In Kazakhstan, Kashagan lays claim not only to the title of world’s largest oil project but also to a more dubious honor: world’s largest energy fiasco.The project is being spearheaded by a seven-party consortium keen on tapping the estimated 35 billion barrels of oil underneath Kazakh territory in the Caspian Sea (investors include oil majors ExxonMobil, Royal Dutch Shell, Eni, Total, and Kazakhstan’s own KazMunaiGas). To date, they have poured more than $50 billion into the project, with nothing to show for it so far.Kashagan is now nearly a decade behind schedule, and more than $30 billion over budget. Production finally began last September, only to come to a grinding halt soon thereafter when leaks in key pipelines were discovered. The Wall Street Journal’s insightful piece on the project might best be considered a post-mortem:
Both sides are straining to understand what went wrong. They complain about an unwieldy management structure. Western oil executives say the Kazakh government has held up decisions and imposed onerous requirements for employing local workers. The Kazakhs say the companies made mistakes that included underestimating the challenge of corrosive gas, making plans that needed frequent revision and not doing the welding right. […]Kashagan’s challenges stem partly from its environment. The project lies in shallow water that freezes all the way to the sea floor in winter, making drilling with conventional rigs impossible. The companies had to build artificial islands of rock and rubble and drill through these.
Read the whole thing, and while you’re at it, check out this neat interactive graphic. Both tell a tale of managerial incompetence, bureaucratic red tape, and a decidedly non-compliant setting for drilling.Kashagan matters for more than just the oil majors whose interest lies in making up their sunk costs, or the Kazakh government, keen on tapping a promising source of revenue. The global oil market would feel the impact of this new supply if it were ever brought online, so countries across Eurasia have been keeping tabs on the project’s status. China has demonstrated its interest in Kashagan oil, and the project sits in the middle of a fairly well-developed pipeline network. The oil could also travel north to Russia, southeast to India and Pakistan (pending construction of the proposed TAPI pipeline), or west to Europe, via Turkey. Kazakh oil would be especially welcome to that last group of customers, at a time when Europe’s dependence on Russian oil and gas is being felt more keenly than ever.There will be winners and losers at the state level if Kashagan ever comes good, but for now and the foreseeable future the oil project remains a bloated mess.