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What does the Kashagan delay mean for Kazakh oil output?

The Kazakh government has reassured those concerned about the delays at the giant Kashagan oilfield, by predicting that oil production will begin proliferating within two years.

Kashagan, which is being developed by the international consortium NCOC, is the world's biggest oilfield discovery in the last 30 years, containing around 13 billion barrels of recoverable oil.

Production at the facility was launched on September 11th last year, but the project hit a snag when a leak was identified in the gas pipeline running to the onshore processing facility at Bolashak.

This led to production being halted on September 24th and - although an attempt was made to restart operations - this was abandoned on October 9th, placing output on hiatus and creating some uncertainty about area's oil production.

Resumed production

However, speaking at the KIOGE oil and gas conference in Almaty, Kazakhstan's Deputy Energy Minister Magzum Mirzagaliyev said he expects the country's oil output to be maintained at 2013 levels at the very least until 2016, when officials hopes to restart production at Kashagan.

The minister said the nation aims to produce around 81.8 million tonnes of crude this year, equivalent to 1.64 million barrels per day, which is broadly in line with the 81.7 million tonnes of output recorded last year.

This was a major increase on the 79.2 million tonnes produced in 2012, which has solidified Kazakhstan as the second-largest ex-Soviet oil producer after Russia, though any further increase will be be temporarily restricted by inactivity at Kashagan.

Mr Mirzagaliyev said he anticipates 2015's output will be similar to this year, with 2016 seeing a sustained increase in production when Kashagan is back online.

Alternative measures

In the meantime, Kazakhstan hopes to compensate for the shortfall by increasing output from other fields, particularly through the joint venture Tengizchevroil (TCO), which has a wealth of reserves.

"TCO has a great impact on the total oil output," the minister explained, noting that it is currently developing the vast onshore Tengiz field, which is expected to produce in the region of 27 million tonnes of oil this year.

TCO is set to begin repair and maintenance on the Tengiz field imminently, with an estimated project time of 45 days, and hopes are high that the work can be completed ahead of schedule.

Mr Mirzagaliyev elaborated: "We expect that this planned repair work will be done in a fast tempo and we believe that we will achieve planned output there. Our latest data shows that this repair may be conducted in just 23 to 28 days."

Maintaining production

Given the problems at Kashagan, the government is reluctant to place its hopes solely on Tengiz, and is also in talks with other oil producers to increase their output. This will include speeding up the issuing of necessary permissions and project documentation needed to progress.

In terms of TCO's contribution, one factor likely to weigh in the government's favour is that Kazakh state oil company KazMunaiGas has a 20 per cent stake in the company, with Chevron holding 50 per cent, Exxon Mobil owning 25 per cent, and Lukoil-controlled Lukarco having a further five per cent.

It is clear that the Tenzig project and similar supplementary fields will play a vital role in keeping output ticking over until Kashagan is once again operational.

Although the government had expected Kashagan to resume production in July, and forecast that around three million tonnes of oil would be produced by the end of the year, it is now confident that the second half of 2016 will see production resume at record levels.

Next steps

In the meantime, Kazakh authorities are consulting with the Kashagan developers on the penalties that they may face for delaying commercial production, as well as the costs that have resulted from the initial suspension.

This sum hasn't yet been determined, but one thing is clear: the major leap in oil output forecast will resume in earnest in two years' time.

It was previously estimated that Kazakhstan's oil production would increase by around 25 per cent over a five-year period, from 82 million tonnes in 2012 to 102 million tonnes in 2017, and although this schedule has been pushed back, analysts are confident that the output from Kashagan will kickstart the revival when the sleeping giant awakens.

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