Azerbaijan Oil Industry

The giant Kashagan oil field development project offshore Kazakhstan’s territorial Caspian Sea will be shut down for at least two more years, according to Quartz. Already woefully overdue and over budget, the project being developed by a consortium that includes some of the world’s largest international oil companies must now construct new pipelines that can withstand unusually high concentrations of hydrogen sulfide gas.

The project started up briefly on September 11, 1013, but was quickly shut down again due to the discovery of leaking deadly sour gas. Subsequent repairs and further testing appear to have confirmed the worst – new more expensive pipes must be laid adjacent to the existing ones, as that option is cheaper than digging up and replacing the defective pipelines.

The North Caspian Operating Company – as the consortium is named – said in a recent statement:

“The inspections of the oil and gas pipelines from D Island to Bolashak plant with an intelligent PIG have been completed, and the data are currently being interpreted. The interpretation of the data sets is a rather complex process which needs to be carried out with high accuracy. Consequently it takes quite some time to derive reliable results that are sufficiently robust to develop a meaningful rehabilitation plan. The results are expected in April 2014. Comments that have recently been circulated in the media about the delays to issue final results are mere speculations.”

The results appear to be in and the prognosis is negative.

Here are some of the technical details as reported by Quartz:

Sulfide cracking, a form of hydrogen embrittlement (HE), can lead to “instantaneous” cracking in that the failure is sudden and without warning.  There is often, however, an incubation period before such cracking occurs but that cannot be predicted either. For these types of HE failures to occur, you simply need the right conditions of a corrosive environments (namely moist hydrogen sulfide), susceptible material (steel having areas that are too hard), and residual or applied tensile stresses (from weldments that are not stress relieved properly).

Source: North Caspian Operating Company

The Kazakh government is livid and losing lots of money every day the field is not producing. Additional financial penalties could be levied against the operators, but given the billions already spent, there is little choice but to wait it out and get the complex engineering safely fixed. Additional fines and delayed production – needed for the companies to recoup their costs – are problem enough, but the reputational damage is arguably even worse. ConocoPhillips’ decision to sell its stake in the project looks better all the time.