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Kashagan oil field begins production after decade of delays

The field, one of the world’s largest, most challenging and complex projects, is estimated to hold as much as 35bn barrels of oil. Discovered in 2000, it has been brought into production almost a decade later than had first been envisaged by the seven-member consortium including Eni of Italy, Royal Dutch Shell and ExxonMobil. Its cost of $41.2bn has also earned it the tag of the world’s most expensive oil project.

Yet thanks to Kashagan, Kazakhstan’s oil production is set to increase by 1m barrels over the next decade, rising from 1.6m b/d to 2.6m b/d in 2020. This will catapult the Central Asian country into the top league of major non-Opec oil producers. David Cameron, Britain’s prime minister, in July visited the country to cut the ribbon on the Kashagan.
“You have caught me on a good day,” said Claudio Descalzi, chief operating officer of exploration and production at Eni, which holds a 16.81 per cent stake in the consortium and through a subsidiary is responsible for developing the field.
The field is expected to produce 180,000 barrels of oil a day in the initial phase – until spring next year – before increasing to 370,000 barrels a day by the end of 2014 and the start of 2015.
For Eni, Kashagan “remains the most material of new projects starting up in 2013-15,” according to analysts at Bernstein Research. Kashagan should “account for 1.5 per cent of total group production growth in 2014”, they added.
One issue is exporting the oil from the landlocked country. Conoco’s share is being sold to China National Petroleum Corporation and could help diversify Kazakhstan’s export markets by providing access to the Chinese market.

Eni’s Mr Descalzi said he was not worried about export opportunities for the oil, noting that “each cargo will be sold at the best price on the market”.
Extracting the oil has been immensely difficult. Unforeseen technical difficulties and rising resource nationalism in Kazakhstan have forced repeated delays over the years. The number of partners – the consortium includes Exxon, Shell, Eni, Total and KazMunaiGas, the Kazakh state oil company, each with 16.81 per cent, ConocoPhillips with 8.4 per cent and Japan’s Inpex with 7.56 per cent – has meant no one group had a big enough stake to fully take control.


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