Nostrum offers processing alternative for giant Kazakh oil field Karachaganak

London-listed Nostrum Oil & Gas is pitching its under-used gas processing facilities in Kazakhstan as a solution to help boost output at the giant Karachaganak field, a major source for the 1.5 million b/d CPC Blend crude export stream, amid frustration at the field's reliance on processing facilities in Russia.

Karachaganak — which has Italy's Eni and Shell as its largest shareholders and extends for some 280 square km in the northwest of Kazakhstan — is generally the third largest source of crude for the country's flagship CPC Blend exports; some production is also exported via other routes.

However, the field is uniquely reliant on exporting major amounts of associated gas via a processing plant 120 km away, across the border in the Russian city of Orenburg, and performance there has been erratic, according to state-owned KazMunaiGas (KMG).

The Karachaganak Petroleum Operating company typically reinjects about half its gas, injecting over 11 Bcm in 2022.

Output of the mainly light liquids from Karachaganak averaged 250,000 b/d in the first quarter, a 1.3% drop year-on-year, stemming from issues at the Orenburg plant, according to KMG.

The partnership is working to increase injection capacity, however, "unstable and limited intake of Karachaganak gas [at Orenburg] has a negative effect on liquid hydrocarbon production and revenues," as well as constraining domestic gas supply in Kazakhstan, KMG's 2022 annual report said.

The offer by Nostrum Oil & Gas, previously known as Zhaikmunai, follows a series of financial, political and operational issues for the company in recent years, including a major reserves downgrade and rapid, unexpected decline at its its main gas field, Chinarevskoye.

Infrastructure offer

Nostrum produced just 10,500 b/d of oil equivalent in the first quarter, down nearly 30% on the year, and just a fraction of its processing capacity.

Alongside a planned upstream acquisition, Nostrum has sought alternative users for its facilities, which include a 4.2 Bcm/year gas treatment plant, pipelines and a rail terminal. The company said it expects to start processing oil and gas for a venture led by Hungary's MOL and China's Sinopec that operates the nearby Fedorovsky block in the fourth quarter.

Nostrum CEO Arfan Khan said discussions on using Nostrum's processing facilities for Karachaganak gas were going on "internally" in the company, although the possibility has reportedly been discussed by Kazakh officials.

Kazakh President Kassym-Jomart Tokayev stressed the need to develop domestic gas processing capacity for Karachaganak during a visit to the field in March 2023, according to the partnership. The visit came amid heightened sensitivities over reliance on Russian infrastructure following the invasion of Ukraine, and the imposition of sanctions on Moscow.

Kazakhstan is not a party to the war in Ukraine and is not targeted by sanctions.

Demand spiral

Khan, however, chose to emphasize Kazakhstan's growing gas needs, rather than the issue of reliance on Russia, as he discussed Q1 results.

"The demand for commercial gas, which is domestic and industrial and export, is sky-rocketing and the expectation is the demand for commercial gas will double by 2030, which means that all solutions are going to be required in order to meet that sort of rapid rise," Khan told S&P Global Commodity Insights during a call.

"We're just part of that larger solution space is the way we have to look at it. Rather than competing with each other, we are really adding to the overall supply side of the equation to meet the rapidly rising demand," he added.

Platts, part of S&P Global Commodity Insights, assessed CPC Blend at a $3.10/b discount to Dated Brent on June 1, unchanged on the day.