The Kazakh government has intervened to advance a stalled plan for a new associated gas processing facility at the Karachaganak field, a key Western-led development. The project, delayed due to failed negotiations with foreign stakeholders Eni, Shell, Chevron, and Lukoil, aims to reduce dependence on Russian processing facilities and supply more gas to the domestic market.

Change in Project Oversight

Operational oversight for the gas processing scheme has been transferred from state player KazMunayGaz to the state-run gas trunkline operator Qazaqgaz. KazMunayGaz had managed the proposed plant for less than a year after authorities could not agree on terms with the foreign shareholders. Qazaqgaz is building experience in this area, currently directing construction of a smaller 1 Bcm per annum processing plant for the Kashagan offshore development.

Project History and Revised Scope

Originally, the plan for 2022-2025 was to utilize up to 4 billion cubic metres per annum (Bcm/a) of Karachaganak gas, with the plant to be built by field operator Karachaganak Petroleum Operating (KPO). However, authorities ordered a halt to KPO's work in May last year, alleging delays by shareholders over high costs. Despite KPO having spent an estimated $60 million on front-end engineering and design (FEED), a new FEED study has begun. The updated proposal now calls for processing up to 5 Bcm/a of sour associated gas.

Outstanding Commercial Issues

Following a government meeting, Energy Minister Erlan Akkenzhenov acknowledged multiple unresolved commercial issues. Qazaqgaz must secure gas supply guarantees from KPO and agree on a price formula that ensures profitability for future domestic gas sales, which are heavily discounted compared to international markets. Additionally, terms must be agreed for tying the new facility into Karachaganak's existing infrastructure, requiring KPO to invest in necessary adjustments. The minister urged KPO and its shareholders not to delay these critical talks.

Parallel Project and Timelines

Qazaqgaz's concurrent Kashagan gas plant project, which must be online by year-end under an offtake agreement, is also behind schedule. As of a recent update, just over half of the core construction work involving steel structures and equipment installation is complete. The minister emphasized that the Karachaganak processing project is critically important for Kazakhstan, and further delays to its start-up are unacceptable.