Kazakhstan Field's Riches Come With a Price
Published: October 23, 2001 (Issue # 715)
Christopher Pala / For The St. Petersburg Times
Winterton plans to turn the 7.5-meter-thick, football-field-sized slabs of sulphur into pellets for export to Mediterranean markets.
The Tengiz field in Kazakhstan is considered one of the greatest petrochemical finds ever. But it is also one of the most challenging. As Christopher Pala reports, there's a lot more to extracting oil there than boring a hole in the ground - like dealing with 200-meter towers of fire and millions of tons of eye-burning sulfur.
TENGIZ, Kazakhstan - Viewed from an approaching helicopter, the enormous slabs of canary-yellow sulfur reflect the desert sun like flattened gold bars, dwarfing the shiny processing plants of the world's sixth-largest oil field set on the parched shores of the Caspian Sea.
There are 4.5 million tons of sulfur at Tengiz spread out on football-field-sized cakes that are 7.5 meters thick. And every day another 4,500 tons of liquid sulfur comes up with the oil and is sprayed with agricultural watering equipment out onto the yellow slabs, solidifying rapidly into a luminous, porous material that gives off hardly any odor at all. It has accumulated here in such huge quantities because of the simple fact that the cost of getting it to market is more than what people will pay for it: Sulfur is a commodity, used as fertilizer and in the chemical industry, that today is in abundant supply.
The giant slabs represent a testimony to the impressive amounts of oil that Tengiz has already produced, but they are also a huge challenge staring the Chevron executives who operate the Tengiz field in the face: How can one find a way to dispose of so much sulfur?
The oil field's other eye-catching features are the five flaring towers that, day in and day out, send plumes of smoky orange flames into the air. With all gas pipelines leading to Russia - a country awash in gas - building the facilities to break it down and sell to Russia is not an effort that makes any economical sense.
"It is impossible to find any serious excuse for flaring," wrote Kazakh oil expert Sagat Tugelbayev in a local oil journal recently, "because it is a waste of one of the most valuable raw material required for industrial and domestic needs."
Tugelbayev's statement is representative of the widely held view among the 15 million residents of this former Soviet central Asian republic, a country the size of Western Europe. As a result, the government of President Nursultan Nazarbayev has been saying publicly for years that Tengiz's gas must be utilized, not flared.
MAN WITH THE PLANS
Tom Winterton, the lanky, amiable director of Tengizchevroil, or TCO, the company operating the field, says that he believes that he has solutions to both vexing problems.
He is building a $40-million plant that, starting in 18 months, will begin turning the huge yellow slabs into coated pellets, eliminating the sulfur dust that irritates the eyes of people living downwind from Tengiz. The market for pellets, though weak, is stronger than the market for crushed sulfur, he says, but he admits the price will still need to rise in order to overtake the cost of transporting the pellets by rail and ship.
"We plan to sell to the Mediterranean markets, but we don't expect it to generate a tremendous amount of profit," he added with a measure of understatement. "We'll have to see what the market allows us to do."
And if the market hasn't risen by the time the plant starts producing pellets?
The suggestion causes Winterton's eyes to narrow and he evades the question. In a series of recent interviews, it has become clear that for him, the task of disposing of the unsightly but harmless slabs of sulfur he inherited when he took the job last year is an irritating distraction to what an oil executive should be concentrating on: pumping oil.
If disposing of the sulfur will ultimately depend on the pricing situation on the world's sulfur market, dealing with the gas will depend on something over which Winterton can exert greater influence: technology.
A CHALLENGING FIELD
Tengiz, which was discovered in 1979, is an unusually challenging oil field. Not only is it huge, but the oil comes out of the wells scalding hot and at a very high pressure - one of the highest in the world. It is the deepest high-pressure well in the world, and its oil contains a large proportion of gas, which is unfortunately very rich in the compound hydrogen sulfide, or H2S. The sulfide not only yields considerable amounts of sulfur, but is extremely poisonous.
In June 1985, a Tengiz well suffered a blowout - an explosion in which one man was killed - that turned out to be the longest-burning in the century-old history of the Russian-Soviet oil industry. It took Moscow six months even to report the existence of the blowout, even though a 200-meter-high column of fire was visible from 140 kilometers.
Because of the poisonous nature of the hydrogen sulfide, Soviet fire fighters could not simply extinguish the fire with an explosion: "The gas would kill every living thing within hundreds of kilometers," Izvestia newspaper reported at the time. The well burned for more than a year and was eventually capped.
