During a meeting last weekend in Astana, the head of Kazakhstan’s KazMunaiGaz (KMG) K.M. Kabyldin confirmed to the executive council of the EBRD that the first oil from the offshore Kashagan deposit will be produced in late 2012 or early 2013. Oil for export will be produced in 2014, and it will be exported through the Caspian Pipeline Corporation (CPC) pipeline that was originally built to serve the Tengiz field, which it will also continue to do. Construction of the once-touted Kazakhstan-Caspian Transport System (KCTS) for export of Kashagan oil across the Caspian Sea to Baku has been postponed until Kashagan’s second stage comes on line at the end of the present decade.

BACKGROUND: Kazakhstan’s offshore Kashagan oilfield in the north of the Caspian Sea, discovered in 2000, is the largest worldwide since the discovery of Prudhoe Bay in Alaska more than forty years ago. It is routinely ranked as the fifth or sixth largest in the world and has the largest reserves of any oilfield outside the Middle East. These reserves are currently estimated at 38 billion barrels, of which 11-13 billion are judged recoverable. Originally scheduled to enter into production in 2005, this date has continually been pushed back because of technical challenges in the field’s physical and engineering development and because of quarrels over the nature of KMG’s participation.

In 2008, Kazakhstan had decided to construct the KCTS, a 590-mile pipeline provisionally estimated to cost US$ 3 billion, from Eskene where Kashagan’s onshore processing facility will be located once full-field development gets under way, to its Caspian Sea port of Kuryk near Aqtau. It was projected that the volume of this pipeline would start at 500,000 barrels per day (bpd), later increasing to 750,000 bpd. Another 400,000 bpd could have been added by doubling the capacity of the Aqtau port itself. The KCTS was planned to operate in tandem with the Trans-Caspian Oil Pipeline (TCOP), a projected 435-mile pipeline from Kuryk under the Caspian Sea to Baku. As recently as last year, KMG and the State Oil Company of the Azerbaijani Republic (SOCAR) signed a joint agreement on TCOP’s core principles.

The KCTS and the TCOP together would constitute one variant of the Trans-Caspian Oil Transport System (TCOTS). A second variant would use a system of shuttle tankers between Kuryk and Baku rather than an undersea pipeline. A third variant would have been an oil pipeline from the Kashagan offshore region underneath the Caspian Sea directly to Azerbaijan. France and Kazakhstan signed an agreement to explore this possibility in late 2009, giving a French energy consortium a one-year exclusive right to negotiate for the project. However, when Kazakhstan’s president Nursultan Nazarbaev visited Paris a year later to sign a number of high-profile industrial cooperation agreements, this undersea pipeline directly to Baku was not even mentioned. This third version of the TCOTS has thus apparently disappeared even from the drawing-boards.

IMPLICATIONS: Any decision for the KCTS pipeline, which would be constructed entirely within Kazakhstan’s borders, is connected with the development of the Kashagan field. First-phase production from Kashagan will amount to between 370,000 and 450,000 barrels per day (bpd) from 2014 to at least 2016. The date of 2014 has frequently been cited for Kashagan’s first production, but this is based on a misunderstanding or, at least, a lack of precision. The required nuance, usually omitted, is that this is the date of the end of “experimental” production (defined as up to 370,000-450,000 bpd). What is scheduled to begin at the end of 2012 is defined as “industrial” production.

Until recently, the disappearance of the French project for a trans-Caspian pipeline from Kashagan to Azerbaijan made the KCTS (Eskene-Kuryk onshore pipeline) a necessary component of any scheme for exporting Kashagan oil westward. With the KCTS’s delay until nearly the end of the present decade, the question arises how to transport Kashagan oil onto world markets. The answer is given by the Tengiz field in northwest Kazakhstan, perhaps the country’s best-known oilfield. Estimated to have between six and nine billion barrels of reserves, its production is exported to world markets from Russia’s Black Sea port of Novorossiysk, which it reaches through the CPC pipeline, which entered into service in 2001.

About 80 percent of Kazakhstan’s oil has nowhere to go today, other than through Russia’s pipeline system. Half the remainder is exported through the Georgian Black Sea port of Batumi, the seaside capital of the Georgian autonomous province of Ajara; the rest goes to China.  In 2009, the CPC transported almost 750,000 bpd of crude oil, of which 80 percent came from the onshore Tengiz and Karachaganak fields, with most of the remainder being oil produced in Russia along the length of the pipeline. Late last year, after years of discussion and promises, the CPC took a Final Investment Decision to nearly double its current capacity, to 1.34 million bpd. The fully expanded capacity should enter into service in mid-2014, just in time for Kashagan’s transition from “experimental” production to export-capacity production. If necessary, smaller quantities from Kashagan can transit the Kazakhstan-China pipeline or be transported to Baku by trans-Caspian barge, and from there to Georgia’s port in Batumi on the Black Sea.

CONCLUSIONS: One question remaining to be resolved is how the Kashagan oil that makes it through the expanded CPC pipeline will find its way to world markets. The overused Turkish Straits are not an option, despite the fact that apparently knowledgeable observers say they think otherwise. Transshipment across the Black Sea can involve only strategically insignificant quantities. What is left is the Samsun-Ceyhan (also “Trans-Anatolian”) pipeline project, from the Turkish Black Sea coast to its existing energy terminal on the Mediterranean Sea. Planned in 2005 as a joint venture under Turkish law between the Italian firm Eni and Çalik Enerji, it has since foundered as first Indian then West European energy companies originally expressing an interest desisted from pursuing it.

In 2009, two Russian firms expressed an interest in the Samsun-Ceyhan project following a meeting in Sochi between Turkey’s Prime Minister Recep Tayyip Erdogan and his Russian counterpart Vladimir Putin. According to some reports, Ankara agreed to support Moscow's “South Stream” gas pipeline in return for a Russian commitment to the Samsun-Ceyhan pipeline. However, it was never clear what that Russian support was actually supposed to entail, or even if it was to include significant capital investment. As of late, not even informal press leaks or hearsay reports have been in evidence. The seeming reticence of the declared Russian partners is puzzling; because there is now no doubt that the CPC pipeline will be expanded, in three phases over the next four years according to KMG’s chief Kabyldin.

AUTHOR’S BIO: Robert M. Cutler (http://www.robertcutler.org) is Senior Research Fellow in the Institute of European, Russian and Eurasian Studies, Carleton University, Canada.