Prospects of export routes for Kashagan oil
Introduction
Kazakhstan has emerged as the main focus of upstream oil and gas investment in the Caspian region, especially since the discovery of a world-class super giant at the offshore Kashagan field. The field known as Kashagan lies in the north–west Caspian off the coast of Kazakhstan and is reported to cover an area 47 miles (75 km) long by 22 miles (35 km) wide. The discovery well, Kashagan East, was a single vertical well, drilled to a total depth of 4500 m.2 The contracting companies continued to explore other structures in the North Caspian Sea contract area and they found considerable reserves in 2002 at the Kalamkas field (Oil and Gas Journal—OGJ, 2002a, OGJ, 2002b). The Aktote, Kashagan South West and Kairan areas explored by the end of 2004. These offshore fields are large by international standards, but still considerably smaller than the giant Kashagan field. Appraisal programs for these fields are still underway.
Kashagan oil field, believed to be the fifth largest ever found in the world, has estimated total reserves of as high as 50 billion barrels of oil (up to 15–20 billion of which are thought to be recoverable)3 and 25 tcf of natural gas (EIA, 2008a, EIA, 2008b, EIA, 2008c; OGJ, 2001). Kashagan alone represents almost 50% of the proved oil reserves of Kazakhstan4 and it is by far the largest offshore field in the Caspian basin. The 480-square mile deposit is reportedly so large that it is believed to even surpass the size of the North Sea oil reserves (Krastev, 2002).
Drilling began in 2000 under the auspices of its concessionaire, the Offshore Kazakhstan International Operating Company (OKIOC). The OKIOC later changed its name to Agip Kazakhstan North Caspian Operating Company (Agip KCO). The contracting companies involved in the North Caspian Sea Production sharing agreement operated by Agip KCO originally were: ENI–Agip (Italy) 16.67%; BG (formerly subsidiary of BP, UK) 16.67%; ExxonMobil (US) 16.67%; TotalFinaElf (France/Belgium) 16.67%; Royal Dutch/Shell (UK/Netherlands) 16.67%; Inpex 8.33%; ConocoPhillips (US) 8.33.5 This composition and company shares have changed overtime which is explained below. The North Caspian production sharing agreement (PSA) covers 5600 sq km.
Section snippets
Significance of Kashagan reserves and impact of the discovery
Although the field is still being appraised, in 2007 Agip KCO estimated the field's recoverable reserves at 13 billion barrels of oil equivalent, with further potential totaling 38 billion barrels using secondary recovery techniques (gas injection, for example). Further exploratory drilling activities are still in progress (in 2003 five wells have been drilled at Kashagan and three more wells drilled in 2006 for exploratory purposes) (EIA, 2008a, EIA, 2008b, EIA, 2008c).6
Possible routes to export Kashagan oil and gas
Successful exploitation of the Kashagan will depend on the construction of new transport pipelines, capable of handling large volumes of oil produced in a landlocked sea. The direction of such a pipeline remains in question, and thus holds the potential for fierce competition among regional and global powers (OGJ, 2002a, OGJ, 2002b).
Alternative routes that are being considered (Fig. 3) and some concerns associated with each project are as follows:
Predicting export route(s) for Kashagan
It is a critical part of this article to describe how the best route for Kashagan oil can be predicted. It is however, beyond this article's scope to fully explain the model of prediction, since it requires extensive statistical work and separate assessment/explanation (a full explanation of the model and basic assumptions on actors in the Caspian Basin, applicability of it are discussed and tested at Babali, 2006), for the sake of the argument, however, the model used is explained briefly here.
Most likely scenario: BTC connection
When we look at the de-facto coalitions that are already in place in terms of cooperation or declared priorities for the possible export routes (Table 1), it becomes obvious that with the coalition of Turkey, Azerbaijan, United States, and European Union, the BTC route will be the winner among the Kashagan export routes (based on votes calculated for each actor according to the formula given above and based on judgemental scores attributed by the experts). The rival coalition would include
Russia–Georgia war and viability of trans-caucasus transit corridor for Kazakhstan
Although Kazakhstan has officially announced plans to arrange delivery of its oil to the BTC oil pipeline via Azerbaijan and on to Georgia's Black Sea port of Batumi, traders expressed fears after the Georgia–Russia conflict about the efficiency of the trans-Caucasus routes and about possible future pressures from Russia.
Kairgeldy Kabyldin, CEO of Kazakhstan's state-owned KazMunaiGaz, speaking with journalists about the strategy of developing oil export routes said on October 9, 2008
Conclusion
Kazakhstan is firmly moving towards to become primary energy actor in the region. Exploration of the Kashagan oil field was led to make Kazakhstan the biggest new energy source of the basin and has drawn significant foreign interest in their oil industry. If Kazakhstan's very ambitious oil export plans are not backed by real export growth and viable routes, they will be useless for the country. Kazakhstan cannot wait. Among the possible various export routes for Kashagan oil, BTC route which
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Tuncay Babali holds a Ph.D. in Political Science from the University of Houston and MA in international studies and diplomacy from the University of London (SOAS). This article reflects solely the author's views and does not necessarily reflect those of the Ministry of Foreign Affairs of the Republic of Turkey.