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President’s Column

Focus on the Caspian

2014 SPE President Jeff SpathFor my fourth column on emerging oil and gas frontier regions, I want to focus on the area surrounding the Caspian Sea, the world’s largest inland water body and one of the oldest oil-producing regions. So how does this area qualify as “emerging”? First, only in recent years have significant volumes of Caspian oil begun to reach world export markets. Second, the Caspian region is rapidly emerging as an important new source of natural gas. Third,  the region’s—if not the globe’s—most publicized, most prolific oil and gas project, Kashagan, entered Phase 1 of production just a few months ago, after being discovered in 2000.

Production History

Five countries border the Caspian Sea—Azerbaijan, Iran, Kazakhstan, Russia, and Turkmenistan. Much of Uzbekistan also lies within the geological basins that make up the broader Caspian oil and gas region. However, apart from early oil production in Azerbaijan, Caspian hydrocarbons remained largely untapped until the 1990s.

According to historical records, primitive methods of oil extraction date back several hundred years near Baku on the Absheron peninsula, which juts into the Caspian Sea. Modern oil exploration and development began there in the early 1870s. By the early 20th century, Baku, which had more than 3,000 oil wells, was known as one of the “black gold” capitals of the world. In the 1920s, Azerbaijan’s entire oil industry came under the control of the Soviet Union,  and remained so until the USSR’s collapse in the early 1990s. At that time, several newly independent Caspian states opened the region to international investment and development.

The region has significant oil and gas reserves in both onshore and offshore fields. In 2012, the US Energy Information Administration (EIA) estimated proved and probable reserves of 48 billion bbl of oil and 292 Tcf of natural gas within the basins that make up the Caspian region. The US Geological Survey estimates another 20 billion bbl of oil and 243 Tcf of gas in as-yet-undiscovered, technically recoverable resources.

In 2012, the Caspian region produced an average of 2.6 million B/D of oil and condensate, roughly 3.4% of total world supply. While the majority of Caspian oil production to date has come from onshore fields, much of the future growth lies in offshore fields, which have been relatively undeveloped until recently. For example, Azerbaijan’s Shah Deniz field—the largest gas field in the Caspian Sea—came online in 2006. And ­Kazakhstan’s Kashagan field in the northern Caspian Sea—perhaps the world’s largest oil field outside the Middle East—just began producing oil in 2013. According to the EIA, offshore fields account for 41% of total Caspian oil reserves and 36% of natural gas.

Caspian fields are still relatively distant from export markets such as Europe, China, and south Asia, where demand continues to rise. Historically, Caspian oil and gas went through Soviet infrastructure to Russia. In recent years, however, a number of major new pipelines have come online and others are in development, significantly boosting the region’s export capacity. Nevertheless, large investments in additional infrastructure will be required in the years to come.

Technologies Required for Success

The northern Caspian Sea, which comprises more than a quarter of the water body’s entire surface area, is subject to freezing for almost half the year. Rapidly moving ice in relatively shallow waters threatens exploration and production activities, and increases the cost of offshore projects.

Operating successfully under such harsh conditions will require the development or deployment of many of the same Arctic technologies I mentioned in my December column. As an example, the Yuri Korchagin field in the Russian sector of the northern Caspian Sea was the first field in the world to deploy an ice-class floating production, storage, and offloading vessel.

Kashagan, the region’s premier offshore development, is an extremely complex project. Challenges to production include the field’s great depth (15,000 ft below the seabed), reservoir pressure exceeding 10,000 psi with lethal levels of hydrogen sulfide, and cold temperatures that make it unsuitable for typical fixed or floating drilling platform designs.

Many of the participants in the Kashagan consortium have expertise in managing projects in remote cold areas, but few have managed projects with so many technical challenges, both on the surface and in the subsurface. But new technologies and global expertise have combined, as usual, to solve many of these challenges. Kashagan is one of the world’s most advanced smart fields, monitoring a host of real-time measurements to ensure everything from optimal levels of gas injection to the stability of the floating production facilities.

In addition, Tengiz, Kazakhstan’s largest onshore field, is one of the most heterogeneous series of reservoirs in the world, requiring extremely complicated reservoir and fluid models using highly sophisticated, multimillion-cell simulation models on high-performance, parallel computer systems to properly optimize development and forecast production.

SPE Presence and Initiatives

Unlike the other emerging oil and gas frontiers I’ve discussed, countries bordering the Caspian Sea have a number of well-established petroleum engineering degree programs and industry training opportunities. In addition, SPE currently has five Sections in the Caspian region—four in Kazakhstan and one in Azerbaijan. Nevertheless, SPE membership research shows that the Caspian region presents more opportunity for SPE programs and services than any other region in the world and is therefore an especially appropriate area for workshops and conferences on topics relevant to the region. Training is a considerable need, particularly in areas where the majority of the engineers operate; SPE is currently planning courses for delivery in Atyrau, Aktau, and Almaty.

In March, SPE presented its first workshop in Azerbaijan, on the topic of sand control. The SPE Section in Baku was instrumental in getting this event off the ground. Later this year, we will introduce a series of training courses in the region. Finally, SPE is currently planning a new SPE Annual Caspian Conference and Exhibition, which will take place in Astana, Kazakhstan, in November. All presentations at the event will be presented simultaneously in English and Russian. The intent is to rotate this major industry event between Kazakhstan and Azerbaijan each year.

Last November, I spoke at the KAZENERGY Association Forum, which was attended by senior-level dignitaries from the industry as well as heads of state. The attendance exceeded expectations and the passion of the audience reflected the appetite of the region for international knowledge, best practices, and experience available through SPE’s global services.

A final personal note I’d like to share from my November visit is how enthusiastic I found the students. Inaugurating the student chapter at Nazarbayev University in Astana was a particular highlight and makes me extremely confident in the future of this emerging region.

Each month, I post my JPT column topic on the SPE LinkedIn group for comment and conversation. I invite you all to join in this discussion and look forward to hearing your viewpoints.