ASTANA, Kazakhstan – The dispute over the Kashagan oil field in the Caspian still continues; two months, which were determined as time enough for a friendly settlement, have brought a Memorandum of Understanding only. After an initial massive attack by Kazakhstan’s government on Eni SpA, a Kashagan project operator, the negotiation process has transformed into languid trench warfare.
As Kazakh Energy and Mineral Resources Minister Sauat Mynbayev and Eni’s CEO Paolo Scaroni said, the end of the year will be, probably, the new deadline for reaching a compromise.
The object of the dispute remains the same – Eni’s new plan, according to which it is proposed to postpone the beginning of oil production for 2 years and to increase the Kashagan development budget. Minister Mynbayev states, “In our opinion, we can not approve it in such a form,” adding at the same time, however, “Kazakhstan is ready for an open dialogue.” His subordinate, Deputy Minister of Energy and Mineral Resources Dyusembay Turganov, speaks more menacingly: “If now the parties do not reach common ground, most likely the question of a change of operator will be introduced.”
Generally it looks as if Kazakhstan is choosing rigidity in tactics during these negotiations. Two months ago the Kazakhstan parliament passed a law (Kazakh President Nazarbayev signed it October 24) allowing the government to reconsider and even to annul natural resources contracts if it threatens national security and strategic economic interests.
Probably, there is nothing surprising in this as Kashagan is really very important for Kazakhstan. And for the consortium of Western energy corporations, who hardly want to lose a share of this huge “sugar bone” (as they say in Kazakhstan and Russia), as well. Such a comparison is given here not by chance: on the map the Kashagan oil field really looks like a huge bone.
Kashagan is fifth in reserves of the largest oil fields around the world and number one among fields outside the Persian Gulf region. Definitely, the Caspian Sea holds other, still undiscovered oil fields, but no one can be sure there will be any more such as Kashagan. This is really the last big oil of the Caspian. For Kazakhstan this oil has the same strategic importance as the reserves of the Gulf of Mexico have for the United States (which sometimes are called the last oil of America).
In the past few years the Caspian Sea has yielded not only successful discoveries, but also disappointments. The Shakh Deniz and Azeri, Chirag and Guneshli projects are being developed successfully on the Azerbaijan shelf; however, some other projects have been closed, such as Apsheron (developed by Chevron), Oguz (ExxonMobil), Kyurdashi (Eni) and Lenkoran Deniz and Talysh Deniz (Total). On the Kazakhstan shelf, oil has been confirmed only in two offshore projects, too: Kashagan and Zhemchuzhina (Pearl), opened a month ago. Exploratory drilling on Tyub-Karagan and Kurmangazy, for which there were great hopes, has not found sufficient reserves of hydrocarbons.
These failures are forcing the Kazakh government and Western companies to pay more attention to oil fields already discovered, and especially to Kashagan. The Memorandum of Understanding of October 23 assumes an increase of Kazakhstan’s share in the project from 8.33% to 17% and opportunities for further agreements. It looks as if Kazakhstan has gone the way the Arab petroleum exporters went in the 1960s and 1970s. Those countries have increased by means of small but consecutive steps the share in their own petroleum industry from 5 to 10% in the 1950s up to 90 to 95% in the 1970s.
It is unlikely the Western consortium can stop this process; however, it fully can slow it down. Their incomes really depend on the speed of the course of this process. For nevertheless, you see, this project has more common interests than contradictions.