OREANDA-NEWS. April 15, 2016. The stagnation pervading Central Asia’s oil industry could be alleviated by a couple of big announcements in the coming months, on the Kashagan and Tengiz fields.

But industry veterans are more heedful of the numerous obstacles presented by the region, from the geological to the bureaucratic, and an unpromising global context.

Home to some of the world’s largest oil and gas fields, ex-Soviet Central Asia and particularly Kazakhstan was once an exciting frontier for the industry. But of late Kazakh oil production has stagnated at around 1.7 million barrels per day, partly because of a decade of delay starting output from the giant Kashagan project.

A consortium led by Chevron has also delayed plans to increase output at Tengiz from around 600,000 b/d to nearly 900,000 b/d, a project that could cost tens of billions of dollars.

In neighboring Turkmenistan, planned gas exports to Europe have made little headway due the cost of building a trans-Caspian pipeline, doubts about European demand, and difficult regional politics.

Turkmenistan’s gas exports have increased — the International Energy Agency expects it to have pipeline capacity for 80 billion cubic meters/year of exports to China by the early 2020s — and it has hopes of eventually building another pipeline across Afghanistan to South Asia.

But for now Turkmenistan is increasingly reliant on China as a sole client. More marginal projects, in Tajikistan and Uzbekistan, are languishing.

Kazakhstan might have thought it need not worry, until oil prices collapsed. But its economy is at a standstill and state finances suffering.

State producer KazMunaiGaz has been at daggers drawn with its upstream subsidiary, a semi-independent entity listed in London.

A row over the parent company’s under-payment for crude appears to be resolved on April 4, but the subsidiary’s scrapping of dividends for 2015 disappointed investors.

Confidence could get a boost if Kashagan starts producing. Foreign executives and Kazakh officials involved in the project have said it will start toward the end of this year.

The project has been dubbed a “failure of the industry” by a top official from France’s Total, chief financial officer Patrick de la Chevardiere, after leaking pipes forced the Kashagan consortium to abort an attempted startup in 2013.

The World Bank has warned that low oil prices increase the chances of further delay.

Whether Kashagan will be trouble-free once it starts producing is also unclear. The field is still at the frontier of what the industry can handle, due to high sulfur levels, which led to the leaks, and intense pressures below the Permian salt layer.

Estimates of how much Kashagan will produce following startup vary. Theoretically it will have a capacity of 370,000 b/d, but Platts has been told the “real” level will be 300,000 b/d annually, reflecting the fact that staff will be barred from the main artificial island used for operations when well intervention work is under way, due to the risk of hydrogen sulfide poisoning.

Once the field starts up, President Nursultan Nazarbayev’s leadership is likely to need additional projects to absorb Kazakh labor and materials. But Kazakhstan’s reputation as a place to invest has been tarnished by sluggish administration, the lack of an independent judiciary and use of strong-arm tactics.

In the latest dispute with investors, the state is demanding \\$1.6 billion from the consortium that runs the giant Karachaganak oil and gas field. Operated by Shell and Italy’s Eni, Karachaganak produced 390,000 b/d of oil equivalent last year, about 60% being liquids, and is also due for expansion.

The parties “are determined to find a consensual solution and to peacefully resolve the issue,” Kazakhstan’s energy ministry has said.

Above-ground difficulty

Paradoxically, some executives argue in private that the tightening of international anti-bribery regulations has made it more difficult to operate in Central Asia.

The story of the former Soviet Union’s oil sector has long been tainted by claims of corruption, ranging from the mundane giving of fax machines to, in the case of Kazakhstan, transfers of fur coats, speedboats and payments for Swiss boarding schools.

Some reasons for disillusion are less controversial. Geologically, the north Caspian and Kazakhstan’s coast have been thoroughly explored and where resources might still be abundant, corruption is not the only issue.

Tajikistan has hopes of uncovering subsalt resources near the Afghan border perhaps akin to the Galkynysh gas field in Turkmenistan, thought to be the world’s second largest.

But in impoverished Tajikistan even basic letter writing skills are lacking among younger officials, let alone industry or economic competence, a foreign oil executive told Platts, requesting anonymity.

The joint venture conducting a 2D seismic survey across a swathe of Tajikistan has found it hard going. The survey has involved drilling deep holes for the laying of explosives in order to get clear seismic images from beneath the salt layer, adding to costs “significantly,” Julian Hammond, the chief executive of Tethys Petroleum, said.

Tethys, which set up the joint exploration venture with Total and China’s CNPC in 2013, is now under pressure to withdraw due to its inability to meet its share of costs.

While a vibrant mix of large and small companies might revive Central Asia’s oil sector, in reality smaller companies, lacking connections, financial weight or expertise, have struggled.

Reports from London-listed Roxi Petroleum outline numerous difficulties involving the need to pump vast amounts of drilling fluid into its deep, high pressure wells in Kazakhstan to keep them under control, resulting in them becoming clogged, as well as various objects getting stuck thousands of meters below ground.

Others have been overwhelmed by a licensing system that stipulates long periods of “trial” production when oil must be sold domestically at controlled prices.

Getting permission to export typically involves building facilities for eliminating flaring, but this can be difficult when the state forbids the raising of additional funds on stock exchanges without its permission.

The pricing issue was a major reason why Australian independent Jupiter Energy shut down its production in February. It says it could be producing 2,500 b/d of oil from its existing wells, but would fetch just \\$3-6/b.

“The company continues to endure a frustrating operating environment,” Jupiter said last month.