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International Relations and Security Network (ISN): Western consortium faces removal from Kashagan Field

The Kazakh government threatens to withdraw the license of a Western consortium developing the country’s largest oil field, citing environmental irregularities. From IWPR.

By IWPR (04/09/07)

The Kazakh government is using concerns about environmental damage at the country’s largest oil field as a pretext for removing the western consortium which is developing it, say NBCentralAsia analysts.

On 21 August, Kazakh environmental protection minister Nurlan Iskakov said that the Agip KCO consortium, which is developing the major Kashagan oil field, had broken environment laws. “According to the law, we have to withdraw its license, since further development of the deposit will cause irreparable environmental damage,” he said.

Kashagan is the largest oil field in the Caspian Sea with over 1.5 billion tonnes of confirmed reserves. The government has been pinning its hopes on the field as it makes plans to double oil production by 2015.

Agip KCO includes the major western oil companies Eni, Exxon Mobil, Royal Dutch Shell, Total and ConocoPhillips. The Kazak state company KazMunaiGaz owns an eight per cent share in the consortium but has no say in major decisions.

NBCentralAsia analysts in Kazakhstan say the government is reacting to the consortium’s announcement in July that it would postpone extraction by a further two years until 2010 and double the cost of development to US$136 billion. The start date for Kashagan had already been postponed from 2005 to 2008 due to technical difficulties with offshore development.

Immediately after Agip KCO said that technical difficulties from operating on the Caspian Sea shelf had set back operations and hiked up the cost, Prime Minister Karim Masimov suggested that the consortium had breached its contract and that the government would act accordingly.

NBCentralAsia analyst Petr Svoik says that while the government’s complaints about environmental damage are founded, its main aim is to punish Agip KCO for postponing extraction.

“The Kazak government is pressured by the delay, if not irritated,” he said.

It is possible that Kazakhstan will revise the Agip KCO contract and hand development over to KazMunaiGaz, which Svoik suggests is the main contender.

“KazMunaiGaz may demand that it be given a chance to buy at least 25 percent of shares [and it] has the experience and capacity to operate the project,” he said.

Last year, a group of environmentalists suggested that the government revise its contract with Agip KCO after an inspection at Kashagan revealed the consortium had broken state environment laws.

Mels Eleusizov, part of the inspection team, argues that the government is more driven by environmental concerns than the delay, and the president is probably reacting to the findings of his own investigation.

“We informed the president about these violations and he ordered an investigation into everything,” he said.

Kazakhstan is likely to have a replacement operator in mind and KazMunaiGaz has a good chance of winning the development deal, he added.
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NBCentralAsia presents comments and analysis from a wide range of observers throughout the region.

http://www.isn.ethz.ch/news/sw/details.cfm?ID=18071

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