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Kashagan output crosses 300,000 b/d, but ‘giant’ increases unlikely: Shell executive

London (Platts)–23 Feb 2018 510 am EST/1010 GMT

Kazakhstan’s giant Kashagan oil field is achieving new production highs every month and has done better than 300,000 b/d, but development beyond the current phase is likely to be about “discretionary step-ups” rather than giant steps, Shell country chair and vice president Olivier Lazare said Thursday.

Speaking at the IP Week conference in London, Lazare declined to specify the current production level, saying there were still reliability issues with the first phase, which started producing in 2016 after more than $50 billion of investment and multiple delays, and has a target of 370,000 b/d.

Kashagan, a 10-billion-barrel, high-pressure, high-temperature field developed by a seven-company consortium in the Caspian Sea, is viewed as an industry landmark.

The project’s numerous difficulties have attracted scorn at times. But it is now boosting supplies of the high-quality CPC crude blend delivered at Novorossiisk on the Black Sea coast, which amount to well over 1 million b/d.

Lazare noted that average production from Kashagan last year was over 225,000 b/d. But he sounded cautious about further big investments in the context of weaker oil prices and the technical challenges involved, saying the consortium was still learning from the first “experimental” phase.

He confirmed the consortium is focusing on optimizing operations for the time being, rather than further development.

“We’re really talking about not doing the giant things again, but really looking at discretionary step-ups in moving forward. We’re defining this future as we learn about the sub-surface,” he said.

“We are producing right now from something like 16 wells — these are giant wells. We’re learning about the sub-surface. There’s huge uncertainty. And that’s also why we’re prudent about the future. We’re thinking about it. We don’t want to leave this very large resource,” Lazare later told reporters.

“The world has changed. It was a different oil price. [Kashagan] is sour, it’s high pressure and it’s offshore so as a starting point it doesn’t start by being fundamentally cheap as a development. But it’s very big, so that’s the positive side,” he said.

The comments chimed with those of Total upstream president Arnaud Breuillac, who in an interview with S&P Global Platts this week said of Kashagan: “There is some work being done to think what could be the next stage, but for now the priority is really to stabilize the potential of the field as it is today, with what is installed.”

KARACHAGANAK ‘PLATEAU’

Lazare also cautioned against any expectations of big output increases from the similarly giant Karachaganak condensate field, which also contributes to CPC.

Shell gained a stake in Karachaganak in 2016 with its purchase of the UK’s BG, and Lazare credited its involvement in the achievement of record oil and gas output last year of 390,000 b/d of oil equivalent, of which the liquids portion was 230,000 b/d.

Lazare said discussions — which have reportedly been fraught — were centered on sustaining a plateau of production from Karachaganak — involving reinjection of gas to support pressure levels — rather than aiming for big increases.

He said that building gas processing facilities at the site was a “possibility.” Such a step could reduce the field’s dependence on gas processing facilities located across the nearby border with Russia in Orenburg.

Lazare expressed dissatisfaction with the price the partners get for gas sold to Russia’s Gazprom. He noted an “inter-dependency” as Gazprom is keen to maintain the Orenburg gas processing plant in the face of declines in its own production in Russia. Gazprom is not part of the Karachaganak consortium.

“At the moment we’re talking about a plateau extension project. To make a big leap we need some other imagination. I never rule anything out,” Lazare told reporters.

— Nick Coleman, [email protected]

— Edited by Kevin Saville, [email protected]

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