Disputes over Kashagan oil field in Kazakhstan

ASTANA, Kazakhstan – High taxation rates and fines imposed on oil companies operating in Kazakhstan are the main obstacles to increasing the country’s annual production of 1.6 million barrels of oil, experts said.

Located in Kazakhstan's zone of the Caspian Sea, the Kashagan oil field is likely to hold 35 billion barrels of oil of which 13 billion barrels are likely recoverable, making it the fifth largest oil field in the world, according to the U.S. Energy Information Administration (EIA). It is also the world’s largest oil field discovered within the last 35 years.

Oil production at Kashagan started in September 2013. However, it was halted two weeks later due to gas leakage.

“The final investigation to detect the technical problems in the pipelines at Kazakhstan's giant Kashagan oil field will begin in April,” Kazakh Oil Minister Uzakbay Karabalin said Monday. “Nearly 2,000 welded seams - connection points - at the pipelines have been inspected,” Karabalin added. 

-“Both sides are tense”

Kashagan’s oil production is being financed and operated by a consortium of seven energy companies including Royal Dutch Shell, Exxon Mobil Corp., Total, China National Petroleum Corporation (CNPC), Inpex, ENI and the KazMunayGaz national oil company.

The Kazakh government announced on March 7, that it will sue Exxon, Royal Dutch Shell, Total, and ENI for the consortium’s delay in production at Kashagan oil field.

On the other hand, executives of these oil companies are claiming that Kazakhstan’s oil administration is “ungainly,” and that the Kazakh government is stipulating harsh criteria such as obligations to employ local workers.

Assoc. Prof. Canat Mominkulov, from Eurasian Research Institute located in Almaty, said the delays in the production of oil in Kashagan are due to technical reasons.

“The problem in Kashagan is completely technical. Because the Kazakh government says ENI uses cheap pipes in the pipeline construction,” Mominkulov said, adding that, “Meanwhile, the consortium companies say the obligation to employ local workers in the construction is slowing down progress. This uncertainty will not end easily.”

Mominkulov emphasized that both sides of these talks are "tense" at the moment, and added that problems in Kashagan will probably not be solved by even 2015.

The Kazakh government produces 33 percent of the country’s total oil, while 36 percent is produced by major European and U.S. companies. The remainder is produced by Chinese and Russian companies.

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