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The Times: Prodi joins fight to keep Eni on board Caspian Sea oil project

August 23, 2007
Richard Owen in Rome

Romano Prodi, the Italian Prime Minister, is to meet Karim Masimov, his Kazakh counterpart, in an attempt to stave off the cancellation of Eni’s Kashagan oil project because of alleged ecological damage to the Caspian Sea and its wildlife.

Nurlan Iskakov, the Kazakh Environment Minister, said: “Taking into account the company’s previous failure to meet its obligations, we must withdraw the permit, as the company’s work is causing irreparable damage.”

However, energy analysts said that the real reason for the move is that Kazakhstan, like Russia and Venezuela, is putting pressure on international oil companies to agree to more favourable terms. Last month, its Government demanded 40 per cent of the profits from the Kashagan project, rather than the original 10 per cent, claiming that its costs had more than doubled to $136 billion (£68 billion).

Kazakhstan, the second-largest oil producer in the former Soviet Union after Russia, hopes to exploit the Kashagan field – which is due to start pumping in 2010 – to meet its target of tripling production by 2015.

Kazakh officials claim that levels of nitrogen compounds in the Caspian Sea are “above acceptable norms”.

Mr Iskakov said: “We have reason to believe that the operator is not complying with ecological legislation.”

Il Giornale, the Italian newspaper, said that the Kazakh move was reminiscent of Russia’s threat last year to halt Sakhalin2, a $20 billion oil and gas project led by Shell on Sakhalin Island, on environmental grounds. In the end, Shell agreed to sell its majority holding to Gazprom, Russia’s state-run gas company.

Exxon Mobil, a partner in the Eni-led Kashagan project, said that it had sent engineers to investigate. Eni, the Italian oil group, Exxon, Total, of France, and Royal Dutch Shell all hold stakes in Kashagan. The oilfield is expected to produce more than 1.5 billion barrels a day when it comes on stream. Eni said that it had been “notified about alleged environmental violations” and was “considering them”.

La Repubblica, another Italian daily, said that dead seals and sturgeon had been found on the shores of the Caspian, the world’s biggest lake. The consortium denied that the deaths were linked to the oilfield project.

Paolo Scaroni, chief executive of Eni, is expected to go to Kazakhstan next week, followed by Mr Prodi.

http://business.timesonline.co.uk/tol/business/industry_sectors/natural_resources/article2310295.ece

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