Oil drilling in the Caspian sea area is gaining momentum and EIA reports today that during the week of September 9, the North Caspian Operating Company, led by Italian oil company Eni, reported starting production from Kashagan, the largest oil field to be discovered in the past 35 years. The project is eight years behind schedule, but the startup comes just inside an October first deadline to begin operations at the first of 21 production wells.
Eni, Shell, Total and Exxon Mobil have been on board since June 2000 and have invested a collective $50 billion in the project, making Kashagan not only the largest oilfield outside the Middle East, but also one of the world's most expensive.
According to EIA, Kashagan is an extremely complex project. Challenges to production include the field's great depth -- 15,000 feet below the sea bed -- reservoir pressure exceeding 10,000 pounds per square inch with lethal levels of hydrogen sulfide, and cold temperatures that make it unsuitable for typical fixed or floating drilling platform designs.
Kashagan has an estimated 13 billion barrels in proved reserves, representing most of Kazakhstan's offshore proved reserves, which are roughly equivalent to Brazil's entire proved reserves, both on and offshore.
Logistics may pose a problem however as the Kashagan field lies in the northernmost corner of the Caspian sea. Early oil is expected to transit via the Caspian Pipeline Consortium to the Russian port of Novorossiysk on the Black Sea, from where it could then reach international markets through the Bosporus Strait.
Kazakhstan also plans on constructing the Kazakhstan-Caspian Transportation System (KCTS) with the help of foreign investment. The plan is to export oil produced primarily at Kashagan and Tengiz to international markets via a new pipeline on the eastern side of the Caspian to a new terminal at Kuryk, before being shipped to Baku to enter the Baku-Tbilisi-Ceyhan (BTC) pipeline. KCTS is expected to supply 300,000 bbl/d through BTC to global markets, gradually increasing to 800,000 bbl/d. Costs for the new pipeline are currently estimated by KazMunaiGas to be $4 billion, according to EIA.
As one of the world's largest and most expensive drilling operations, the Kashagan field, despite mounting logistical complications is poised to become a leader in crude oil sendouts. The implication for that Former Soviet state is a national revenue stream that will support improvements to Kazakh society and rival that of Middle Eastern Nations. But transit for the new found black gold may add extra expense and until the KCTS can be constructed, profit margins will be thin at the new project.
Map, graph, majority of the text, and photo provided by EIA