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November 27, 2012 7:43 am
After an eight-year delay and billions of US dollars in cost overruns, the beginning of oil production at the giant Kashagan field in Kazakhstan is somewhat of an anticlimax.
But the field, the biggest oil discovery in nearly four decades, will finally start pumping in early 2013, reaching about 150,000 barrels a day by the middle of next year, and rising towards 350,000 b/d soon after.
The development of the oilfield, located in the shallow waters of the northern Caspian Sea, has been plagued by delays, budget overruns, fights with the Kazakh government, and technical difficulties due to a challenging geology and harsh weather conditions. Even if production starts next year, output will be far below the target of 1.5m b/d set for maximum pumping.
The problems at the Kashagan oilfield, which was officially discovered in 2000 after years of drilling in the 1990s by a consortium including ExxonMobil, Royal Dutch Shell and ENI of Italy, encapsulate all the challenges that non-Opec production growth has faced over the past decade – and will face in the future – from the development of the pre-salt oilfields offshore of Brazil to new drilling in the Arctic.
The field also highlights the difficulties of forecasting non-Opec production growth. Back in 2003, the International Energy Agency, the western countries’ oil watchdog, anticipated in its flagship World Energy Outlook annual report that the Kashagan field was “due to start producing in 2006”. Only a few weeks ago, the IEA in its WEO report had painted a rosy outlook for non-Opec production growth until 2030, prompting the market to question whether the agency is being over-optimistic again.
The oil market is, indeed, anticipating more Kashagan-like problems. Kashagan more than anything else has challenged the notion that a small group of oil countries – the so-called “Briks” of Brazil, Russia, Iraq and Kazakhstan – would redraw the world’s oil map by boosting their production over the next two decades.
The output forecast for the four countries has fallen, in particular due to problems in Brazil with Petrobras’s ambitious plans to raise offshore oil production and in Kazakhstan with the trio of fields of Tengiz, Kashagan and Karachaganak. The Brik setbacks had been masked, however, by the spectacular growth in US oil production due to the shale revolution.
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