KAZAKHSTAN: KASHAGAN PROJECT UNLIKE ANYTHING ELSE IN THE

UNCLAS SECTION 01 OF 02 ASTANA 002025

SENSITIVE
SIPDIS

STATE FOR SCA/CEN, EEB/ESC

E.O. 12958: N/A
TAGS: PGOV EPET EINV KZ
SUBJECT: KAZAKHSTAN: KASHAGAN PROJECT UNLIKE ANYTHING ELSE IN THE
WORLD


1. (U) Sensitive but unclassified. Not for public Internet.


2. (SBU) SUMMARY: On October 4, Eurasian Energy Diplomacy
Coordinator Ambassador Steve Mann visited the offshore and onshore
facilities of the North Caspian Sea Production Sharing Agreement
project -- also known as Kashagan -- with Umberto Carrara, Managing
Director of project operator Agip KCO, a company wholly owned by
Italy's Eni. (NOTE: The revised terms of the Kashagan contract,
which are currently in final negotiations, envision a new Kashagan
operatorship model under which operatorship responsibilities will be
divided among several Kashagan consortium partners. END NOTE.)
Mann and his delegation were impressed with the scope, scale,
complexity, and cost of operations at the single largest oil field
outside of the Middle East and, with 13 billion barrels of
recoverable oil, the largest field discovered since the 1968
discovery of Prudhoe Bay on the North Slope of Alaska. END
SUMMARY.

LIMITLESS LANDSCAPE LEADS TO MAN-MADE ISLANDS


3. (SBU) Seen from a helicopter, northern Kazakhstan's flat, dry,
limitless landscape, pockmarked by white salt and muddy marshes,
looks uninviting, even unearthly. When the unique design of
Kashagan's offshore installation comes into view, with its
icebreaking barrier reefs and man-made islands, it becomes even more
apparent that this is a workplace unique in the world. Visitors
arrive at D Island, which provides housing, drilling, processing,
and treatment facilities for the Experimental Program of the
project, comprising exploration and production operations at
Kashagan, Karian, Aktote, Kalamkas, and Kashagan Southwest.
Kashagan is a "hybrid" operation, combining onshore activities and
offshore platforms. This unique combination was necessitated by the
location, climate, size, pressure, sulfur content, and technical
challenges of the project.

CUSTOM-TAILORED TECHNOLOGY


4. (SBU) The field is located offshore in an extremely harsh
environment, where water is shallow, temperatures drop to 40 below,
and sea ice is a constant threat. As a result of this extreme
climate, Agip KCO commissioned six specially-designed Ice-Breaking
Emergency Evacuation Vehicles (IBEEVs),built in Poland at a cost of
$50 million each, to evacuate up to 348 people at a time in case of
a gas leak or explosion. The vehicles are water-tight, air-tight,
ice-class vessels that a crew of two can navigate as a submarine.
They contain sufficient oxygen supplies to sustain crew and
passengers for up to six hours, enough time to escape a noxious
sulfur gas cloud in case of emergency. Agip KCO conducts extensive
safety training and drills for all 1,650 offshore employees every
week and successfully tested the IBEEV's performance during a safety
drill last winter in two feet of ice.

PRODUCTION AND TRANSPORTATION EXPECTATIONS


5. (SBU) Agip KCO Managing Director Carrera told Ambassador Mann
}_Q}iI\nal
six scheduled to be finished by the end of 2009. According to Agip
KCO, the six completed appraisal wells can produce more than 150,000
b/d, an average of 30,000 b/d per well, which is comparable to wells
in the Middle East. Oil services companies Halliburton and
Schlumberger have brought the latest in directional drilling
technology to Kashagan, drilling up to 5,000 meters deep and 3,500
meters horizontally.


6. (SBU) Drilling, separation, and gas reinjection occur at the
offshore drilling site, but the high-sulfur gas is treated onshore,
both for safety and environmental reasons, to minimize the offshore
footprint of operations. The Kashagan consortium will export crude
through a combination of rail and pipeline, including 60,000 b/d

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through the Caspian Pipeline Consortium (CPC) pipeline, a
custom-built railroad with more than 10,000 railcars, and
cross-Caspian oil tankers. Carrera estimates that the pipelines
from the offshore production and onshore processing facilities,
which connect to export pipelines in Atyrau, will be completed by
early November. He said that the Kashagan consortium will reinject
all of the natural gas into the reservoir and has no plans to export
significant quantities of natural gas, even after 2013. "But the
gas will still be there after the end of full-field development. It
won't go away," Carrera explained.

ENVIRONMENTAL PROTECTION A TOP PRIORITY


7. (SBU) Agip KCO appears extremely protective of the marine
environment. The mandatory safety briefing warns visitors not to
throw anything into the Caspian Sea and signs are posted throughout
the facility reading, "No discharges to the sea whatsoever." In
fact, Kashagan collects, filters, and recycles all of the water it
uses, including rainwater runoff. Agip KCO has also invested in
airtight sulfur storage containers that will ensure that dried
sulfur blocks are not crushed or come into contact with the
atmosphere.

KASHAGAN COSTS STAGGERING


8. (SBU) The cost of Kashagan is quite literally staggering, at
least until one sees the scope and scale of its one-of-a-kind
infrastructure, much of it assembled at sea under brutal conditions.
As Carrera quipped, "We are really in the middle of nowhere here."
A guided tour of Kashagan's extensive network of highways and access
roads, railroads, processing facilities, and power plants helps one
understand how this complex, remote, uniquely challenging project
has increased in estimated cost from $2 billion to more than $40
billion for the Experimental Program alone. (NOTE: Kashagan
consortium partners ExxonMobil and Shell told us that the project
incurred more than $3 billion in unexpected costs when the islands
were discovered to have been built too close to the sour gas
injection plant. The islands had to be dismantled and rebuilt at a
safer distance from the processing facility -- much to the chagrin
of Agip KCO. END NOTE.)

FACILITY SECURITY ISSUES


9. (SBU) Carrera said that Agip KCO is not concerned about external
threats to the security of Kashagan's onshore or offshore
operations. "We're in good control of the situation," he said.
Agip KCO has its own internal public safety patrol to enforce
traffic safety and an employee code of conduct. They conduct
rigorous driving tests and issue their own driver's licenses, and
they work with local Kazakhstani security forces, police, and
government officials to monitor security threats. Carrera said
there have been infrequent reports of minor theft and employee
fights with locals, but he reassured Ambassador Mann that they have
learned a lesson from the 2006 riots at Tengiz and are vigilant in
patrolling their territory and monitoring their employees. Carrera
maintained that there are no significant Kazakhstani resources
dedicated to ensuring the safety and security of Kashagan's
operations, whether onshore or offshore. "We are their coast guard
and their navy," he argued. "We have helicopters and rescue
vehicles that they will need in a time of crisis."


10. (U) Ambassador Mann has not/not cleared this cable.

HOAGLAND