Submitted by Jamal Moustafaev on Mon, 11/23/2015 - 15:54

Introduction

The Kashagan Oil Field has been discovered in 2000 in the Northern part of the Caspian Sea (see Figure 1). It was quickly confirmed that it was the world's largest discovery in the last 30 years, combined with the Tengiz Field located nearby, with a projected output close to that of the Ghawar field in Saudi Arabia. The recoverable oil reserves of the Kashagan Filed were estimated to be at 19-20 billion barrels.

Figure 1

The consortium consisting of several global energy players along with the government of Kazakhstan was formed in order to develop the reserves. The number of players and the make-up of the conglomerate changed several times over project lifecycle (we will come back to this fact at a later time), but as of 2012 the group consisted of the following players:

Eni (Italy) - 16.81% stake
KazMunayGas (Kazakhstan) - 16.81% stake
Royal Dutch Shell (UK/Netherlands) - 16.81% stake
Total S.A. (France) - 16.81% stake
ExxonMobil (USA) - 16.81% stake
China National Petroleum Corporation (China) - 8.4%
Inpex (Japan) - 7.56% stake

The Project

The project started in 2001 with an expected completion date of 2005. The allocated budget for this venture was US$10 billion. The oilfield was expected to become operational around 2005 and produce anywhere between 90,000 and 370,000 barrels (at peak production) a day. Needless to say, this project was viewed in Kazakhstan as one of the most important initiatives for the young country and was expected to generate considerable income for the government.

However the project fell 8 years behind the schedule and ended up costing a bit more than the original forecast. Depending on who one chooses to believe, the cost of the venture as of 2015 was either US$50 billion (official number provided by the government of Kazakhstan), US$115 billion (CNN Money's estimate) , or close to US$150 billion (number being mentioned in some publications).

To add insult to injury, shortly after the project finally went live in 2013, the operations had to be shut down due to a damaged main pipeline leaking a very dangerous hydrogen sulfide (H₂S) gas into the atmosphere. The consortium was forced to burn off the gas as an emergency measure, releasing sulfur dioxide (SO₂) into the atmosphere.

Project Environment and Requirements

Before considering the scope of the project the managers of this venture had to consider the following facts and the resulting requirements (see Table 1):

Table 1

Mistakes Analysis

The stakeholders - right from the very start of the project - fell into the "optimism bias" trap by ignoring the complexities associated with this challenging endeavor (see the " Resulting Requirements" section of Table 1). Therefore the budget and the timeline initially allocated to the project were vastly underestimated.
Constantly changing mix of project stakeholders and the makeup of the conglomerate led to confusion, missed requirements and miscommunications.
Furthermore, according to various publications the consortium committed the following mistakes when planning and implementing the Kashagan Oilfield project (R1.4) thus exposing the employees to the potential H₂S leaks. This was later changed, thus contributing to budget and time overruns.
The complexity and the cost of the equipment required to (a) avoid potential H₂S leakage, (b) deal with extremely high pressure, and (c) pump the toxic gas back into the cavity was overlooked. Again, this lead to initial budget underestimation and to costly changes at the later stages of the project (R1.1-1.3).
The requirement to use nickel steel pipes rather than ordinary steel pipes has been also overlooked resulting in leaks shortly after the production has started. This lead to:
- Whole operations shut down causing enormous losses to all stakeholders
- H₂S remaining in the pipe was burned off as an emergency measure which led to release of SO₂ into the atmosphere. As a result, in March 2014, Kazakhstan's environment ministry fined the operating companies $735 million.

As of November of 2015 the facility is expected to become fully operational in 2017.

Sources:

https://en.wikipedia.org/wiki/Kashagan_Field

http://www.offshore-technology.com/projects/kashagan/

http://neurope.eu/article/no-end-sight-kashagan-oilfield-woes/

The Kashagan Field:A Test Casefor Kazakhstan's Governanceof Its Oil and Gas Sector, by Campaner, N.; Yenikeyeff, S.; Institut Francais des Relations Internationales (Ifri), 75 - Paris (France)

About the Author

Jamal Moustafaev, MBA, PMP – president and founder of Thinktank Consulting is an internationally acclaimed expert and speaker in the areas of project/portfolio management, scope definition, process improvement and corporate training. Jamal Moustafaev has done work for private-sector companies and government organizations in Canada, US, Asia, Europe and Middle East. Read Jamal’s Blog @ www.thinktankconsulting.ca