Page 7 - FSU OGM Week 26 2021

FSUOGM COMMENTARY FSUOGM

Caspian projects need to improve

offerings to succeed: WoodMac

The Caspian region could see oil and gas investment collapse in the 2030s

unless changes are made

CASPIAN OIL and gas projects in the Caspian region face “Unlike between 2000 and 2020, there is no
stiff competition for capital and must reduce ‘elephant-sized’ brownfield development FID
WHAT: costs and risks, improve returns and lower their imminent. Kazakhstan’s $45bn Tengizchevroil
Wood Mackenzie has emissions in order to succeed, Edinburgh-based expansion (FGP-WPMP) is winding down
called for Caspian Wood Mackenzie argues in a research note. annual investment from its peak in 2018-2019,”
countries to reduce The Caspian region produces some 6bn the analyst explains. “The Chevron-led mega-
costs and risks, improve barrels of oil equivalent per day in oil and gas phase is the most recent to sustain regional capi-
returns and lower their production, and has played a major role in tal expenditure. It could be the last, as the majors
emissions in order to hydrocarbon industry since the 19th century. target quite different future portfolios and even
succeed. But investment in its reserves risks falling off a more robust project returns.”
cliff in the 2030s, with serious implications for There are few new green fields ripe for FIDs in
WHY: oil and gas-dependent economies like Azerbai- the Caspian region, he continues, and the com-
The region is home to a jan and Kazakhstan, WoodMac’s principal ana- mercial case for gas is “often far from compel-
handful of megaprojects lyst for the Russian and Caspian region, Ashley ling.” Azerbaijan is the only major gas exporter
and there are few new Sherman, warns. in the Caspian region, delivering supplies to Tur-
green fields ripe for FIDs. In WoodMac’s base-case scenario, oil and key and Europe. But Turkey has found its own
gas production in the Caspian region contin- vast gas resources offshore, casting doubt about
WHAT NEXT: ues growing in the 2020s, on the back of new how much space there will be for Azeri deliver-
The region must increase project phases that have already been commis- ies. What is more, European gas demand could
gas development, enable sioned or are under development now. But cap- slide as economies transition to cleaner forms
clean energy investment, ital expenditure will fall to less than half its 2019 of energy, undermining a planned expansion at
improve investor returns, level of almost $20bn by the 2030s, according to the Southern Gas Corridor (SGC) network of
tackle high costs and Sherman. pipelines.
reduce its reliance on the “These figures exclude upside from new Caspian fields also need experienced inter-
majors. exploration success. Prospective volumes national oil companies (IOCs) as operators, but
remain high thanks to the quality of the sub- those same companies are being increasingly
surface,” Sherman writes. “But the largest such selective with upstream investment as they shift
opportunities face their own obstacles to com- their attention to lower-carbon forms of energy.
mercialisation. This includes BP and SOCAR’s Sherman calls for greater attention to Caspian
new, potentially giant, Shafag Asiman deepwater project’s costs, to ensure they are realised.
gas find in Azerbaijan.” “Too many major capital projects of the past
The majority of spending in the coming years have suffered cost blowouts and delays. New
will be at the region’s handful of megaprojects, investment must be nimbler, weaken the region’s
including Karachaganak, Kashagan and Ten- cost premium and enable early monetisation
giz in Kazakhstan and Azeri-Chirag-Gunashli from shorter capital cycles,” he says. “Pre-tax
(ACG) and Shah Deniz in Azerbaijan. But the economics are a fundamental challenge. Most
era of such largescale undertakings is over, Sher- of the largest pre-FID projects – brownfield and
man said. greenfield – do not generate a before-tax IRR

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