Falling Caspian Sea Levels Haunt Kashagan

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The international consortium developing Kazakhstan’s giant Kashagan oil field has green-lighted a controversial new project to dredge a series of marine channels linking offshore facilities, which it hopes will counter the effects of the Caspian Sea's falling water levels. In a stark warning, North Caspian Operating Co. (NCOC) said dwindling sea levels are “posing a threat towards the safe operation of offshore production facilities that may lead to the complete shutdown of one of the largest fields in Kazakhstan.” NCOC, which comprises Kazmunaigas with 16.88%, Exxon Mobil, Eni, Total and Royal Dutch Shell with 16.8% apiece, and China National Petroleum Corp. and Japan’s Inpex with 8.33% and 7.56%, respectively, said the creation of new channels would allow vessels to continue moving freely between installations, without the threat of any accidents. Environmentalists have also flagged up the damage that global warming is inflicting on the Caspian Sea, which they say could suffer the same fate as the now largely dried-up Aral Sea that straddles the borders of Kazakhstan and Uzbekistan. "A genuine ecocide is around the corner," experts Frank Wesselingh and Matteo Lattuada wrote in a paper published at the end of last year, pointing out that water levels in the Caspian have been dropping "a few inches a year" since the early 1990s. At this rate, the sea would lose around 25% of its size by the end of the century, leaving a landmass the size of Portugal. "Shallow-water habitats that provide food for fish, migrating birds and the seals will disappear," they warned. Earlier this year, NCOC mandated Dutch group Witteveen+Bos to provide front-end engineering and design for the marine channel project. Phase 1 would involve building a 32 kilometer access channel running to the main processing unit at D Island, plus smaller infield channels that would link four smaller islands. The total length of the channels will be 56 km, with the entire project due for completion in 2023. NCOC has downplayed fears that dredging the seabed could damage the Caspian's fragile system. It insists the project is in full compliance with Kazakhstan's environmental code, and that it will deploy the "best available technologies." Over the past two years, NCOC representatives have explained the wider importance of the project to various local NGOs and environmental campaigners. The imminent start-up of the dredging project comes at a critical time for NCOC, as it looks to increase oil production capacity beyond the Phase 1 plateau of 400,000 barrels per day that it achieved in 2019 (NC Mar.11'21). Actual output has been considerably lower, averaging just 328,000 b/d last year, due exclusively to the Opec-plus production cuts that Kazakhstan signed up to a year ago and are due to remain in force -- at least until the end of this year. NCOC is fine-tuning plans with the energy ministry to extend the plateau toward the 500,000 b/d mark through a combination of debottlenecking onshore facilities, and extensive gas re-injection. As the consortium has shelled out more than $60 billion on the project so far, the emphasis will be on keeping costs down -- as well as mitigating any environmental risks. Last month, the Kazakh energy ministry said it was working with NCOC on a blueprint over a possible Phase 2 for Kashagan, which would be ready by the end of the year. But with costs of a full-field development put as high as $100 billion, expectations are very low indeed. "There is no way it will happen, the ship has already sailed," a veteran Caspian oil executive says. With the Kashagan production-sharing agreement expiring in 2041 and Phase 1 costs unlikely to be recovered at least for another decade, the last thing the partners want to do it to make any more big investments, the source says. Concerns around shrinking water levels are generally kept off the agenda in the Caspian region, but they may weigh on other big field developments in the landlocked sea -- and put more pressure on their operators. BP, which is espousing an increasingly green agenda, will be investing billions of dollars in Azerbaijan in the coming years to increase oil production at the Azeri-Chirag-Guneshli project and gas output at the Shah Deniz field, both offshore. The UK major is also involved in other offshore oil exploration projects in Azerbaijan, including the Shafag-Asiman Block, where a discovery was announced last month (NC Apr.1'21). Paul Sampson, London

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Oil prices settled modestly lower after rising $1/bbl and falling $1/bbl earlier in the session as the market weighed divergent developments.
Thu, Sep 21, 2023