Kashagan: deadline missed

Another month passes, and another deadline is missed at the Kashagan oil field in Kazakhstan.

Closed-door talks on a new development proposal for the field, which is being developed by a consortium of international oil majors led by Italy's ENI, were expected by Saturday. Yet Kazakh Energy Minister Sauat Mynbayev revealed last week that the proposed start-up date was slipping again from 2011 to 2012-13.

Kashagan is now eight years behind schedule and approximately $80 billion over budget.

The goalposts keep moving for both sides. Oil exploration costs have more than quadrupled since 2000, as oil producers take on more complex projects and the costs of both labour and materials soar. In the past eight years, the cost of finding and developing a barrel of crude oil rose from $4 to $18, according to Bloomberg. Kashagan's black gold is imprisoned 5,000 metres beneath the Caspian Sea, forcing contractors to build artificial islands. The oil also has high hydrogen-sulphide content, raising safety issues for workers, and presenting environmental challenges.

Soaring oil prices are another factor. ENI's Chief Executive Paolo Scaroni has admitted that the contract faces renegotiation, with oil now almost double the price it was at the time of the signing of the tentative accord in January. Kashagan's recoverable reserves, estimated at 13 billion barrels, will double Kazakhstan's oil output from the current 1.5 million barrels per day. Astana might even be tempted to take over project leadership, which could mean further delays.