Caspian Sea Oil/Gas Production Hindered By Rigs/Platforms Shortage

The littoral Caspian Sea states are keen to develop their offshore hydrocarbon resources and estimates forecast an aggregate production rate by 2015 of as much as 140mn-160mn tons/year of crude oil and 60-70bcm/y of gas ( MEES, 23 January). But work is hamstrung by a shortage of drilling rigs and production platforms, a problem that must be addressed if the regions dreams of oil wealth are to materialize. Gary Lakes reports.

The Caspian Sea lacks an adequate number of drilling rigs, platforms and support vessels to develop the regions offshore hydrocarbon industry. And the equipment that does exist was either built during the Soviet era and is obsolete or in need of upgrading, or it is shared throughout the Caspian among the companies involved in offshore projects, traveling from one countrys section of the sea to another. In the post-Soviet Caspian world, only Russia possesses the capabilities to manufacture vessels and equipment for offshore operations. The other option is to transport sections of rigs and platforms to the Caspian from elsewhere and assemble them, as is being done in Azerbaijan. A recent report published by Moscow-based RPI Inc, The Future of Caspian Offshore Petroleum Industry ¹ , analyzes the offshore equipment available in the Caspian and what is needed to bring production up to projected output numbers.

Russia

Russia has facilities although they need modernization in Astrakhan at the Morskoy Shipyard and Krasniye Barrikady to build jack-up rigs and semisubmersibles, RPI says. Work there has delivered the Astra jack-up rig and the Ispolin drilling barge. The Astra is Russias only jack-up rig in the Caspian and is owned by Lukoil, which is also having the obsolete Shelf-7 semisubmersible rig converted into an ice-resistant fixed drilling platform for the Yuri Korchagin field in Russias Northern Block (for Russian and other Caspian states offshore projects see MEES , 23 January). The Ispolin drilling barge is operated by state-owned Rosneft. According to RPI the demand for rigs for exploration is likely to be determined by specific offshore project implementation deadlines and by the mobilization capability of the available drilling fleet to suit the needs of individual projects. At least 13 production platforms of various types will be required for offshore project implementation through 2020, essentially drilling barges, semisubmersibles and production platforms, RPI says. Its report adds that environmental conditions are likely to require the use of rigs capable of drilling in both shallow and deepwater areas, as well as a significant number of ice-resistant production platforms. RPI says the implementation of offshore projects is likely to create a surge in demand for new construction or procurement of new platforms, or the upgrading of existing ones. By its reckoning, Russias demand for production platforms through 2020 will amount to at least 12 stationary platforms.

Kazakhstan

The quickening development of Kazakhstans Caspian sector exemplifies the issue of creating a fleet of service vehicles to provide support for offshore operations, RPI says. Kazakhstans tenuous status is compounded by the fact that, firstly, the republic did not have experience of offshore operations in Soviet times, RPI says, and there are no available vessels, equipment or coastal infrastructure necessary for this type of operation. Secondly, offshore operations face challenging environmental and severe climate conditions, including shallow water, ice regime and a highly sensitive environment. RPI says that with the launch of offshore operations in its sector of the Caspian Sea, Kazakhstan took steps to create a dedicated manufacturing capacity designed  for  geological exploration, development and production of offshore hydrocarbon resources. However, the existing production capacity still falls short of large-scale development needs to ensure efficient exploitation of hydrocarbon resources there, it says. Kazakhstan owns a fleet of vessels specialized for marine geophysical operations, and possesses infrastructure facilities at Aktau, Atyrau, Fort Shevchenko and Bautini capable of supporting offshore oil operations. During the course of its offshore operations, Kazakhstan has employed the Sunkar drilling rig, Gurtulush drilling platform, and Astra drilling rig, and set up several artificial islands for drilling rigs.

Agip KCO, which is developing the Kashagan oilfield and its neighboring structures, is using most of the offshore equipment available in Kazakhstan. In the Dostyk Block, Lukoil is using the Astra jack-up rig and Rosneft plans to use the Ispolin drilling vessel in the Kurmangazy joint project. The wide range of sea depths in Kazakhstans sector of the Caspian from 1-2ms to 300-400ms will require different engineering approaches to exploration and development operations, RPI says. By 2015 some 56 marine platforms and artificial islands are planned, from which more than 1,110 oil and gas wells will be drilled. Up to 20 wells will be drilled from each base requiring the use of modern equipment by a large number of contractors. RPI says that to ensure the work planned in 2004-09 is carried out, it will be necessary to provide sea delivery of 10.2mn tons of various cargoes, including 5.4mn tons of rockfill material for the construction of the artificial islands.

