What will happen to the gas processing plant at Kashagan?

The changes that took place earlier this year in the country’s O&G industry may affect the implementation of major projects in Kazakhstan. In particular, the question arises whether the construction of a gas processing plant at Kashagan will be completed? Does the investor (LLP “GPC Investment”) have capacity to attract a financial loan to implement the project? Will the further expansion of the Kashagan project be delayed (in case of a delay in the commissioning of the gas processing plant)? These questions are being asked by the industry after Kairat Sharipbayev resigned as chairman of QazaqGaz company (former KazTransGas), with whom the construction of the Kashagan GPP was affiliated.

Construction of the gas processing plant with a capacity of 1 billion m3 per year in the Atyrau region began in May last year. The initiator of the project (the Ministry of Energy, estimated at $860 million, other sources at $1.2 billion) was the private LLP GPC Investment. The company will be able to produce 815 million m3 per year of commercial gas, 119K tons of liquefied gas, 212K tons of sulfur and 35K tons of gas condensate. Commissioning is scheduled for the 4th quarter of 2023.

Consortium for Gas Processing Plant

Initially, a consortium was created to participate in the tender for the construction of the plant which included seven Kazakh unknown LLPs (excluding InterGas Central Asia JSC). GPC Investment was given the role of leading company in the joint activities. In addition, several LLPs participate in the project, namely, Gas Processing Company LLP (ensured the coordination of work during construction and design the company had experience with a gas processing plant with a capacity of 300 million m3 per year in the Aktobe region at the Kozhasai field in 2018); Alatau Gor Project LLP (development of design and documentation); DS-TAS LLP (construction works), Qazaq Zher-Kurylys LLP (design and technical supervision), Eurotransit Cargo LLP (cargo transportation, logistics) and Intergas Central Asia JSC (operation of gas pipelines, 100% belong to the national company QazaqGaz).

It is noteworthy that the GPC Investment LLP was created in 2019 in Atyrau as a small business entity with the focus to produce refined products. According to open sources, the founders of the company are Tau Bereke Group LLP and a individual Ogay Grigory. In turn, the founders of Tau Bereke Group LLP are Danko Investment Group FZE, Ogay Grigory and Balandina Yulia.

At the same time, it looks anormal when a newly established LLP goes to an operator with a proposal to build a billion-dollar project and where common practice/requirements to have significant work experience, financial history and much more is required to participate in large tenders.
In turn, many SMEs that had interest to work in this project complained about the closed nature of the company and about very low rates.

It is planned that the gas from the Kashagan field will be the source for the Plant. Under the terms of the deal between the NCOC and QazaqGaz, the operator will supply over 1 billion m3 per year to the national gas company. Then, QazaqGaz processes gas and disposes of it at its discretion. It is not known under what conditions NCOC supplies gas to Plant operator, whether its cost will be deducted from the Kazakhstabln’s profit share in the North Caspian project or whether QazaqGaz will buy according to the formula – cost price + 10% margin. But the fact, this agreement with associated gas utilization is beneficial for the NCOC due to the fact that the gas hindered the further expansion of oil production capacities at Kashagan. Associated gas cannot be flared in the republic (it is a criminal) and re-injection into the reservoir requires additional costs. At the same time, Kashagan gas has a very high H2S (14%-16%).

Kazakhstan may turn from an exporter into an importer of natural gas in next 10 years; it needs to increase the production of commercial gas, and subsequently, the construction of a gas processing plant is very feaseable. Kashagan can provide commercial gas reserves. According to IHS Markit, commercial gas production at Kashagan will increase to 8 billion m3 by 2030 (if the Kazakhstan resolves the issue of associated gas processing).

Kashagan expansion

However, with the change of management at QazaqGaz, plans to build a gas processing plant at Kashagan and further expand the processing capacity of this plant (presumably from 1 billion to 6 billion m3 per year) remain unclear. First of all, according to our sources, it was Kairat Sharipbayev who secured an agreement from NCOC for the supply of associated gas as well as a loan from the Development Bank of Kazakhstan for the construction of a gas processing plant. In January last year, DBK already announced that the bank is considering the possibility of participating in syndicated financing for the construction of the gas processing plant. There is evidence that several foreign and international banks may also take part in financing, including the Russian Vnesheconombank and the EBRD. Now this question remains open.

In turn, NCOC fulfills the terms of the agreement. The operator allocated more than $50 million for the construction of a gas pipeline from the Bolashak plant to the gas processing plant which will be built by KCOI. Starting from 2023, the operator will be ready to deliver 1 billion m3. The project is already included in Phase 2A of Kashagan. According to the schedule, the operator intends to start Phase 2A in 2023 and complete it by 2026. In 2024, the final investment decision is expected to be made on Phase 2B, the next stage of the further development of Kashagan with an increase in oil production. And this means that there will be even more H2S.

In December last year, QazaqGaz and NCOC signed an agreement on joint work on the basic design of stage 2A of the Kashagan field in the period 2022-2023 which implies an increase in the capacity for processing raw gas from the Kashagan field by 2 billion m3. Then the companies reported that the project involves the construction of a new plant for the processing of associated gas with a capacity of up to 2 billion m3 per year, in addition to the ongoing project with the capacity 1 billion m3 per year. It will be necessary to build another plant (twice as capacity) which will be more expensive. The only question is who will build it and when. In general, the construction of a gas processing plant should help NCOC to resolve the issue with the associated gas and increase the annual production of Kashagan oil by 12 million tons.

According to the Ministry of Energy, in 2021 the company produced 15.9 million tons of oil.
In addition, there is also the social issues. In 2023 FGP Tengiz project will be completed where hundreds of Kazakh SMEs and thousands of workers will be in difficult situation. In 2019, at the peak of FGP about 400 SMEs and over 100,000 workers were involved in the project. The commissioning of the Kashagan expansion project would help to engage those people.