Upbeat on Kashagan, is OPEC missing Russian growth?

7

September 15, 2016 by AK

The Financial Times on the long-awaited launch of the Caspian offshore field, Kashagan:

The Kashagan oilfield in Kazakhstan, which has earned the unfortunate nickname “cash-all-gone” due to a series of expensive overruns, is now scheduled to finally start up in October, pouring more oil into a heavily oversupplied market.

Read more about the megaproject of the millenium on Jake Barnes’ blog, The Oilfield Expat.

The FT explains:

The start-up is significant as the giant field is already leading forecasters to revise their estimates for when the oil market will finally move back towards balance. Opec… said Kashagan’s ramp up is one reason it now thinks supplies outside the group will actually grow next year, despite two years of low prices.

OPEC is calling it, comically, “the possible early start-up” because, after years of delays, the restart date has been moved forward by several months:

Originally, the super-giant field… was unlikely to resume until mid-2017; however, it is now projected to reach 0.23 mb/d by year-end, according to the head of upstream of Eni… and confirmed by Kazakhstan’s Energy Minister. Production is then expected to stabilize for a few months… enabling the field to reach its targeted plateau of 0.37 mb/d later that year [2017]…

Kashagan is a great school of optimism, but it’s always raining in Edinburgh:

Consulting firm Wood Mackenzie Ltd. contends the field will produce only about 154,000 barrels a day in 2017 and won’t get anywhere near targeted volumes until the next decade.

“It will take time to reach production capacity,” Samuel Lussac, WoodMac’s research manager for Russia, said in an interview. “We don’t expect Kashagan Phase 1 to produce more than 300,000 barrels a day until the early 2020s.”

Perhaps OPEC is exaggerating Kashagan’s contribution to global output growth in 2016-17, but I suspect it is underestimating Russia’s output, so the two errors may balance each other out.

After the August maintenance on Sakhalin, Russian production recovered in early September, broke through 11 mmbpd and has stayed above that mark since September 4. While I don’t know exactly where the increase is coming from, several fields are scheduled for start-up in the fourth quarter so perhaps one or two were launched a little earlier.

Unlike Kashagan, none of the new Russian fields is a supergiant, so each may have passed under the radar: predicting Russian output requires a relatively high degree of disaggregation.


7 comments »

  1. Tim Newman says:

    Hmmm. What are the odds on another H2S leak and the plant being shut right back down again within days of the new startup? I’d put $100 on at evens.

  2. […] Sept. 15, three days after OPEC published its latest monthly report, I suggested that the cartel’s forecasters might be underestimating Russia’s output and […]

  3. […] are being put into operation this quarter, this surge was to be expected, although it was overlooked by major-league […]

  4. […] OPEC has updated its forecast for Russia’s 2016 output, raising it by 0.05 mmbpd to 11.04 mmbpd, implying 1.7% growth y-o-y. (OPEC seems to be using a conversion rate of 7.4 barrels per ton while most Russia-watchers use 7.3.) This is a little more conservative than the Russian government’s latest estimate, 2%. For 2017, OPEC’s forecast is flat while Russia projects an uptick of less than 1%. It makes sense now. […]

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