure. Repair work is very difficult in the Caspian Sea region because ice envelops facilities in the winter and extreme heat radiates across the field in the summer.
Production was halted indefinitely at Kashagan in October, only weeks after oil had started flowing, because of multiple leaks in the pipeline conveying gas rich in highly corrosive and deadly components to the shore.
Kashagan is already years behind schedule and billions of dollars over budget. The companies need the oil to start flowing before they can start to recoup some of the $50 billion spent there over the past 17 years. The Kashagan partners had said in April that the oil would be flowing again next year. At the time, operators hoped they could replace sections of the pipeline at a staggered pace and could succeed in resuming production sooner.
But one of the people familiar with the matter said the companies needed more time.
“The oil pipeline is quite badly corroded and unusable,” the person said. “There won’t be any oil flows until 2016.”
A final report on why Kashagan’s gas pipeline began leaking last year and a repair schedule are still in progress, the consortium has said. The report, which will contain the results of laboratory tests on samples of steel from the pipe and interpretation of data from pipeline inspections, had initially been expected at the end of last year, but has been pushed back month by month while the companies conduct further tests.
The new delay comes as the consortium said it had started work to streamline corporate organization with the aim of setting up a consolidated joint venture company under a single management system. As part of the effort, Stéphane de Mahieu from Exxon Mobil took over on May 1 as managing director of the consortium.
