Kazakhstan Mulls Building Gas Refinery Without Oil Majors
(Bloomberg) -- Kazakhstan is considering building a natural gas refinery at the Karachaganak oil field by itself, after the cost of the development proposed by international oil companies ballooned to about $6 billion, according to people familiar with the matter.
The companies, led by Eni SpA and Shell Plc, have delayed the planned completion of the facility to 2030 from the previously planned date of 2028, the people said. They have also asked the Kazakh state to help cover about $1 billion of the project’s budget in order to make it commercially viable, the people said.
In response, Kazakhstan’s government is weighing possibility for state-run KazMunayGas National Co. to build the refinery itself, the people said.
Moving forward with the project will require constructive engagement with the international oil majors, Kazakhstan’s Energy Ministry said in a statement. It confirmed that the companies had requested the state make a payment of $1 billion to assist with the gas refinery project.
KazMunayGas Chief Executive Officer Askhat Khasenov told Shell representatives on May 19 that the state-run company is “concerned with absence of dynamics” in construction of the gas refinery, according to a statement on the company’s website. The facility would process 4.5 billion cubic meters each year, while also facilitating the production of a light oil called condensate from the Karachaganak field.
Kazakhstan’s government is in dispute with the international companies that operate Karachaganak over the validity of their cost deductions, which affect the amount of money coming into government coffers. An initial amount in question of $3.5 billion has risen to as much as $6 billion, Bloomberg reported earlier this year.
The oil majors proposed to settle the dispute by building the gas refinery, people familiar with the matter said in February. The Energy Ministry said in the statement that the companies have requested a termination of arbitration proceedings related to the dispute over costs, which it rejected.
Kazakhstan’s largest oil and gas fields have long been dogged by disputes between international oil companies and the government. The state has made claims against the developers of the Kashagan field that topped $160 billion, including as much as $138 billion in lost revenue and about $17 billion in disputed costs.
Partners in Karachaganak, where Chevron Corp., Lukoil PJSC and state-run KazMunayGas National Co. also have stakes, paid $1.3 billion in 2020 to settle a dispute over revenue sharing. They have invested at least $31 billion in the development.
KazMunayGas didn’t immediately respond to requests for comment. Chevron referred questions to the field operating company Karachaganak Petroleum Operating BV, which declined to comment. Shell declined to comment. Eni and Lukoil didn’t immediately respond to requests for comment.
(Updates with statement from Energy Ministry in fourth paragraph.)
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