High-pressure oil and gas wells rich in H2S are still a problem, even with the latest Western technology. In a remote part of Alberta, it recently took a Canadian company a month to snuff out a gas well spewing H2S. There were no injuries.
But technical challenges don't frighten Winterton. While routine flaring has been cut by 70 percent and will end almost entirely at the end of this year, when the gas is processed and shipped to Europe via rail cars, the real challenge is going to be reinjecting gas from - and back into - the wells TCO plans to start drilling in 2005.
Winterton's eyes light up when he talks about the field's phase-2 project, which will cost $2 billion taken from oil-sales revenue and will nearly double production to 56,850 tons (415,000 barrels) per day by 2005. With $2 billion already spent, Tengiz already represents the biggest foreign investment in the former Soviet Union.
Reinjecting gas increases the pressure in the well and allows more of the oil to be recovered. "Selling oil is more profitable than selling gas," Winterton said.
The early estimates of recoverable oil in the field range from 6 billion to 9 billion barrels out of an estimated total of 25 billion barrels. A new appraisal is under way and should be finished next year. It will again be modified in 2005, when the injection trials begin, he said.
There's only one hitch: The technology for reinjecting sour gas under such high pressure does not yet exist. "It'll be a new stretch of the tech," Winterton said, grinning at his turn of phrase. Of course, reinjecting most of the gas and H2S will also cut down the production of sulfur.
A SEA FAR FROM THE SEA
Overcoming the unusual challenges posed by geography and geology at Tengiz has been a mainstay of TCO's activity. Chevron owns half of TCO and effectively operates it, while ExxonMobil Corp. has 25 percent, national Kazakh oil company Kazakhoil has 20 percent and Russia's LUKarco 5 percent.
When TCO was formed and took over the field in 1993, there were 90 wells, of which only 15 were working. Total production was, at 25,000 barrels per day (bpd), a 10th of today's production. All of it was exported by pipeline to Samara in southern Russia.
Tengiz may mean sea in Kazakh, but for Chevron the Caspian Sea is tragically flawed because it is closed.
While Chevron executives negotiated with Russia to run a pipeline around the top of the Caspian Sea and across the North Caucasus to the Black Sea, a distance of 1,510 kilometers, they pondered what to do with Tengiz's steadily expanding production, which soon exceeded the capacity of the Samara pipeline used in Soviet days.
"Someone suggested trains," recalled plant superintendent Keith Coleman during a reporter's recent visit to the field. "At first, everyone thought it was a crazy idea; it had never been done on such a scale anywhere. But in the end it worked for us."
So to export two-thirds of its production, TCO leased 7,000 oil cars and 3,000 liquefied-natural-gas cars, sending out a half-dozen trains a day toward four Russian ports on the Black Sea. It remains the world's largest rail-based oil-transport system.
Eventually, Russia gave its agreement, and construction began on the $2.6-billion Caspian Pipeline Consortium pipeline, which runs from Tengiz to a spot 15 kilometers east of Novorossiisk on the Black Sea.
Last spring, after obtaining permission from five regional governments, CPC started moving the oil westward. There were difficulties and delays, notably when the oil had to cross the Russian border. A ceremony was set for Aug. 6, with presidents Vladimir Putin of Russia and Nursultan Nazarbayev of Kazakhstan in attendance. It was designed to coincide with the loading of the first tanker with Tengiz crude, but when that event seemed unlikely to take place on time and minor disputes between the 11 owners of CPC failed to be resolved in time, the ceremony was postponed.
'PAT ON THE BACK'
Still, when full tankers regularly pull away from their loading buoy 4 kilometers offshore, Chevron's gambit will have paid off. While extracting a barrel of Tengiz oil costs about $3, the cost of transporting it to the Black Sea will drop from $6 to $3 when it switches from trains to the CPC.
"Chevron deserves a pat on the back for bringing the project where it is today," said Robert Ebel, director of energy and national-security studies at the Center for International and Strategic Studies in Washington. "When they went in, there was clearly a lot of risk involved: political, technical and mostly how they were going to get that pipeline built."
"But their real success will come only when they reach peak production," he said.
"Tengiz is still in its infancy," Winterton said. "We believe that 700,000 bpd at the end of this decade is not unrealistic."