Kashagan Oilfield project put on hold for 2 years

Recent weeks have seen decreased hopes that the Kashagan oil field will begin producing in the near future. Sources close to the project stated today that the supergiant will be shut down for at least two years waiting for the construction of specialty pipelines that can accommodate toxic H2S fumes and associated corrosion. This is the first concrete report that Kashagan will produce no oil through at least 2016. $50 billion has already been spent on the project, but disconcerting reports that have arisen from the project in recent months means that the world oil markets have already priced the bad news.

Kazakh Oil and Gas Minister Uzakbai Karabalin said that the government is waiting for test results to be delivered in May about the corrosion of the undersea pipelines. Kazakhstan is Central Asia’s largest economy and the second-largest post-Soviet oil producer after Russia. They are pinning their hopes for future prosperity on the Kashagan supergiant, whose reserves have been estimated at between 9 to 13 billion barrels of oil.

This unfortunately, is only another incident in a long string of a rocky history. Delayed output at the Kashagan field caused Kazakh authorities to sue the consortium operating the oilfield for $737 million worth of ecological damage. The consortium challenged the fine, which raises tensions on the issue significantly, and potentially scaring off foreign investors who have flocked to the project’s vast potential. The North Caspian Operating Company Consortium is composed of oil majors such as the American Exxon, Royal Dutch Shell, French Total, Italian Eni, and Kazakh state oil firm KazMunaiGas. Under the terms of their contract, they must achieve a “commercial output” level of 75,000 barrels a day by October to meet its obligations.

News Briefs:

  • Iran and the P5+1 Powers have resumed their third round of negotiations in Vienna today. EU Foreign Policy Chief Catherine Ashton assured skeptics and hawks that the two sides were holding “very detailed and substantial negotiations.” Iranian Foreign Minister Javad Zarif expressed hope that the third round would see enough progress for negotiators to start drafting a final accord by mid-May in preparation for the sanction deadline in July.
  • Kazakh tenge reserves rose to their highest levels in 10 months during the month of March. The Kazakh Central Bank is holding on to reserves and decreasing liquidity in an attempt to control the plummeting value of the currency, which in February was devalued by 19% in one day, a move which resulted in bank runs and protests.
  • Despite the relatively peaceful kickoff of the elections on April 5, allegations of electoral fraud have already begun in Afghanistan. The key Pashtun province of Kandahar is at the center of these allegations, where an intense contest between three candidates is taking place. Former Foreign Minister Zalmay Rassoul, former Finance Minister Ashraf Ghani, and Abdullah Abdulllah are all vying hard for the Pashtun vote. Nadir Mohseni, a spokesman for the electoral commission, said that the commission was “inundated with fraud complaints all Sunday.” Overall turnout in Kandahar was extremely high, mirroring the situation in most Afghan cities.
  • The Uzbek Foreign Ministry expressed its concern over the threats to Ukraine’s sovereignty and territorial integrity in a press release today. This makes both Kyrgyzstan and Uzbekistan the only countries to specifically enumerate their support for Ukraine over Russia, a potentially dangerous move in the former Soviet Union.
  • Manas International Airport in Bishkek is up for sale, and one potential customer has already expressed interest. The airport was formerly the location of an American military base that supplied the extensive ISAF operations within Afghanistan, but the Kyrgyz Parliament voted to kick the military out of the base in January. Since then, Russian energy giant Rosneft indicated it wants to purchase a majority stake in the state-controlled airport. Over the weekend, acting Prime Minister Djoomart Otorbayev signed a resolution with Rosneft chairman Igor Sechin to purchase 51% of Manas’ shares for up to $1 billion dollars, a much-needed infusion of funds to a government on the verge of collapse.

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