Kazakhstan seeks bigger role in Kashagan

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Isabel Gorst, FT Syndication Service
ASTANA: Kazakhstan on Thursday demanded greater control over the giant Kashagan oilfield in the Caspian Sea on Thursday, complaining that inadequate management of the project by a foreign consortium led by Italy's Eni had damaged the Central Asian republic's economy and reputation as a reliable global energy supplier.
Karim Massimov, Kazakh prime minister, said that KazMunaigas, the state oil company, should be appointed as co-operator at Kashagan where Eni had proved "incapable of fulfilling some of its obligations.
KazMunaigas currently holds an 8.33 per cent interest in Kashagan alongside partners Eni, Shell, ExxonMobil, Total, ConocoPhillips and Inpex of Japan.
The dispute at Kashagan erupted after Eni told the government that first production from Kashagan had been delayed by two years until 2010 and that the cost of the first 300,000 barrels a day phase of the development had doubled to $19bn.
Kazakhstan halted the Kashagan project last week ,saying that the Eni group had broken environmental regulations at the field, one of the biggest untapped oil deposits in the world.
Mr Massimov said that the delay at Kashagan would cause Kazakhstan substantial loss of revenue.
"Schools and roads will not get built….making it difficult for the government to fulfil its obligations to voters", he said.
Oil companies are concerned that Kazakhstan's tough stance at Kashagan may signal start of a broader campaign to wrest control over the republic's big oil and gas projects from foreigners.
Mr Massimov said Kazakhstan would only seek to change its position with "partners incapable of fulfilling their obligations".
Kazakhstan had been a reliable partner offering the "best conditions" to investors since independence and was not seeking to nationalise energy resources.
"Kazakhstan is immune to resource nationalism," he said, adding that the republic "is and will continue to be a reliable partner in ensuring world energy security".
Mr Massimov invited Paolo Scaroni, chief executive of Eni, to Astana to discuss problems at Kashagan. He also invited Andris Piebalgs, the European Union's energy commissioner, to talks. The EU said last week that it was keeping close watch on Kazakhstan's negotiations with Eni to ensure that foreign investors' rights were respected.
Mr Massimov said that Caspian oilfields would play an important role in helping fulfil Kazakhstan's target to boost oil production to 140m tonnes a year in 2015 from 67m tonnes this year. Most of the oil will be exported.
The delay at Kashagan could damage Kazakhstan's reputation as a responsible , long term supplier to world markets.
Kazakhstan had almost tripled oil production since independence while world oil output had grown by just one third, he said.