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Financial Times: Output at Kashagan oilfield set to beat forecasts by 25%

By Carola Hoyos,Chief Energy Correspondent: Published: November 27 2006 02:00 | Last updated: November 27 2006 02:00

Kazakhstan’s giant Kashagan oilfield will produce 25 per cent more oil than expected once it hits peak production, international companies developing the field have found.

News that the field, the largest and most important discovered in more than 30 years, will yield significantly more than the 13bn barrels forecast is a breakthrough as dwindling world oil supplies and problems accessing oil-rich countries such as Iraq raise doubts about meeting rapidly increasing demand.

The Financial Times has learnt that peak production of the Kashagan field in the Caspian Sea, due at the end of the next decade, is expected to be 1.5m barrels a day, 25 per cent higher than published estimates. The field, operated by Eni, Italy’s biggest oil and gas group, is expected to pump this amount each day for more than 10 years, meaning it will yield 10 per cent more reserves than currently assumed.

Kashagan’s extra production is almost equivalent to all the oil produced in Sudan in 2005, according to latest figures. But Eni is expected to warn shortly that the complicated field – originally due to start pumping oil in 2005 – will take longer to develop. The operator has pushed back its start date several times, most recently to 2008, and is set to announce production will not start until 2009 at the earliest.

The field will also cost its partners, which include some of the world’s biggest oil companies, more than the official estimate of $29bn (£15bn). It is expected that the minimum price tag of Kashagan, already the world’s most expensive energy project, will be in the mid-$30bn range.

The field’s partners include Total of France, Royal Dutch Shell, ExxonMobil andConoco-Phillips of the US, Inpex of Japan and KazMunaiGaz. Steamy summer conditions, winter temperatures of -40 degrees centigrade and high quantities of poisonous hydrogen sulphide make Kashagan perhaps the world’s most complicated field.

“The project has been delayed but, from an engineering point of view, we need to give them credit for moving forward. I really admire the challenges they are taking on,” said one analyst, who called the increased expectations “extremely important”.

Disputes among the partners have also slowed the project. But the secondment of 50 ExxonMobil engineers has eased tensions, people close to the project said.

Kashagan is the world’s most important oilfield in terms of reducing reliance on Russia and the Organisation of the Petroleum Exporting Countries, the cartel that controls 60 per cent of the world’s remaining oil reserves, said Joseph Stanislaw, president of JAStanislaw Group, the advisory firm, and an expert on the region.

Copyright The Financial Times Limited 2006

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