Further delays likely at Kazakh oil field

The start of production at one of the world’s biggest oil fields faces further delays, as the international oil companies developing it battle with the Kazakh government over timing and budget.

The project’s consortium, which includes Royal Dutch Shell, Eni, Total and ExxonMobil, wants to push back the start of the 13bn-barrel field for at least another year, Kazakh ministry officials said yesterday.

Sauat Mynbayev, Kazakhstan’s energy minister, told wire service reporters in Astana: “They want to put it off. They have various scenarios . . . involving the year 2012-13. Even if there is a small delay . . . then very concrete sanctions must be drawn up at this stage.”

Eni, the Italian energy group, the project’s current operator, refused to comment. Kashagan was most recently expected to begin pumping oil by 2011, gradually rising to 1.5m b/d by the end of the decade. This would make it one of the world’s top three fields in terms of production.

But industry executives said Mr Mynbayev’s comments needed to be taken in the context of the negotiations over how the project will be developed in future. The deadline for decisions on the project’s budget, timing and leadership falls at the end of the month, though this could yet slip.

The Kashagan project has been plagued by infighting and is now more than five years behind schedule. Last year, relations between the consortium and its host government hit a nadir. Kazakhstan stripped Eni of its operatorship, allowing it to complete only the first phase of the project, which is expected to end with the start of production.

After that, a new operating company of all the main shareholders in the consortium will manage the field’s development and report to KazMunaigas, Kazakhstan’s state oil company. It was the second time discord had prompted Kashagan’s operatorship to change. Eni, for whom the project had been a flagship, took over from Shell in 2001.

The Kazakh government last year forced KazMunaiGas’s 16.81 per cent stake on the reluctant consortium members, which each had to reduce their share.

Kashagan lies in the landlocked Caspian Sea, whose shallow waters are frozen half the year. One of the consortium’s first tasks was to build artificial islands surrounded by artificial reefs and barriers to prevent rigs from being damaged by floating ice. Meanwhile, deadly hydrogen sulphide is found in such high quantities in Kashagan’s oil that workers’ quarters had to be moved.