Kazakhstan's Kashagan oil field project is put on ice after Shell announces a complete withdrawl.
Kashagan Oilfield Image: Total |
Royal Dutch Shell closed its offices in Kazakhstan at the end of May, thus terminating its participation in the Kashagan oil project. Shell was an essential member of a consortium, comprising of Eni, ExxonMobil, Total, ConocoPhillips, Inpex, and KazMunaiGaz, who were co-operating to develop oil fields in one of Kazakhstan's so-called 'Big 3' energy projects in the Caspian Sea.
The withdrawal of the energy giant casts doubt over the future of the project and possibly over Kazakhstan's capabilities to expand strategic oil pipelines into China.
Despite being one of the largest oil fields discovered in the past 30 years, Kashagan's 30 billion barrel reserve also brings with it a unique set of technical problems, such as ravaging winds of up to 70 mile-per-hour that carry flying chunks of broken ice. On top of the harsh conditions, soaring costs, completion delays, increased government taxes and unfairly levied violation fees make Kashagan also make for an hostile business environment. After warnings from Kazakh Prime Minister, Karim Massinov, to control spending and get the projects timeline back on track, Shell eventually decided to abandon the project.
As Shell handed most of the complex technical work, the ability of the other energy firms to actually complete the project is now in question as most of them lack Shell's expertise and resources. ExxonMobil has stated it will not take over responsibility of the project after BP also withdrew back in 2008 in anticipation of the problems. No other firms in Russia or China possess the expertise to develop the project further. As a result, the Kashagan project has been put on ice.
The immediate ramifications, however, are that Kazakhstan's oil production is now down to 1.5m bpd, making it extremely difficult for the country to diversify its oil exports. This may mean bad news for China's expectations of receiving 20% of all of its oil imports, around 1.5m bpd, from the Kazakhstan-China pipeline by 2013.