Bureaucratic Inefficiency Adding To Kashagan Challenges
BMI View: Technical challenges have already caused significant delays at Kazakhstan's giant Kashagan oil field. However, adding to these difficulties is the non-traditional model being used to jointly operate the field which is creating inefficiencies in management of the project. We expect the ongoing technical and bureaucratic challenges, as well as our forecast for a lower oil price environment, will delay Phase II development beyond the expected 2019 start up.
We have previously highlighted the technical challenges facing Kazakhstan's largest oil project at Kashagan ( see, 'Kashagan Gives Little To Sing About', November 11 2013). The oil extracted from the project is 4,200m under the sea floor at an extremely high pressure (770 bar), while the associated gas holds some of the highest hydrogen sulphide levels ever recorded. Less than two months after the start up of production in September 2013, output was halted due to pipeline leaks. It now appears that cracks in the pipe were caused by the erosive effect of a hydrogen sulphide and water reaction, though it still remains unclear as to why this happened. Consortium partner Total has been put in charge of conducting the investigation into the leaks.
Collective Model Impeding Pace Of Development
|Crude Prices May Not Support Kashagan Expansion|
|Brent Crude Benchmark Price 2010-2020, US$/bbl|