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Kazakhstan's crude production and exports are set to continue increasing in 2018, despite the country's commitments under the OPEC/non-OPEC production cut deal, as new growth at the giant Kashagan project exceeds declines at mature fields.

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"I think the [country's output] growth will be significant," energy minister Kanat Bozumbayev said in early December, according to reports by local media.

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He added that the ministry was recalculating its production plans and expected to present them later in the month.

Although growth in production is a positive development overall for the country, with output having been on the decline since 2013, the significant growth seen this year comes at a time when Kazakhstan is committed to reducing production by 20,000 b/d from 1.7 million b/d in November 2016, under the OPEC/non OPEC deal.

In fact, so far this year, Kazakhstan's daily production has averaged around 40,000 b/d above its obligations, according to S&P Global Platts calculations, with the country sending out confusing messages to the market by saying that it remains committed to the deal.

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For now, the OPEC/non-OPEC group seems to be taking a tolerant approach to Kazakhstan's non-compliance.

The country's low conformity level is "understandable," a source in the OPEC/non-OPEC group said.

"It is very difficult to reduce production when the giant and troubled Kashagan is finally onstream and growing and the two other major projects [Tengiz and Karachaganak] are also increasing production," the source said.

Bozumbayev said he hopes that an expected further increase in Kazakhstan's production will not lead to significant criticism from its partners within the OPEC/non-OPEC group in 2018, as the country has negotiated the issue with the oil ministers.

"I can say clearly: for us, it is very difficult [to meet the commitment]," Bozumbayev said, adding that Kazakhstan had agreed "all the conditions" for crude production growth with the group's partners, which had allowed them to find what he called "a compromise".

"We've supported the deal but we understand that if there are difficulties, we'll be able to negotiate [them] with our partners," Bozumbayev was quoted as saying by Today.kz, days after the OPEC/non-OPEC ministers agreed on November 30 to further extend the production cut agreement through 2018.

Kazakhstan, like its northern neighbor Russia, is heavily dependent on oil earnings and the authorities have said they consider participation in the deal to be of geopolitical importance.

The country's output, meanwhile, is currently estimated to grow to 86 million mt, or 1.727 million b/d, in 2018, according to the ministry"s latest outlook, which appears too cautious.

In 2017, output is expected to reach 1.717 million b/d, up 9.6% on year and up 5.6% on an initial estimate.

The country's initial expectation for output growth at Kashagan to be compensated for by natural decline at mature fields has not come to pass and this is unlikely to change in the coming year.

Production by KazMunaiGaz EP -- a key operator of old fields in Kazakhstan -- is expected at around 239,000 b/d in 2018, the ministry and KMG said, with the estimate suggesting that output will remain roughly flat or even increase marginally compared with 2017, after a 3% drop in January-September.

KASHAGAN UNCERTAINTY


The giant Kashagan field is expected to increase crude output to 370,000 b/d by the middle of 2018, from around 250,000 b/d at the end of 2017, in line with earlier announcements about delays in the gas-reinjenction phase to boost crude output at the field.

Previously, this increase in production had been expected by the end of the year.

The ministry's most recent comments, however, suggest that new delays haven"t been ruled out.

"Starting from August 2017, when the gas re-injection phase was launched, the project's operator has received new data on the collector's behavior...the corresponding increase in output will be carried out at a slower pace than was initially expected... Supposedly, the company will need 2018 year to reach the [370,000 b/d] production," the ministry's press office told S&P Global Platts in written comments on December 5.

Kashagan was launched in October 2016, after years of delays, protracted technical difficulties and major cost overruns.

It had had a false start in 2013, with output halted days after the production launch because of pipeline leaks. By 2016, spending on the project had ballooned to over $50 billion.

TENGIZ AND KARACHAGANAK


Tengiz and Karachaganak, however, are likely to offer some relief to the authorities in their discussions with the OPEC/non-OPEC group next year.

Production at both projects, which are together forecast to pump 45% of Kazakhstan's total crude output next year, is expected to fall slightly after unexpected growth in early 2017.

The fields do not have the potential for sustained growth until they undergo expansion projects, Bozumbayev told S&P Global Platts earlier this year.

Output from the Chevron-led Tengiz project is estimated to fall by 2.8% year on year to 28 million mt, or around 562,300 b/d, in 2018, according to the ministry.

This would follow growth this year, which state-run KMG, one of the project shareholders, attributed to "stable and reliable work at the project's facilities and favorable weather conditions."

The project's operator and Chevron declined to comment on the project's plans.

The future plans envisage production increasing by 260,000 b/d by 2022, which is estimated to cost at least $37 billion and was approved by the shareholders in July 2016.

The Tengiz consortium, TCO, includes the US' Chevron (50%) and ExxonMobil (25%), along with KMG (20%) and Russia's Lukoil (5%).

TCO is developing the Tengiz field and the Korolevskoye field in western Kazakhstan.

A much more significant cut in output next year is expected at Karachaganak, where production is forecast to drop 11% to 11 million mt, from an estimated 12.4 million mt this year, according to the ministry.

The drop will come after a more than 10% increase in the first half of the year, which KMG attributed to a low base in the previous year, when production dropped by 3% due to maintenance work.

Production at Karachaganak had been falling in recent years, dropping from 373,400 b/d of oil equivalent in 2013, with an expansion plan aimed at maintaining output around current levels repeatedly delayed.

Most recently, work on the second phase of Karachaganak had been expected to start in 2017 and be completed in 2022, with total investments estimated at around $12 billion.

New delays, however, have not been ruled out amid disagreements between the project's shareholders and the authorities over the project's development, including how to calculate costs and shares in the production-sharing agreement.

The KPO Karachaganak consortium includes Italy's Eni and UK Dutch Shell (each with a 29.25% stake), as well as Chevron (18%), Lukoil (13.5%) and KMG (10%).