LONDON/MILAN: Giant Kazakh oilfield Kashagan, which was brought to a halt by leaks shortly after start-up last year, is grappling with a bureaucratic ‘nightmare’on top of its engineering troubles as it strives for commercial production in 2014.
The scale and complexity of the world’s most expensive standalone oil project led its seven partners away from the traditional single operator command-and-control model, where one of the larger companies takes charge while the others provide support and share the risks, costs and rewards.
The consortium, which includes ExxonMobil, Royal Dutch Shell, Total and Kazakh state oil firm KazMunaiGas(KMG), first put one of the smaller partners – Italy’s Eni – in charge of construction and delivery in 2001/02. They retreated from that decision in 2008/09 after years of delays and cost escalation, opting instead for collective responsibility.
This has created problems along the way, and is an extra headache for engineers and managers as they battle to find out why a pipeline started to leak last year, just weeks after oil flowed for the first time, and to fix the problem so that oil can flow out and revenue in.
‘It’s a bit of a nightmare to be honest,’ said one industry source with knowledge of the project. ‘The consortium is the operator until first commercial production, so it’s all a bit ‘by committee’ until then.’
The Caspian Sea project aims to exploit the biggest oil discovery in decades, producing a peak of 1.66 million barrels a day – as much oil as OPEC member Angola, from a reserve almost as big as Brazil’s. Much of it is built on artificial islands to avoid damage from pack ice in a shallow sea that freezes for five months a year in temperatures that drop below minus 30 degrees Celsius (-22F).
The field extends over 3,375 square kilometres (1,303 sq miles), and the whole onshore and offshore site is bigger still. The oil is 4,200 metres (4,590 yards) below the seabed, at very high pressure, and the associated gas reaching the surface is mixed with some of the highest concentrations of toxic, metal-eating hydrogen sulphide (H2S) ever encountered.
Kashagan has cost an estimated 50 billion dollars so far, five times early projections, and its 13-year life is a tale mostly of delay.
In September and October 2013, pipeline leaks that investigators think were caused by H2S-linked stress cracks led to shutdown.
Commercial production could be many months away as a result, and the engineering difficulties have exposed the shortcomings of the unwieldy administrative structure, which will stay in place until the oil is flowing properly.
Agip, Eni’s engineering arm, was initially the operator and is still nominally in charge of the construction and delivery phase, much of it conducted by Eni unit Saipem.
But the operatorship changed in 2009 when a new entity, representing all the partners and called the North Caspian Operating Company (NCOC), took over.
The companies involved in the project have also changed over the years. BP, BG Group and ConocoPhillips have all sold out. (Reuters)
