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So Much for Peak Oil
At Long Last, Kashagan Comes Back Online

It’s a moment 16 years and more than $50 billion in the making: Kazakhstan’s shallow-water Kashagan oil and gas project just exported its first commercial cargoes of oil. Bloomberg reports:

The venture loaded 26,500 metric tons of crude for export into the country’s pipelines, Kazakhstan’s Energy Ministry said in an e-mailed statement Friday. Of that, 7,700 tons was sent to the Caspian Pipeline Consortium. Reaching stable production will take “some time” as commissioning work continues both offshore and onshore, the ministry said. […]

North Caspian Operating Co., which took over running of the field from Eni SpA in 2009, said it’s working to gradually increase production capacity to a target level of 370,000 barrels a day by the end of 2017. U.K. consulting firm Wood Mackenzie Ltd.forecasts only about 154,000 barrels a day from the field on average next year. […]

“Restarting production even in this low oil price environment is good because it means beginning to see some returns on that massive investment,” Andrew Neff, Paris-based principal analyst at IHS Energy, said by e-mail.  “The real payoff will be phase two,” which has the potential to increase output to 1 million barrels a day, he said.

It’s been a long road to this point. Kashagan has been a nightmare for its investors, coming in more than $30 billion over budget and more than a decade behind schedule, but the important thing is that, at long last, the crude is starting to flow.

From a producers’ standpoint, though, the timing couldn’t be worse. The operators of the Kashagan field won’t be happy that their product is being sold for less than half of what it would’ve fetched three summers back (when the project should have been off the ground). Likewise, petrostate producers like Saudi Arabia and Russia will be loathe to see yet another source of supply coming online, just as they’re working putting the final touches on a deal that would see OPEC reduce its overall output and have Moscow potentially freeze its production levels.

While these oil-soaked regimes struggle with the effects the global oil glut is having on their state budgets, suppliers elsewhere are busy fighting for their own share of the crowded market. We’re living in a time of extraordinary hydrocarbon abundance—so much for “peak oil.”

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  • JR

    New technology such as fracking resulted in a positive supply price shock. Supply curve shifted to the right, so at every price point we have more oil and natural gas. That’s pretty awesome for consumers. The fact that Obama couldn’t turn this into a full blown economic revival is a sign of his utter incompetence in running an economy or even understanding how economy works.

  • Jacksonian_Libertarian

    I have to ask, what kind of project costs 250% ($50 billion with $30 billion over budget) of the initial projection? The answer is massive corruption, remind me never to invest in a Kleptocratic country.

    • f1b0nacc1

      Try the LCS, the F-35, almost anything involving NASA, and of course the vast panoply of social welfare programs. This isn’t about countries (though the Kazak government is world class in corruption), but the nature of political elites, especially when unmoored from accountability. In fact, your favored phrase ‘the feedback of competition’ is a fairly good insight here…

    • Larry J

      Those kinds of overruns are quite common when you’re dealing with government programs. It’s only Other People’s Money, after all.

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