To implement these plans, Kazakhstan will need to create its own marine fleet of specialized and support vessels, RPI says. To support oil operations, Kazakhstan would need 50 vessels by 2010, and 89 vessels by 2015. Some of these would be built and some leased, it added, noting that the Kazakh-Singapore joint venture Keppel Kazakhstan is investing $40mn in the construction of a shipyard at Aktau. According to the summary provided by RPI of Kazakhstans offshore operational requirements, the country faces a task in assembling a fleet that would consist of geological-geophysical and engineering vessels, floating rigs and production platforms, oil-carrying vessels, floating oil storage facilities, vessels for construction of subsea pipelines in deep water, vessels for installation work at sea, service and special-purpose vessels, and oil-spill response and monitoring vessels.

Azerbaijan

Because it was the focal point of the Soviet era Caspian Sea oil industry, Azerbaijan upon the breakup of the USSR inherited the entire Soviet fleet: six Khazar class jack-up rigs and five Shelf-class semsubmersible rigs, most of which are unusable as they require serious upgrading, the cost of which could be on par with building new rigs. The country has three semisubmersible rigs that meet international standards: the Dede Gorgud, the Istiglal and the Haydar Aliyev, completed two years ago and originally named the Lider. Dede Gorgud and Istiglal are employed by BP for work in its Azeri-Chirag-Guneshli (ACG) and Shah Denize contract areas. The failure by several international consortiums to find commercial deposits in the Azerbaijan sector has dampened interest in exploratory drilling in Azerbaijan for the time being, leaving the Haydar Aliyev rig available. 

Turkmenistan

At the end of the Soviet era, there were 12 fixed platforms in Turkmenistans offshore Cheleken field with 18 producing wells. When Dragon Oil became operator of the Cheleken Block, it shut down some wells and acquired the Rig-40 unit, an onshore rig adapted for offshore work. Dragon later built a new fixed platform the Dzheitun-21 and used Lukoils Astra rig for drilling several wells. Since May 2005 Dragon has been using Irans Khazar jack-up rig. After taking over as operator, Dragon built one new platform and upgraded three old ones. Another new platform is planned for construction in 2006. Malaysias Petronas Cargali operates Block 1, using the Trident-20 platform leased from the USs Transocean Sedco Forex and towed to Turkmen waters from Azerbaijan. In the Block 11-12 concession operated by Maersk Oil, a drilling rig has been brought from Europe. By the end of 2005, Turkmenistan had three drilling rigs and 13 fixed offshore production platforms. Turkmenistan is negotiating with foreign companies on the future construction of jack-up rigs and semisubmersibles.

Iran

No hydrocarbon exploration activity is taking place in the Iranian sector of the Caspian Sea, but in January 2006 Iran signed an agreement with China Oilfield Services Ltd  (COSL) for a three-year exploration campaign using the Alborz semisubmersible rig, due for completion at the Sadra yard in March (MEES , 23 January). According to RPI, Iran is planning to build three more Alborz-class rigs, but is unlikely to complete another rig designated for Caspian exploration within the next five years, unless demand dictates otherwise.

Mixed Prospects

For now it appears that most of the Caspians recoverable reserves are in the northern part of the sea, in the Kazakh and Russian sectors. Kazakhstan has the most at stake in building an offshore fleet, but whether drilling and development will move fast enough to meet its target of 3mn b/d by 2015 remains to be seen. Also, Russias offshore Caspian potential is promising, but despite its capability to construct offshore drilling equipment, its real hydrocarbon development interests lie elsewhere for the time being. In Azerbaijan it may be left to state-owned Socar to take the initiative on offshore exploratory drilling, as most foreign consortia have lost interest. While crude is being produced offshore Turkmenistan, the country has limited resources, and it is difficult to assess where it will turn its attention onshore or offshore. Iran wants to look busy in the Caspian in order to maintain its claim on 20% of the sea.  But like Russia, Tehran has more pressing matters to address elsewhere.

1.   The Future of Caspian Offshore Petroleum Industry is a comprehensive study and assessment of the oil and gas potential of the Caspian Sea shelf, covering the significance of the shelf, its geology, legal status and  laws applied  by  the  five littoral states. It examines the hydrocarbon resource base, production and export, the Caspian market  for offshore rigs and production platforms, and export infrastructure, existing flow routes and export expansion projects. Additional information from: RPI Marketing Manager Vsevolod Prosvirnin at Tel/ Fax: +7(495) 688-7218 or +7(495) 207-3535 or via: VsevolodP@rpi-inc.ru