TURBULENCE IN THE CASPIAN

The Caspian Sea and its shelf are one of the main hubs of activity of the largest oil companies. Multi-billion dollar contracts have been concluded to create numerous joint ventures to develop the region’s oil and gas resources. Intensification of exploration and development of the Caspian fields increases oil production and exports from the regional countries. Nevertheless, in the coming years, we can expect even greater growth in offshore production in the Caspian.

Growth states

“According to the International Energy Agency (IEA), the probable reserves in the Caspian region are 48 billion barrels of oil and 8 trillion cubic meters of natural gas. Almost 40% of all reserves are located offshore with the two-thirds of the proven oil reserves within the borders of the Kazakh sector of the Caspian, slightly less than 20% in Azerbaijan, and about 13% in Russia,” Nadezhda Rodova, Managing Editor of S&P Global Platts, said.

According to Rodova, the largest reserves of natural gas are located in the Russian and Kazakhstan sectors (about 36-38%). The remaining share is divided between Turkmenistan and Iran. Remarkably, Iran accounts for only about 1% of oil and gas reserves.

In addition, according to the IEA, another 20 billion barrels of oil and 7 trillion cubic meters of gas reserves can be proven after additional exploration.

Obviously, active hydrocarbon production is taking place in all five Caspian countries, but today it is difficult to say anything definite about the situation in Iran, given the murky political events surrounding the country and its oil industry.

According to experts, the reserves of the Turkmen sector of the Caspian are 12.1 billion tons of oil and condensate and 6.1 trillion cubic meters of gas. One of the first partners of Turkmenistan for the development of offshore fields in the Caspian was the Malaysian company Petronas Charigali (Turkmenistan). The investor received a license for the exploration and production of oil and gas in the offshore territory of Block-1 as part of the Makhtumkuli, Diyarbekir and Garagol-Deniz fields. So far the Malaysian company invested about $11 billion in Turkmen fields.

But Kazakhstan, Azerbaijan and to some extent Russia ensure the significant increase in regional oil production. The development of Caspian oil resources is ongoing under the following three main projects: the development of the offshore Tengiz and Karachaganak fields of Kazakhstan and the Azeri-Chirag-Guneshli field of Azerbaijan. The expected increase in oil production will occur mainly due to the development of the Kashagan field in Kazakhstan.

Kazakh sector

In fact, Kashagan is the first offshore oil and gas field in the Kazakhstan sector of the Caspian Sea and the country's largest international investment project. It was discovered in 2000 with estimated reserves at 4.8 million tons of oil and more than 1 trillion cubic meters of natural gas. North Caspian Operating Company (NCOC) was created as an international joint operating company to implement the project.

Commercial production at Kashagan began on November 1, 2016 as part of the first phase of development, which is carried out in rather difficult climatic conditions. The North Caspian is covered with ice for about five months a year. Ice movements and the formation of furrows at the bottom of the sea are serious restrictions for construction work, production operations and logistics, which requires the use of innovative technical solutions. Nevertheless, the work does not stand still, and the current production of oil and condensate at the Kashagan field has already reached 380 thousand bpd. According to the Minister of Energy of Kazakhstan, Kanat Bozumbayev, it is planned to increase this figure to 400-420 thousand and 500 thousand bpd by the end of 2019 and 2027, respectively.

According to minister, the first phase of field development will be expanded through new projects thanks to $2 billion in NCOC investments.

“A number of large-scale and long-term engineering projects are ongoing in the oil and gas industry. In the medium term, we expect the main increase in investments in oil production ($44.5 billion) on three projects: the future expansion of the Tengiz field ($36.8 billion), the expansion of the first stage of the Kashagan field ($2 billion), and the extension of production at Karachaganak field ($4.5 billion),” Bozumbayev said.

According to the Kazakh government, these three projects will provide the main increase in oil production until 2025, although Kazakhstan hit a record volume of oil production in 2018 at 90.36 million tons.

Given the great importance of Kashagan for the country, the incumbent Kazakh president, Kasym-Zhomart Tokayev, even instructed the government and the NCOC to quickly agree on a roadmap for the full development of the field.

Meanwhile, foreign companies continue to show a growing interest in the Kazakhstan sector of the Caspian. In April 2019, the Russian company LUKoil, the Ministry of Energy of Kazakhstan and the national Kazakh company KazMunaiGas (KMG) concluded a contract for the exploration and production of hydrocarbons in the Zhenis section of the Caspian. Later in June, the companies signed an agreement on principles for the I-P-2 section, whose estimated recoverable resources are estimated at 71 million tons of oil. In July, KMG, the Ministry of Energy of Kazakhstan and the Italian Eni signed a contract for the exploration and production of hydrocarbons at the Abai offshore field.

