Caspian Sea - better late than never
After much delay, a surge in Caspian Sea production in 2017 will take the oomph out of any Opec cuts
Kazakhstan's and Russia's Caspian Sea oilfields will add almost 0.5m b/d to world production in 2017 - equivalent to about 0.5% of global output. It will be enough to undermine Opec's embryonic attempts to curb production and boost oil prices.
The biggest impact will come from Kazakhstan's giant but perennially troubled Kashagan oil project. With October 2016 finally seeing the field's first exports - a 200,000-barrel cargo - the Kazakhstani authorities and operator North Caspian Operating Company hope the years of delays, false starts and cost overruns are finally behind it. If so, 2017 will be the year Kashagan finally proves its worth. Kashagan is the world's second-largest field, with recoverable reserves of 9bn-13bn barrels, but its development costs have ballooned since discovery, in 2000, from around $10bn to more than $50bn.
Italy's Eni - which, like Kazakhstan's state-owned KazMunayGas, Shell, Total and ExxonMobil, owns 16.81% of the project - says peak phase-one production of 370,000 barrels a day will be achieved by the end of 2017. Even Opec believes that might be enough to dampen a global oil-price recovery.
Lukoil's Filanovsky field, in the Russian sector of the Caspian Sea, will add to supply too. Commercial-scale production should begin by the end of 2016 and reach a peak of 120,000 b/d by end-2017. Discovered in 2005, Filanovsky's recoverable oil and gas reserves amount to 153m tonnes (about 1.1bn barrels) and 32.2bn cubic metres, respectively.
Meanwhile, as first Kashagan oil flowed into the Caspian Pipeline Consortium (CPC) pipeline in October, attention turned to expanding the pipeline's capacity. The CPC is Kazakhstan's main export route from the Tengiz field to the Novorossiysk-2 Marine Terminal on Russia's Black Sea coast. The expansion, due for completion by mid-2017, should almost double capacity to 67m tonnes a year (about 1.35m b/d). Kazakhstani producers will account for 56m t/y and Russian producers 11m t/y.
The start of commercial production at Kashagan will be a relief to a government struggling to deal with an economic crisis stemming from the low oil price and the downturn in its largest partner, Russia.
But 2017 won't be without dangers. There are growing fears of a repeat of the unrest in 2011 that saw oil workers in the Mangistau region city of Zhanaozen clash with police, leaving 16 dead and hundreds wounded. In September, employees of a drilling company, Burgylau, took to the streets to demand higher pay. The protest was defused peacefully, but the problem could easily recur: most deposits in the Mangistau region are almost depleted and jobs are drying up. Kashagan, in neighbouring Atyrau Oblast, might not provide replacement employment because the Mangistau workforce is comprised mostly of low-skilled workers, not the highly qualified engineers Kashagan needs.
Across the Caspian Sea, in Azerbaijan, the region's other major oil producer, things are little better for the authoritarian government. Oil production will not rise in 2017 though projects to expand gas output and exports to Europe will make progress, despite an acute economic slow-down and widespread lay-offs.
The country's largest producer, BP - which operates the dominant Azeri-Chirag-Guneshli (ACG) oilfields - expects its oil output to remain flat in 2017. Output from ACG reached 0.65m b/d in the first half of 2016, up from 0.641m b/d in the first half of 2015. But the longer-term outlook is murkier: BP is in talks with the Azerbaijani government to extend its ACG production-sharing agreement beyond 2024, when the present deal expires. Frictionless progress in 2017 is not assured: relations between BP and the government have been tested in recent years by declining oil output, weaker commodity prices and economic instability.
The expansion of Shah Deniz, also operated by BP, should continue in 2017, working towards its target of adding 16bn cubic metres a year to the 9bn cm/y produced under the project's first phase. According to BP and state-owned Socar, 82% of phase two had been completed in September and first gas should flow in 2018.
Around $28bn of capital investment will be needed to produce the gas and transport it to the Georgia-Turkey border. From there, the Trans Anatolian Natural Gas Pipeline - scheduled to become operational in 2018 - will deliver 6bn cm/y of gas to Turkey and a further 10bn cm/y of gas to markets in Europe through the Southern Gas Corridor.
This article is part of Outlook 2017, our annual book looking at energy market trends for the year ahead. To purchase a copy, click here