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Kashagan Expansion May Finish Earlier, KazMunaiGaz CEO Says

October 26, 2011, 7:24 PM EDT

By Nariman Gizitdinov and Hellmuth Tromm

Oct. 27 (Bloomberg) — Royal Dutch Shell Plc and other partners in the Kashagan venture may complete expansion as early as 2017, allowing Kazakhstan to reach its goal of becoming one of the world’s biggest oil exporters faster.

“If the partners will choose the field’s development conception by the end of this year or beginning of next year” and the government approves it, the expansion may be finished by 2017 or 2018, as much as a year earlier than the company previously estimated, said Bolat Akchulakov, chief executive officer of KazMunaiGaz National Co., a partner in the project.

The venture, which also includes Eni SpA, Exxon Mobil Corp. and Total SA, has invested $33 billion in the Caspian development, where the first oil is scheduled to flow by the end of 2012. Kazakh President Nursultan Nazarbayev, who visited the oilfield last month, said the expansion will help turn Kazakhstan into one of the world’s five largest oil exporters.

In 2008 the partners agreed to cede a larger share in Kashagan, one of the world’s biggest oil fields, to KazMunaiGaz and pay higher royalties after government criticism of cost overruns and delays in the first phase. The second phase has stalled because Kazakhstan isn’t satisfied with proposed costs, a person with knowledge of the matter said in June.

It will take 1 1/2 years to complete a detailed plan for the expansion, Akchulakov said in an interview in Astana on Oct. 25. The partners may then need about six months to make final investment decisions and another four years to carry out the project, he said. KazMunaiGaz said last year the expansion has been delayed to 2018 or 2019.

Frozen Waters

“Kashagan is a very complex field not only because it’s offshore, but also because it’s in shallow waters and its oil has a high level” of polluting hydrogen sulfide, Akchulakov said. Large-scale gas injection into the field will require more careful planning than was done earlier, he said.

Water at Kashagan is only 3 to 6 meters deep, and low salinity combined with shallow waters and winter temperatures below minus 30 degrees Celsius (minus 22 Fahrenheit) result in the northern Caspian Sea freezing for almost five months of the year, according to Kashagan’s website. Ice drifts and ice scouring put heavy constraints on construction and production, and call for novel technical solutions, it said.

The northern Caspian is also a sensitive environmental area, home to sturgeon, seals, and coastal wetlands that attract a variety of birds, it said. The crude oil it contains has a high ‘sour gas’ content, with 15 percent hydrogen sulfide, the operator said.

Output at Kashagan, which has already been delayed three times, will reach about 370,000 barrels a day during the first phase and rise to a 450,000 barrels a day by 2015 or 2016, Oil and Gas Minister Sauat Mynbayev said on Oct. 4. The original start date of 2005 was pushed back to 2008 and Eni later said production would begin in 2010.

“If the oil production at Kashagan will start in December next year reaching stable output there will take time,” Akchulakov said. He didn’t give a forecast for when stable oil output may be reached.

–Editors: Hellmuth Tromm, Alex Devine

To contact the reporters on this story: Nariman Gizitdinov in Almaty at [email protected]; Hellmuth Tromm in Berlin at [email protected]

To contact the editor responsible for this story: Stephen Voss at [email protected]

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