In general, it is expected that until 2025 more than $5 billion will be invested in projects to develop five offshore fields in the Kazakh part of the Caspian Sea: Isatay, Abay, Zhenis, Kalamkas-Sea and Khazar.

Russian shelf

LUKoil is currently active in the Russian sector of the Caspian Sea. The company discovered 10 fields with a total recoverable hydrocarbon reserves of 7 billion barrels of oil. One of them, the V. Filanovsky field is recognized as the largest of the explored fields in Russia over the past 25 years.

By the way, the current year was significant for the company - in August LUKoil celebrated the production of 25 million tons of oil in the Caspian. At the end of 2018, LUKoil oil production at the Filanovsky and Korchagin fields amounted to 6.8 million tons of oil and 2.9 billion cubic meters of gas, which is 25% and 13% higher than in 2017, respectively. In 2019, it is expected to increase oil production to 7.26 million tons.

In 2020, the company also plans to install the supporting blocks of the new platform at the Rakushechnoye field scheduled for commissioning in 2021. Initial recoverable reserves of the field are 39 million tons of oil and about 33 billion cubic meters of gas.

In addition, at the beginning of 2020, LUKoil plans to continue exploration drilling at the Khazri structure on the Caspian shelf. The forecasted geological reserves of the structure are estimated at 93 million tons.

As part of the planned expansion of the geography of its activities in the Caspian Sea, LUKoil also plans operations in the countries neighbouring with Russia. According to Sergey Prikhodko, First Deputy Chief of Staff of the Russian Government, Russian Rosneft, LUKoil and Gazprom are interested in developing oil and gas fields in Turkmenistan.

LUKoil also plans large investments in projects in Azerbaijan. According to LUKoil president V. Alekperov, political stability and favourable investment environment arouse interest in the company for "further presence in Azerbaijan."

"We are currently working with SOCAR on the project of the Umid and Babek fields. We are interested in participating in this project and now are discussing the technical and economic aspects of the project. We are interested in making large investments in Azerbaijan if the parties agree on economic components of the project," V. Alekperov said.

Azerbaijan

Azeri-Chirag-Guneshli and the Shahdeniz fields developed under the Contract of the Century, the 25th anniversary of which was celebrated this year, provides the bulk of  Azerbaijani oil and gas exports from the Caspian.

At the same time, Azerbaijan is introducing new hydrocarbon resources into development. Thus, French TOTAL successfully completed the drilling of the first production well at the Absheron gas field.

In addition, BP is preparing for exploration drilling at the Shafag-Asiman structure and in the shallow water of the Absheron archipelago, as well as for 3D seismic surveys at block D-230 in the Azerbaijani sector of the Caspian.

According to the company, drilling at the Shafag-Asiman structure is scheduled to begin in the fourth quarter of 2019 using the Heydar Aliyev semi-submersible drilling rig.

The first stage of drilling at the SAX01 well will be completed in the 3rd quarter of 2020. The main goal of drilling this well is to estimate gas reserves in the productive formations of Nadkirmakinskaya Peschanaya, Fasila (Break) and Balakhany structures for the subsequent development of the Shafag-Asiman contract area.

In addition, by the end of this year, the company plans to begin drilling the first exploration well in the shallow waters of the Absheron archipelago. “This is a very promising contract with great potential. Based on the results of exploration, we expect positive oil detection in this area,” Gary Jones, President of BP for Azerbaijan, Georgia and Turkey, said.

Semi-submersible drilling rig Satti owned by KazMunaiGas ($270 million) was delivered to Azerbaijan for exploration drilling.

In addition, in September 2019, BP plans to begin three-dimensional seismic surveys at the prospective block D230, where the company expects to detect oil deposits. “Depending on the results of the seismic survey, which, according to our expectations, should be positive, in the middle of next year we plan to start drilling the first exploration well,” G. Jones said.

Also at the turn of 2019-2020, the Norwegian company Equinor expects to begin drilling the first exploration well at the prospective Aypara structure in the Azerbaijani sector of the Caspian. “There are no abnormally high temperatures and high pressure in this area, so drilling should not cause any particular difficulties. During drilling, we plan to study the reservoir as much as possible,” company's drilling manager Arne Reidar Holvik said.

In short, the hydrocarbon potential of the Caspian Sea is very high. When the littoral states achieve the projected volumes of production and export of hydrocarbons, the Caspian energy resources will play an instrumental role in the global energy market.