Kazakhstan Chamber of Commerce in the USA

KazCham


Tengiz on the rise

Posted on March 05, 2010 by KazCham

PAYBACK TIME HAS arrived at last for the two biggest onshore oil and gas fields in the prolific Pre-Caspian basin in north-west Kazakhstan – Tengiz and  Karachaganak – which are now delivering nearly  half the 70 million tonnes of oil produced annually  by the oil industry in Kazakhstan.

For the best part of a decade, some of the world’s biggest oil and gas companies have been pouring  money, labour and technology into the two complex fields, laid down over several geological time  periods, before being covered by a vast ocean. All that remains of that ancient ocean are the Caspian and Aral seas and the western half of Lake Balkash.

The salt domes and rock reservoirs of the ancient coral reefs, which hold the oil and gas, are now up to 5km below the land surface. But it was the later ocean that laid down the thick cap of flexible, but  impermeable, salt and kept the oil and gas in place.  There it remained under great pressure and mixed  with a lethal cocktail of hydrogen sulphide and  other gases. The rich soup includes ‘mercaptans’,  the volatility and revolting smell of which requires  extensive processing before either oil or gas  can be transported thousands of kilometres to  export markets. Just to make things difficult, Moscow has so  far stubbornly refused to give its assent to the  planned doubling of the 1,600km Caspian Pipeline  Consortium (CPC) export pipeline, specifically  designed to run from Tengiz across southern Russia -» to Novorossiisk on the Black Sea. Karachaganak,  which is closer to the Russian oil and gas town of  Orenburg just over the Russo-Kazakh border than  to Uralsk, the nearest Kazakh town, is linked to the  CPC by a 650km spur line.

A decision on doubling CPC’s capacity to 67  million tonnes a year is believed to be imminent,  but it will take at least two years to build and might  not even be finished in time to transport first oil  from the third giant Caspian project, the offshore  Kashagan ‘elephant’ field, due to start production  around the end of 2012.

Frustrated by Moscow’s delaying tactics, Chevron- Texaco, the operator and 50 per cent owner of  the Tengizchevroil (TCO) consortium set up to  develop Tengiz under a 40-year production-sharing  agreement, has had to invest heavily in thousands of new railcars to export oil the expensive way.

In October 2008, Chevron sent a significant first shipment of oil from Tengiz by rail to the port of  Aktau and pumped it into a small tanker bound  for Baku in Azerbaijan on the western coast of the Caspian. From there it was fed into the 1,750km Baku-Tbilisi-Ceyhan (BTC) pipeline, which runs  through Azerbaijan, Georgia and Turkey.

As capacity builds up in the northern Caspian oil fields, Chevron expects to export up to 5 million tonnes a year to the Turkish port on the eastern  Mediterranean through the BTC pipeline in coming  years, although the bulk of oil from all three of the  giant fields in the Northern Caspian will continue to flow through Russia, once the CPC line’s capacity  is doubled.

Until that symbolic first shipment to Baku and beyond, Chevron shipped surplus oil from Tengiz by rail to Aktau and across the Caspian to  Machachkala, in Russia’s Dagestan province. From there, the oil passed through Russia, either by rail or the re-routed pipeline to central Russia that used to run through the Chechen capital Grozny, but now bypasses it.

This modest opening up of a new cross-Caspian route is the start of something much bigger – the development of an entire new export route to  the west which, for the first time, does not need  to pass through Russian pipelines, railways or  ports. TCO, together with the Karachaganak and Kashagan consortia, is preparing to play a key role  in developing the $3 billion Kazakhstan Caspian  Transportation System (KCTS), now at an advanced  state of planning.

The government’s ambitious southern energy  corridor will run from the giant Kashagan  processing plant at Eskene, 30km north of Atyrau,  more than 600km south to Aktau, and on to the  new oil and gas export facility to be built at Kuryk,  100km beyond Aktau.

From Kuryk, a growing fleet of tankers will take the oil across the Caspian to Baku for onward transit either through the BTC pipeline or by rail and smaller pipeline through Azerbaijan to the Georgian ports of Batumi and Supsa. “With  Kazakhstan expected to add a minimum of 1.5  million barrels a day over the next 15 years,  it needs a new, dedicated and reliable export  capacity, and it needs it urgently,” according to Ian -MacDonald, Chevron’s senior business development and transportation managers

Chevron’s partners in TCO are KazMunaiGaz  (KMG), the state oil and gas company, with 20  per cent and Exxon-Mobil with 25 per cent. The  remaining 5 per cent is held by the Lukarco joint  venture between Russia’s Lukoil and BP. Over the  last five years the partners have invested more than  $3 billion in their ‘second-generation development’  which was completed last year.

Tengiz is operated on the basis of a 40-year  production sharing agreement. The second stage  of its development involved building a small town  to house an army of 6,500 skilled workers. It also  required new road and rail connections, 39 new  drilling wells, a high-tech field production gathering system and eight sour gas re-injection plants.  These house powerful compressors to force sour  gas back into the field. This is required to keep up  the pressure needed to ensure that oil will flow for  decades. Re-injection and related investment has  virtually doubled oil output from 13 million tonnes  in 2004 when construction started, to the current  capacity of 25 million tonnes a year.

Last year’s collapse in oil prices to around $30  a barrel led to many oil companies cutting back  on investment, but Chevron’s board recently  committed to push ahead with ambitious global  development plans and specifically pledged not to  cut back in Kazakhstan.

A series of new wells are being drilled at Tengiz,  together with further exploration of the nearby  Korolyov field. TCO is also planning a state-of-the- art refinery at Tengiz , which fits in well with the  government’s strongly expressed desire to add  value to Kazakh natural resources and develop  downstream processing and refining. A new sulphur processing plant has also removed a source of  friction with the environmental protection agencies, and constant fines. The new pelletisation plant has  converted what used to be embarrassing mountains  of yellow sulphur, which runs blood red when mixed with rainwater, into a valuable by-product.

Invest in Kazakhstan An official publication of the Government of the Republic of Kazakhstan, 2009. Pages: 38-39.

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