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    Caspian Overview: Major Upstream Investment Approved



Kazakhstan and the Chevron-led consortium Tengiz Chevroil (TCO) approved on July 5 a $36.8bn plan to expand the giant Tengiz field.

by: Azerbaijan desk

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Caspian Overview: Major Upstream Investment Approved

Kazakhstan and the Chevron-led consortium Tengiz Chevroil (TCO) approved on July 5 a $36.8bn plan to expand the giant Tengiz field, which has 45% of the country’s total production now. The sides plan to increase this volume by 260,000 b/d by 2022. This is the most expensive project to be sanctioned in 2016 to date. US major ExxonMobil and Russia’s Lukoil also own stakes in the plan.

Samuel Lussac, research manager of the Caspian upstream team at Wood Mackenzie believes the Future Growth Project (FGP) and Wellhead Pressure Management Project (WPMP) agreement on Tengiz is critical for both the Tengizchevroil (TCO) consortium and Kazakhstan.

“With current production around 600,000 b/d, Tengiz is the largest producing oil field in the country. The expansion will help maintain reservoir pressure at the field through re-injection of associated sour gas. This has never been done on such a scale and will require installation of high-cost compressors,” he said.

Kazakhstan – with 30bn barrels of crude oil and 2 trillion m³ of gas reserves – produces about 1.32mn b/d of crude oil, 276,000 b/d of gas condensate and natural gas liquids (NGLs) as well as 45.713bn m3 of gas, of which associated gas accounted for about 60%.

Approval of the world’s biggest upstream oil investment plan at a time of relatively low oil prices came two weeks after Kazakhstan announced that it was preparing to restart oil production from the offshore Kashagan sour oil field, which also contains 1 trillion m³ of associated gas, in October.

Following initial studies, the budget for Tengiz doubled to nearly $40bn in 2014. The final investment decision was delayed to 2016 to take advantage of falling industry costs. WoodMac estimated that although the project was to be fully equity-funded, debt financing is now needed. TCO is expected to conclude a $3bn loan in the coming days. NC KazMunaiGas has already secured a $3bn prepayment with Vitol for its share of TCO crude. This will help the Kazakhstan national oil company, which is financially stretched, fund its 20% portion of expansion costs.

The cost estimate of $36.8bn at FID includes 20% for contingency and escalation.  

"Based on our long-term oil price assumption, FGP-WPMP economics are marginal. However, the current contract expires in 2033, which means that FGP-WPMP will only produce for 11 years. Beyond higher prices, a licence extension would help improve project returns, unless it comes with a revision to the fiscal terms," said Lussac.

Turkmenistan has accelerated drilling works on giant Galkynysh, the world’s biggest onshore gas field. During five months, about 12,081 meters of wells have been drilled there, about 140% more than the same period in 2015.

Seven operation wells have been drilled and are ready for trial, while work is continuing on another 13. This year Turkmenistan plans to complete construction and put into operation 10 more wells.

Turkmenistan inaugurated the first phase of Galkynysh gas field with output of 10bn m3/yr in September 2013. At full capacity it will be at 30bn m³/yr. With the planned three phases at full, the field will be producing 95bn m³/yr.

Gazprom’s $5bn-suit against Turkmenistan

Russian giant Gazprom which stopped importing gas from Turkmenistan at the beginning of the year, has filed a $5bn suit against Ashgabat for the gas supplied between 2010 and 2015 over price dispute.

According to the agreement signed in 2010, Gazprom purchased 10bn m3/yr of Turkmen gas. But in 2015 the Russian monopoly decided to reduce the volume to 4bn m³/yr and stopped gas intake in early 2016.

The suit was filed in July 2015 in the arbitration court of Stockholm, but it was announced by Russian media on July 5. A source from Gazprom confirmed the issue to Russian RBC.

Azerbaijan unveils SD2 gas deliveries schedule

Coming to the west of Caspian Sea, the BP-led consortium developing the giant Shah Deniz gas and condensate field offshore Azerbaijan has the obligation to deliver 2bn m³/yr to Turkey from the field's second phase (SD2) in mid-2018. “That year, the total gas supply amount agreed is 2bn m³,” state-owned Socar told NGE. The expected start date is July 2018.  The following year supply will be 4bn m³, gradually increasing within three years from the beginning of export to 6bn m³ when SD2 is at plateau.

Tanap's fee will yield payments to Turkey of $5.95/'000 m³ of annual capacity booked. The company’s general director Saltuk Duzyol told Turkish paper Hurriyet that the tariff for transportation will be $70/'000 m³. “The Turkish state-owned gas pipeline operator Botas will get 30% of this payment,” he said. It is a ship-or-pay contract, guaranteeing full payments even if the line is under-utilised.

Georgia also hopes to receive 1bn m³/yr as a fee for transiting Azerbaijani Shah Deniz gas across its territory through the Southern Gas Corridor (SGC).

A source at Socar told NGE on July 6 that the countries in the European section of the southern gas corridor (SGC) will not receive any fee for gas transit, because TAP is a private pipeline. “The local companies of TAP would be registered in Greece, Albania and Italy. The mentioned countries will receive taxes from these companies,” he said.

Initially SGC would transit 16bn m³/yr to Turkey and the EU, while the volume would reach 24bn m³/yr in 2024 and 31bn m³/yr in 2030


Azerbaijan desk