Shell and Eni Replaced in Karachaganak Gas Plant Project

National gas company QazaqGaz, which is owned by the Samruk-Kazyna fund, will become the operator of the gas processing plant project at the Karachaganak field, Kazakhstan’s Energy Ministry said. The project had initially been expected to be carried out by Britain’s Shell and Italy’s Eni as part of efforts to settle a dispute with the state over alleged violations in the field’s development, Orda.kz reports.

Gas at Karachaganak is produced as a by-product of oil extraction. The field currently has no processing facilities of its own, so the gas is sent to a plant in Orenburg, Russia, and the processed fuel is then supplied back to Kazakhstan. Some of the finished products are also sent to Russian consumers. The Russian plant has a processing capacity of nine billion cubic metres of gas per year. The operator of the purchase, processing and sale scheme is the KazRosGas joint venture, equally owned by KazMunayGas and Gazprom.

The construction of a gas processing plant at Karachaganak is included in Kazakhstan’s Comprehensive Plan for the Development of the Gas Industry through 2029. The new plant is expected to have a capacity of five billion cubic metres per year. Energy Minister Yerlan Akkenzhenov said QazaqGaz had been appointed sole operator in order to launch construction as quickly as possible.

Kazakhstan must also reach an agreement with Karachaganak’s shareholders to guarantee supplies of raw gas from the field to the new plant at an acceptable price, the ministry said. The project is expected to be integrated with the field’s existing infrastructure.

The plant was originally supposed to be built by Shell and Eni. The idea was that this would help settle the dispute with the state over claims that capital deductions had been overstated. Under the production-sharing agreement, investors are allowed to count capital expenditure toward cost recovery and therefore retain a larger share of profits. The government, through its PSA representative company, argues that those deductions were deliberately inflated. In January, Shell, Eni, Chevron and Lukoil lost another court case in the dispute. The amount of the penalty has not yet been determined, but it could reach $4 billion.

At the end of March, it became known that Shell and Eni had not made a final investment decision on the gas plant project. Because of that, they lost the right to take part in it. The proposals the Western companies had put forward during discussions with the authorities did not satisfy the state. Officials said the companies’ terms reflected low project efficiency because of inflated costs.

Earlier, in December, KazMunayGas agreed with China’s CITIC Construction to cooperate on the project. The parties planned to calculate the cost of the plant, prepare project documentation and determine the necessary technical solutions.

Original author: Alexey Afonsky

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