TengizChevrOil (TCO) Sour Gas Injection and Second

The Tengiz oil fields are about to enter a new phase of production with the construction of the ‘Second Generation Project’ (SGP) and the introduction of Sour Gas Injection (SGI). This development, which has been in the planning and approval stage since 2002, will start in 2004 and is expected to require a total investment of $3 billion (SGP $2.2 billion and SGI $800 million) by the scheduled completion date of early 2007.

The Tengiz field, first discovered in 1979, has recoverable reserves estimated at between 6 and 9 billion barrels. The field was jointly developed in 1993 as a 40-year venture between Chevron Texaco (50%), Kaz Munai Gaz (20%), US Exxon Mobil (25%) and LUKArco (5%). The joint venture company is known as TengizChevrOil (TCO).

Prior to the expansion project the Tengiz oil field has 53 wells, tapping a column of crude oil around 1.6km thick. The oil pressure when the field was first tapped was 12,000psi but in 2004 the pressure is down to 10,000psi in most areas and 8,500in others. The SGI project hopes to use gas injection technology to boost the pressure and increase oil recovery, while the SGP will increase the number of producers (wells) and improve and expand the crude export infrastructure.

The production of crude in 2004 is 13 million tonnes per year but with the SGI and SGP production is estimated to increase to over 25 million t/y. The two projects will create over 7,000 jobs in Kazakhstan and aid the development of the economy. A total investment of $20 billion is envisaged for the duration of the 40 years of the Tengiz oil field venture. TengizChevrOil intends to export more of the Tengiz field’s additional capacity via the Caspian Pipeline Consortium pipeline running the 1,500km from Tengiz to the Russian Black Sea port of Novorossiysk (thus solving the export problem from the remote Tengiz field).

POLITICS AND CONTROVERSY

The Tengiz expansion projects were almost shelved altogether during a breakdown in relations between TengizChevrOil and the Kazakhstani government in 2002. The terms of the expansion were initially part of the 1993 contract signed by all the concerned parties.

The Kazakhstan government warned that the project could be cancelled in November 2002 over a disagreement about how to fund the project. The private partners wanted to use the profits from the oil field to fund the SGI and SGP. This would have meant lower profits and hence lower taxes due on the profits. However the Kazakhstan government were against this and wanted to maximise the profits in order to claim more money for the State.

Following this major disagreement many of the drilling subcontractors such as Parker Drilling Company of Houston, Texas, were ready to conclude their contracts and the field could have closed. The issues were resolved during 2003 negotiations, when an agreement about funding of the new project was reached (i.e., 90% foreign investment) and the tax situation clarified (Kazakhstan government receives a $200 million a year payment plus profits and tax percentages).

ENVIRONMENTAL POLLUTION FINES

TengizChevrOil are also fighting a $71 million fine for environmental transgressions imposed by the Tengiz regional government (Atyrau Oblast) late in 2002. This occurred because of changes in the way the central government collects taxes. In previous years some of the taxes were paid directly to the regional government where Tengiz is based.

The central government decided in 2002/2003 that all taxes should first be paid to the capital, Astana. Following this the Atyrau Oblast realised it faced a shortfall. They then had the idea of suing TengizChevrOil for damaging the environment. The fine was imposed for sulphur pollution.

The sulphur concerned is already in the elemental form stored in blocks around the Tengiz field and does not cause pollution. The sulphur blocks are now to be converted into pellets and sold on the world market as a valuable commodity. A new plant is already being constructed to convert potentially polluting sour gas (H2S) into sulphur pellets. In addition, the SGI system will use up a significant proportion of the sour gas produced (in fact sour gas disposal is one of the SGI’s secondary benefits).

CONTRACTORS AND CONSTRUCTION PROJECTS

The lead contractor for the engineering, procurement, construction, management (EPCM) of the SGP and SGI are PFD UK, a joint venture between Parsons Energy & Chemicals and Fluor Daniel Corporation. The terms of the agreed contract under government rules require that the lead contractors use at least 80% Kazakhstani labour during the project.

Able Instruments and Controls will provide the flow and level measurement instrumentation systems for the project. Heavy construction equipment will be provided by Arctic Construction International (ACI), who will also provide trained personnel to operate and maintain the equipment over the duration of the contract. Versatec Engineering will provide engineering consultancy and safety consultancy throughout the duration of the project.

All of the contractors are aware of the conditions in Tengiz, where the temperatures can vary from 36°C to -40°C.

PARSONS FLUOR DANIEL JOINT VENTURE

PFD UK holds the majority of subcontracts and purchase orders for the project and will be responsible for the construction of major new infrastructure at the oil field including: a 6,500-bed construction camp, a new rail line spur, a new road between the construction camp and the SGP construction site. The major new facilities will include a new field production gathering system and SGP process plant, oil refinery expansion, an SGI compressor plant, and new product export infrastructure (gas export pipe-line, additional crude storage, LPG storage) and a sulphur forming plant (to convert sour gas reserves to usable sulphur products for export such as elemental sulphur pellets or sulphuric acid).

The main part of the project will be eight injectors for the SGI project and 39 new drilling wells as the second generation project. Trial injections for the SGI system are due to begin in the third quarter of 2004 and will continue for up to 18 months before the full scale injection system is implemented (the compressor plant will be completed by then).

ABLE INSTRUMENTS AND CONTROLS

This supplier will provide and install gas and liquid clamp-on ultrasonic flow meters (maintenance free), nuclear level instrumentation, and radar and guided wave radar (GWR) level transmitters. Able expects that a total of 135 radar and GWR instruments will be required, but there is an option for RF admittance level transmitters for applications that are not suitable for radar or GWR.

The radar installations will be installed under a two-wire, loop powered, intrinsically safe basis and will be used in oil, gas and sulphur recovery areas and also in underground facilities (liquefied gas storage). Wide beam ultrasound transmission is to be used and this will allow operation under wet conditions and the required accuracy over a wide range of flow rates. Varied nucleonic level gauging for the project requires interface control on separator vessels and foam detection on flash drums. Able are to supply their state-of-the-art gauging technology along with a team of flow meter and instrumentation engineers to make the system run smoothly.