Déjà-vu
We have seen it before at Tengiz, and now it’s Kashagan’s turn. The Kazakh government yesterday threatened to revoke the license of the Eni-led consortium developing Kazakhstan’s biggest offshore oilfield in the Caspian Sea. And it’s of course the concern over the environment that is behind the government’s attack. The FT reports:
Just one day after Eni and the Kazakh government began talks on the future of the project, Nurlan Isakov, the country’s environment minister, said the work of the Agip KCO consortium, which also includes Shell, Exxon Mobil and ConocoPhillips, could be stopped due to environmental concerns.
As to date no revelations have been made as to what exactly the Kazakh environment minister deems a breach of national legislation, we are left to wonder whether this is not again a move reminiscent of Gazprom taking over Shell’s majority stake at Sakhalin-II. The NYT:
The contention recalled a tactic successfully used by the Russian government against Shell in the Sakhalin II project. After a lengthy and highly publicized campaign charging environmental damage from that project, Shell eventually agreed to cede control to Gazprom, Russia’s state-owned energy company.
That Kazakhstan might want a larger production share in its two biggest oil fields is not surprising. But Mr. Isakov’s words (”Work at Kashagan may be stopped altogether.”) are simply ridiculous taking into account that Kashagan is the absolute centrepiece of the country’s ambitious oil production and export targets.
So what’s behind this? Although exporting 3.5 million barrel by 2015 has become unrealistic not only because of Kashagan stalling, Kazakhstan relies on the oil money and will not halt oil production for environmental reasons. The government would like to see Kazmunaigaz more involved in the project, maybe as a minor operator. The authorities might think that only this way can the Kazakh oil company gain valuable insights into the high-tech needed at difficult fields such as Kashagan.
So increasing the pressure ahead of negotations is a less-than-subtle reminder of Kazakhstan’s grown ambitions in the oil sector.
On an aside, it is also highly dubious whether a national oil company such as KMG with less technological know-how can apply the same environmental standards than Western oil companies that produce in regulation-crazy Europe. Further to this, the Caspian Sea has environmental problems other than oil, and the recent deaths of seals was most likely a result of climate change rather than oil spills.
on August 22nd, 2007 at 2:22 pm
This story reminds me of a debate in one of my old globalization and development classes as an undergrad. We were talking about the “evil” multi-national corporations and how they harm local communities, and the professor made the point that actually the multi-national firms, along with being more technologically advanced, are often more concientious of local concerns than domestic companies. The reason being that they feel more like guests, and realize that they are more vulnerable to criticism and bad press than homegrown psuedo-private enterprises, who can’t be thrown out of the country. It’s kind of like how some Mexican locals destroy their beaches on Friday nights, in a way that would make most American tourists embarrassed (though admittedly not the drunk 20-year-old Spring Break crowd).
I think you are absolutely right– KMG taking over these operations would lead to more environmental damage, not less. This is about money and power, just like Gazprom in Sakhalin II. But the question is, can the anyone stop these kind of takeovers? And will it lead to any reduction in investment on the part of the multi-nationals? That was predicted in Russia, but I don’t know of too many big projects being called off, post-Sakhalin. You are better informed than I on this topic, so maybe you could comment on that…
on August 23rd, 2007 at 3:39 am
Kazakhstan has a big profit demand in mind. Western oil companies are no longer in the driver’s seat, regardless of their superior technology; if they want to continue to operate in the former Soviet Union — in Russia, Kazakhstan and probably Azerbaijan — they now have to agree to better terms for the countries. That’s according to Steve Levine: http://oilandglory.com/2007/08/russian-solution.html
on August 28th, 2007 at 12:30 am
Arthur, thanks for your comment. In essence, no one can stop these kind of takeovers apart from the host government. But I don’t think that Kazakhstan will flex its muscles just as Russia has over Sakhalin. KMG is no Gazprom, and I don’t think it can operate Kashagan as of yet.
One has to be careful not to be too critical with countries like Kazakhstan (or Azerbaijan for that matter) - as they sealed many of the oil and gas deals under opaque circumstances in the bonanza-90s. It’s only natural that they’re not happy with getting less than 50% of the overall profits when governments in the Middle East can put their hands on as much as 80%. I think the same goes for Kashagan, although it was only found in 2000.
I can imagine Kazakh bureaucrats are extremely unsatisfied that the contracts made in the 90s are actually water-proof. That’s most probably the reason behind this environmental charade we’re seeing now. It’s not that they want to get rid of Western oil companies - they just want to change the terms under which they operate.