Eni-led oil and gas producing venture will send more liquid petroleum gas to country’s domestic market and invest millions of dollars on social projects as government looks to avoid repeat of 2022 unrest
Оригинальный текст опубликован на сайте «Upstream», 18 January 2024 5:11 GMT . Автор: Материал доступен по .
The Western oil majors involved in Kazakhstan’s huge Kashagan oil and gas development in the Caspian Sea have agreed to divert more output to the domestic market to help the government’s desperate search for fuel supplies in an effort to avoid social unrest in the country.
Kashagan is Kazakhstan’s second largest second largest oil and gas project and, together with Tengiz — the largest — and Karachaganak, is one of the three giant foreign-led oil schemes in the country, which is a major supplier of world crude.
Italy’s Eni leads the North Caspian Operating Company (NCOC) developing Kashagan, with supermajors ExxonMobil, Shell and TotalEnergies also partners, alongside China National Petroleum Corporation, Inpex and Kazakh state player KazMunayGaz.
The agreement to increase volumes for the domestic market comes hot on the heels of an upcoming amicable settlement of a $5.1 billion environmental damage claim against Kashagan that Kazakh authorities have pursued for the past year.
The Kazakh Energy Ministry said in a statement on Tuesday that it had “reached a preliminary agreement with Kashagan shareholders on deliveries of liquid petroleum gas (LPG) from the project to the domestic market”.
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LPG is a treated derivative of associated gas that comes to the surface together with produced oil, and the ministry added that NCOC is expected to be able to produce around 8.1 million barrels per annum of LPG by 2027.
Kashagan’s LPG today is separated after processing at NCOC’s Bolashak onshore centre, and in future it will also be separated at a planned additional gas processing plant.
According to Astana-based energy thinktank Petrocouncil, Kazakhstan’s annual consumption of LPG was forecast to increase by 6% to 22 million barrels in 2023 against the previous year.
Kazakhstan’s LPG use has more than doubled since 2016, which stood at just 8.4 million barrels, with the increase due mostly to its low price, which has spurred a massive amount of cars being converted to use LPG as their main fuel.
However, government attempts to deregulate LPG retail prices from 1 January 2022 sparked protests throughout the country that quickly .
The unrest nearly toppled President Kassym-Jomart Tokayev, who urgently sought military aid from Russia and Belarus to help quell the protests.
The Kazakhstan government has periodically extended the price cap on LPG retail sales since January 2022 in an apparent attempt to avoid any repeat of the social unrest.
However, the price set by the government is about 30% less than the average production costs for LPG in Kazakhstan, according to Petrocouncil.
The country’s largest oil producer, the Tengizchevroil venture, is Kazakhstan’s largest supplier of LPG. However, the Chevron-led venture has been gradually reducing domestic deliveries in order to send more LPG as feedstock for polymer production, according to Petrocouncil.
According to the Energy Ministry, authorities have appointed state gas producer and pipeline operator Qazaqgaz to hold talks with Kashagan’s shareholders on LPG production options, aiming to start first supplies by the end of 2025.
The ability to commercialise associated gas, which is being produced in increasing volumes as the Kashagan field matures, is one of the prerequisites for the project to proceed with its plans to continue improving its oil production figures, and help repay its remaining share of $55 billion of foreign investments in the development.
Eni, ExxonMobil, Shell and TotalEnergies have been facing increasing demands from the Kazakh government to share more revenues with the country without waiting for the Kashagan investments to be repaid, as mandated by the project’s production sharing agreement.
In an effort to resolve another government demand, the four Western majors prepared a draft amicable settlement that would stop the state pursuing the $5.1 billion environmental claim against the NCOC, Bloomberg reported, citing sources familiar with the matter.
The settlement reportedly includes a pledge from foreign shareholders for additional investment of $110 million in social projects over two years.
The environmental claim is centered on allegations that NCOC exceeded the maximum permitted volume of sulphur stored in the open air near the Bolashak processing plant. NCOC denies the claims.
The foreign shareholders also remain in international arbitration with Kazakhstan over a $13 billion cost claim that the government filed last year.
NCOC had not replied to Upstream’s request for comment at the time of publication.