FOCUS: Where next for Caspian producers?

• DOI: http://doi.org/10.1111/oet.12561
• Published date: 01 April 2018
• Date: 01 April 2018

FOCUS

Where next for Caspian producers?

In the years immediately following their independence from

the Soviet Union, the Caspian littoral states of Kazakhstan,

Azerbaijan, and Turkmenistan were seen as having enor-

mous potential as oil producers. International oil companies

scrambled to become involved and there were confident pre-

dictions that major new oil province was in the making. It

became clear at an early stage that Turkmenistan’s future lay

in natural gas rather than oil.

Kazakhstan and Azerbaijan did become important pro-

ducers and exporters of oil, although some of the more opti-

mistic output forecasts ended up being scaled back.

Kazakhstan has become an important producer with an out-

put now approaching 1.9 mn bpd. Azerbaijan reached 1 mn

bpd in 2009 and 2010 but failed to sustain production at that

level and output began to decline somewhat quicker than

many had expected. There are hopes of a revival over the

next 2 to 3 years, but this may prove to be both small and

short-lived. While Kazakhstan’s production has generally

continued to rise, it has suffered delays to major field devel-

opments. The country’s Ministry of Energy nevertheless

believes that there is still room for growth. Turkmenistan,

meanwhile, which once had plans to produce 560 000 bpd,

which it never achieved, now has an output of less than half

that level.

1|KAZAKH PROGRESS—OF A SORT

In its last full year as part of the Soviet Union, 1991,

Kazakhstan produced 569 000 bpd.

1

For the next 3 years its

output declined, reaching 430 000 bpd in 1994. The follow-

ing year, the government adopted a new oil and gas law,

paving the way for a large influx of foreign investment. Out-

put recovered and by the end of the decade, it had risen to

744 000 bpd. In 2013, it reached 1 737 000 bpd after which

it fell briefly, going to 1 672 000 bpd in 2016.

2

Last year output staged a recovery, which is expected to

continue for a number of years. The main reason for this is

the commissioning of a large new field, Kashagan. This hap-

pened originally in 2013, but the field had to be shut down

within a few weeks because of gas leaks and was not reo-

pened until October 2016. Since then, output there has

slowly risen and has allowed the country’s total production

to rise (see Table 1).

Kashagan’s production is needed to offset the natural

decline of the country’s older fields. It was originally meant

to be in operation some 15 years ago, but was delayed for

around a decade by a series of technical problems in devel-

oping the huge offshore field: originally estimated to hold

38 bn bbl of oil-in-place, with proven reserves put at 13 bn

bbl. The closure of the field between 2013 and 2016 delayed

production further: and all the time the development was

being held up the costs of developing it were rising.

2|HOPES FOR KASHAGAN

The field is intended to be developed in 3 phases, with pro-

duction scheduled to be as follows:

(bpd)

Phase I 370 000

Phase II 700 000

Phase III 1 000 000

Early estimates of the total cost were close to $100 bn.

The first phase is estimated to have swallowed some $50 bn

and the total cost estimate has ballooned to somewhere north

of $200 bn. Last year’s output is estimated at 230 000 bpd

and it was recently reported as running close to 300 000 bpd

with the 370 000 bpd target scheduled to be reached in the

second half of 2018. There is no firm news on the timing of

the next 2 phases and, given their enormous cost, there must

be considerable doubt whether they will ever go ahead.

All this could cause problems for the government, which

has plans to increase the country’s production by over 0.4 mn

bpd between 2017 and 2025: plans in which Kashagan plays

a vital role. The Ministry of Energy has set a production tar-

get of 2.155 mn bpd for 2025: a rise of 405 000 bpd, or

nearly a quarter, over last year’s figure. This in itself is a

scaled down version of an earlier target of 2.6 mn bpd for

the earlier date of 2020, set in 2011, when production was

running at 1.7 mn bpd.

DOI: 10.1111/oet.12561

Oil and Energy Trends. 2018;43:3–8. wileyonlinelibrary.com/journal/oet © 2018 John Wiley & Sons Ltd 3