US puts project of future expansion of Tengizchevroil worth $37 bn under doubt
Almaty. September 4. KazTAG - In a windswept land of salt flats and wild horses, investors are pouring money into one of the largest and most lucrative oil fields outside the Middle East, reports New York Times.
Oil has been pumped from this remote plain since the early 1990s at a pace that would have depleted other fields by now. Yet it is still gushing, and there is much more to come.
The field’s operators, led by the American giant Chevron, are defying conventional industry wisdom with an enormous expansion that they hope will increase production nearly 50 percent, to the rarefied mark of a million barrels a day. They expect the oil field to be vibrant for decades.
But the project is complex, and the world’s demand for oil is flattening. A question hangs over the expanse of workers and heavy machinery: Is this a smart way to spend $37 billion?
About 48,000 people, most of them Kazakhs, are working on the expansion, many living in dormitory-like buildings. Pieces of equipment weighing hundreds of tons — hulking sections of electric power stations and oil-processing units — arrive daily from factories in Italy, South Korea and Turkey. After a voyage through Russia’s inland waterways to a newly built port on the Caspian Sea, the segments are hauled about 40 miles to the oil field, where a 3,200-ton crane hoists them up and eases them into place.
Wood Mackenzie, a market research firm, describes the effort as the industry’s largest undertaking in a decade.
“This is a project every company would like to have if they could,” said J. Robinson West, the managing director of the BCG Center for Energy Impact, a consulting firm.
The expansion is about three years from completion, but the Tengiz oil field already provides nearly a quarter of Kazakhstan’s national revenue, and about a quarter of Chevron’s profits. Chevron approved the project in 2016 at what may have seemed like an inopportune time: The world was awash in oil, and the industry was still reeling from a price collapse that had begun in 2014. Expanding the Tengiz operation appeared to be a good bet because the field had performed so well in the past and because Chevron places a high value on its relationship with Kazakhstan.
“When we looked at this, it was the major capital project that we felt was worthy,” said Todd Levy, Chevron’s exploration and production president for Europe, Eurasia and the Middle East.
Still, the expansion remains a calculated gamble.
It begins with the weather. Ice on the Caspian can halt shipments of equipment, idling thousands of workers. Chevron has had good luck so far, officials said, and the project is more than half finished.
Making progress at Tengiz also requires maintaining good relations with Moscow, which has not forgotten that Kazakhstan was a Soviet republic until the early 1990s. Russia looms over its neighbor along the 4,200-mile border they share, with equipment bound for Tengiz moving through Russia’s waterways and crude oil from Tengiz shipped through a Russian port on the Black Sea. It helps that the Russian company Lukoil is a partner in the joint venture, known as Tengizchevroil.
At some point, Kazakhstan could reconsider its relationship with Chevron and Exxon Mobil, the other American company involved in the expansion effort. Chevron has been careful to stay on government officials’ good side by engaging in frequent dialogue, but some analysts note that Kazakhstan is in the midst of a political transition after three decades under the same leader. The new government, analysts said, may decide that the terms of its decades-old agreement are too favorable to the oil companies and seek to rewrite it.
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