The giant Kashagan field in the Caspian Sea off the coast of Kazakhstan has started exporting oil once again. Kazakh Energy Minister Kanat Bozumbaev announced on Oct. 12 that the flow from the project had reached 90,000 barrels per day, and the Bolashak refinery is already receiving some of that output. The Italian energy firm Eni, which is managing the project, predicts that production will reach 230,000 bpd by the end of the year and 370,000 by next year. However, doubts exist that the project can ramp up that quickly.
The restart of Kashagan comes 11 years after its target production start date, and at six times its initial expected costs, which stand at $56 billion, though they may rise to $100 billion over the next decade. Initially, the field started production in 2013, but pipeline damage forced a quick shutdown, adding a few billion dollars to the expense.
The field comes online amid low global oil prices, and that, coupled with its high price tag, depresses the chances that it will be very profitable for the consortium — Agip Caspian Sea, Eni, ExxonMobil, Total, Royal Dutch Shell, CNPC, Inpex, KazMunaiGaz and Samruk Kazyna — that has invested in it. It will take at least a decade for the project to cover its costs, dashing the Kazakh government's hopes of a financial windfall. KazMunaiGaz, the Kazakh state firm, had counted on increased revenue from Kashagan, among other projects. The firm was forced to sell half of its 16.8 percent stake to the state's sovereign wealth fund, Samruk-Kazyna, to avoid having to lay off workers.
The return of production from Kashagan will only add to the glut of oil flooding markets and temper expectations that prices will recover significantly despite OPEC's tentative agreement to cut production. Even within OPEC, continued production increases are expected from Iraq, Libya and Nigeria.
All of this oil returning to the market will complicate OPEC's decision to cut production. Even with production cuts from core cartel members Saudi Arabia, the United Arab Emirates and Kuwait — and possible cuts from non-member Russia — the OPEC plan could amount to little more than a production freeze that holds the line on prices. Between now and the next OPEC meeting in Vienna on Nov. 30, at which the group will try to reach accord on the production cut plan, OPEC and Russia will continue negotiating over how to implement a cut and to measure it.
