Overview of the Project Reinstatement

South Korea's Hyundai Engineering has been reinstated as the engineering, procurement, and construction (EPC) contractor for a major associated gas processing project at Kazakhstan's Karachaganak oilfield, the country's third largest oil development. The company received a Letter of Award (LOA) for the project, which involves constructing a large-scale gas processing facility and related infrastructure capable of processing up to 5 billion cubic meters per annum (Bcma) of raw gas.

Background and Contract History

Hyundai Engineering was originally awarded the EPC contract by Karachaganak's operator, Karachaganak Petroleum Operating (KPO), in 2025, with a final construction price of approximately $4.2 billion. However, the contract was later terminated due to disagreements between the Kazakh government and KPO over the pace of construction. Authorities were keen to rapidly develop the plant to boost output at Karachaganak and supply processed gas to the growing domestic market. In June last year, the Kazakh government instructed KPO and its shareholders to halt preparations for the plant's construction.

Project Management Changes

The government subsequently transferred project management to state-run oil and gas holding KazMunayGaz, which announced a preliminary cooperation agreement with China's Citic Construction for the plant's development. Later, another state-run entity, Qazaqgaz, was appointed to lead the project. Qazaqgaz is already leading a similar project to build a 1 Bcma associated gas processing plant at the Kashagan oilfield and is negotiating for a second facility there with a capacity of 2.5 Bcma.

Capacity and Technical Details

KPO had originally planned for the Karachaganak facility to have an annual processing capacity of 4 Bcma of raw gas and completed the front-end engineering and design (FEED) study before tendering the EPC contract. However, KazMunayGaz changed the project's concept to expand the capacity to 5 Bcma. According to industry analyst Nurlan Zhumagulov, Qazaqgaz likely awarded the contract to Hyundai Engineering on a FEED-to-EPC rollover basis, where the contractor completes the FEED and then transitions into the EPC execution phase.

Urgency and Strategic Importance

The volume of associated gas produced at Karachaganak is rising annually as the field matures. Authorities have repeatedly indicated they want the gas processing facility to begin operations in 2030 to meet an anticipated peak in domestic demand for natural gas. In the absence of additional gas processing capacity, KPO plans to commission a sixth compressor in June to increase reinjection of raw gas into the reservoir. There are also concerns over the long-term stability of the Orenburg plant in Russia, which currently processes about 8 Bcma of raw gas from Karachaganak but requires upgrades and has been repeatedly targeted by drone strikes during the ongoing Ukraine-Russia conflict.

Remaining Challenges

KPO has yet to agree on commercial terms for the delivery of raw gas to the planned plant and will need to upgrade its infrastructure to supply the facility. Qazaqgaz has stated it is preparing a statement on the project's progress but could not comment further, while Hyundai Engineering has been approached for comment on the expected timeline.