Accumulating Shoes

We now have a better understanding of why the consortium developing the biggest new oilfield on the planet has expeled its boss, Italy's Eni -- yet another two-year delay has been announced in first oil from the offshore Kazakhstan field. From a contractual startup of 2005, the Eni-led consortium now says it will produce its first barrels from Kashagan as late as 2013, according to a statement by Kazakhstan Energy Minister Sauat Mynbayev.

So yet another shoe drops in Kazakhstan. This pearl of a field -- depending how technology advances, Kashagan contains anywhere from 15 billion barrels of recoverable reserves and up. That's fifteen elephants, the industry term for a monster oilfield -- has been beset by so many delays that one wonders when it truly will come on line.

Mostly at fault are the problems bedeviling the entire industry -- spiraling production costs, and a shortage of equipment and labor (Note to college-age O and G readers: if you study engineering or geology, you are all-but guaranteed a well-paying job).

Yet Eni has long seemed far over-stretched. From a tiny state-run oil company in the early 1990s, it has grown into a hugely successful heir to the Seven Sisters, the most successful of the West's Big Oil companies at finding comfort with the world's autocrats. Where its brethren bicker with Hugo Chavez and Vladimir Putin, Eni has found a comfortable embrace.

But that's resulted in an embarrassment of riches. Eni has too much on its plate. A few months ago, Eni lost its operatorship of Kashagan. Publicly that act was attributed to Kazakhstan's new assertiveness and demand for an equal share of Kashagan. But it's clear that Eni's partners in the field themselves would have acted sooner or later.

The problem with banks: My former colleagues at The Wall Street Journal published a scoop yesterday on the ongoing saga of some $80 million in Swiss deposits belonging to Kazakhstan President Nursultan Nazarbayev and a couple of associates (since a subscription is required to view, I found this link to another site). It's written by Glenn Simpson, Susan Schmidt and Mary Jacoby.

Some nine years after the money was frozen in a money-laundering investigation (the cash came from U.S. oil companies that got deals in the 1990s in Kazakhstan, including at Kashagan), the Kazakhs have said they are willing to give up the money for charitable purposes. Yet the money remains frozen, according to the piece, in part because the U.S. says the charities that the Kazakhs have in mind are too closely linked to the Kazakh government.

Photo: Joe Shlabotnik

Rights: Creative Commons

Is There Political Will on the Caspian?

The presidents of Kazakhstan and Turkmenistan are in New York this week for the United Nations General Assembly. While together in a neutral environment, they could take the first step to resolving the pipeline morass that has bedeviled their half of the Caspian Sea for fifteen years. That would mean getting out of their luxury hotel suites, dispensing with the hallowed meetings with oilmen lining up to kiss the presidential ring, and announcing that they intend to build a joint oil and natural gas pipeline system across the Caspian to Baku.

Why should they take a rest from such accouterments and risk the predictable firestorm with Russia? Because it’s the only way they will finally obtain a measure of true political independence. Once they make that commitment, oil companies and western governments can help realize it.

Since the Soviet breakup, Russia has wielded what a former National Security Council officer named Sheila Heslin called its “iron umbilical cord” to hold the Caspian republics in check. Heslin’s term referred to the former Soviet energy pipeline system, which channels almost all the region’s oil and natural gas exports through Russia. When it is so moved, Russia just switches off the spigot.

In just one recent example of what it means to be reliant on the Russian system, Chevron and Exxon Mobil last week were effectively forced to agree to a large tariff increase for an oil pipeline that runs from Kazakhstan through Russia, even though it’s private and not ostensibly under Russian state control. The tariff increase is part of a Russian squeeze before it agrees to the companies’ plan to double the pipeline’s capacity and export more oil from Kazakhstan’s supergiant Tengiz oilfield.

In Turkmenistan’s case, it has its hopes pinned on a Chinese pledge to link the countries through a $26 billion natural gas pipeline. If it's actually built, the pipeline will be crucial to Central Asia’s economic and thus political independence. But this is the same China that has vowed for a decade to build a much cheaper oil pipeline to Kazakhstan, a pipeline that has yet to be finished. If it takes comparatively long in Turkmenistan, the line should be finished by mid-century.

In the mid-1990s, Azerbaijan and Georgia decided to reject Russia’s energy stranglehold, and spearhead the construction of an oil pipeline to Turkey, avoiding Russia entirely. With then-Azerbaijan leader Heydar Aliyev taking the lead locally, the Clinton administration backed the line on the world stage, and pushed the oil companies to build and finance it. A year ago, the first oil began moving through the Baku-Ceyhan pipeline, and natural gas will come, too.

But Turkmenistan and Kazakhstan cut themselves off from the East-West link by refusing to concretely back a trans-Caspian spoke to the Baku hub.

The Kazakh and Turkmen presidents may think that such a pipeline will simply be built, and that then they will use it. But the countries have it reversed – they themselves must take charge of their future.

Feud splits Kazakh ruling family

Kazakh President Nursultan Nazarbayev has fired his son-in-law Rakhat Aliyev from the Foreign Service in what appears to be a growing power struggle.

Earlier, Mr Aliyev accused the leader of trying to silence him after he said he planned to run for the presidency.

What started as a family disagreement is now a major political scandal.

Earlier this week, President Nazarbayev ordered a criminal investigation into allegations his son-in-law was behind the kidnapping of two senior bankers.

More on BBC Asia-Pacific

Kazakhs pave way for president for life

Nursultan Nazarbayev, who prides himself on leading the most advanced and democratic country in Central Asia, may have just become president for life.

The Kazakh parliament voted overwhelmingly to allow Mr Nazarbayev to run for office as many times as he likes.

"The government just spat into our faces," said Yevgeny Zhovtis, Kazakhstan-based analyst and human rights defender "It's sad, it's disappointing, and it shows that they are creating an increasingly authoritarian system."

By Natalia Antelava, BBC News, Almaty