The Caspian basin’s biggest gas condensate field pauses for breath
KARACHAGANAK, ONE OF the world’s largest gas condensate fields, with estimated reserves of more than 1.2 billion tonnes of oil and condensate, was discovered and initially operated in Soviet times, as was Tengiz some 650km to the west. But coping with h the complexity and high pressures of both fields was way beyond the technical and organisational capabilities of the Soviet oil and gas industry.
Repairing the legacy of leaking pipes, abandoned equipment and ecological devastation was one of the first tasks facing UK-based BG Group and Italy’s ENI, the operators of the Karachaganak field, who brought Texaco (now absorbed into Chevron) and Russia’s Lukoil into their consortium, before signing a 40-year production-sharing agreement with the government in 1997.
Over the intervening 12 years, Karachaganak, like Tengiz, has changed out of recognition to become one of the most modern and productive oilfields in the world. It delivered around 12 billion cubic metres (bcm) of gas last year, more than six times the Soviet peak level, and around 230,000 barrels a day of oil and condensate. But after more than a decade of heavy investment, the consortium operating the field has decided to take a breather and see how the global economy develops before pushing ahead with stage three of the field’s developments
The initial $1 billion rehabilitation programme got underway in 2000 after BG and ENI set up the Karachaganak Petroleum Operating consortium (KPO), in which the joint operators held 32.5 per cent each, while Chevron-Texaco took a 20 per cent stake and Lukoil the remaining 15 per cent.
KPO remains the only one of the three Caspian mega-project consortia to be entirely foreign-owned. But the combination of a 65 per cent majority holding in the hands of the joint operators, and supportive minority stakeholders, appears to have contributed to the smooth running of what has become one of the most successful foreign investments in the country.
Prior to the onset of the global crisis, KPO was bracing itself for a government-backed bid by the state energy corporation KMG for a minority stake in the project, along the lines of KMG’s stakes in the TengizChevroil and Kashagan Consortia.
But faced with a severe banking and construction ^ sector crisis, and a collapsing oil price, the government appears to have quietly backed away from a policy that threatened to load KMG with another heavy investment commitment it would struggle to deliver. KPO also argued against the risk of unsettling a proven successful operation, which was generating tax revenues and creating skilled jobs for thousands of Kazakh citizens in an otherwise backwater region of the country close to the Russian border.
Important as its Kazakh operations are to BG, senior management also indicated that developing its deep offshore gas fields south of Brazil’s Rio de Janeiro, and producing methane gas from coal in Australia, were actually more attractive investment propositions than producing more gas in landlocked Kazakhstan in the global scheme of things.
BG alone claims to have invested $2.5 billion in Karachaganak over the last eight years when production of high-value gas condensate and gas for sale to Russia’s Gazprom has risen on average by 18 per cent a year since 1998 to around 136,000 barrels of oil equivalent a day. Export volumes of condensate are expected to rise to 10.3 million tonnes a year after a fourth ‘stabilisation train’ is completed by 2010.
Development is continuing at Karachaganak, where up to 20 wells are being drilled in the first stage of phase three of the field’s development. This will improve oil recovery by increasing both gas production for sale and re-injection. But the consortium has called a halt for the time being on the fuller implementation of stage three, which entails construction of a $1.5 billion gas refinery and development of gas sales to the domestic market and possibly to China, as well as the traditional sales to Russia’s Gazprom via Orenburg.
Successful completion of both the initial rehabilitation of the existing field and the $5 billion second stage has raised volumes and stabilised the long-term production profile, thanks to powerful sour-gas re-injection compressors and complex gas treatment equipment the size of a small city. Investment to date ensures efficient long-term exploitation of the unique l,450m-deep column of gas underground and the 200m-thick rim of oil beneath it. Together the reservoirs hold an estimated -» l,200bcm of gas and more than 1 billion tonnes of gas condensate and oil.
At present, Karachaganak sends the bulk of its gas to Gazprom’s processing plant at Orenburg, just across the Russian frontier. This continues a practice that began in Soviet times when Karachaganak was essentially a subsidiary of the Orenburg complex, with which it shares the same geological structure. But in order to get a better return than what would come from merely selling gas to the Russian monopoly purchaser, KPO has built a 125mw gas-fired power station to satisfy Karachaganak’s own power needs and a 165km pipeline to supply gas to the nearest Kazakh town of Uralsk.
This helps to improve relations with the local community and conforms with the government’s overall strategy of reducing dependence on imported gas. Since Soviet days, Kazakhstan has imported gas from Russia to supply northern Kazakhstan, and from Uzbekistan to supply gas to the populous southern cities of Almaty and Shymkent, as well as to Kyrgyzstan and Tajikistan.
Within a few months, southern Kazakhstan will be able to tap into the lObcm of gas being carried from Turkmenistan and Uzbekistan across more than 1,000km of southern Kazakhstan to the Chinese h border, 200km east of Almaty. The capacity of this new southern export route to the east will triple to 30bcm in a few years. The route will also completely transform the domestic gas supply situation for southern Kazakhstan and open up a bottomless market in China, ending Gazprom’s former monopoly-buyer advantages.
Once growth returns to the global economy, KPO is expected to give the green light to full implementation of stage three of Karachaganak. But in the meantime, both shareholders and the government benefit from this breathing space, as it allows shareholders to get a return on their investment to date and boosts tax revenue for the government.
Invest in Kazakhstan An official publication of the Government of the Republic of Kazakhstan, 2009. Pages: 40-41.