If you’ve ever followed the news about big construction projects (like a high-speed rail line, to pick a random example), you know that cost overruns and delays are par for the course. We can almost guarantee you’ve never seen overruns like these: an oil project in the north Caspian Sea produced its first barrel of oil last week, 8 years and $30 billion over budget.
The Kashagan oil field project was backed by a coalition of oil companies who agreed to split the massive risk involved in getting production up and running. The FT called Kashagan “one of the world’s largest, most challenging and complex projects,” and the coalition’s original partners—Eni, Total, Royal Dutch Shell, and Exxon Mobil—must be relieved that the first of what may be 35 billion barrels of oil has finally been extracted.
Where will all of this oil go? The Caspian Sea sits in the middle of a fairly extensive pipeline network. At least 8 percent of Kashagan’s oil will be heading east to China, but it can be transported north to Russia, or west, either through a pipeline to the Russian port of Novorossiysk on the Black Sea or, pending the construction of a connection line, through the Caucasus to the Turkish port of Ceyhan on the Mediterranean.
The global oil market is getting a new source of oil at a time when major producers in Libya and Nigeria are struggling to bring barrels to market. Kazakhstan, whose state oil company has a 16.81 percent stake in the field, gets an opportunity to further decrease its dependence on Russia. China gets more fuel for growth, and the Caucasus gets another turn in the global spotlight.
Oil and gas production in the Caspian Sea has grown significantly in the past decade, and with the opening of Kashagan, that growth will continue.
[Caspian Sea photo courtesy of Shutterstock]