NoteNote dede l’Ifril’Ifri
The Kashagan Field: A Test Case for Kazakhstan's Governance of Its Oil and Gas Sector
Nadia Campaner Shamil Yenikeyeff October 2008
Gouvernance européenne et géopolitique de l’énergie The Institut Français des Relations Internationales (Ifri) is a research center and a forum for debate on major international political and economic issues. Headed by Thierry de Montbrial since its founding in 1979, Ifri is a non-governmental and a non-profit organization. As an independent think tank, Ifri sets its own research agenda, publishing its findings regularly for a global audience. Using an interdisciplinary approach, Ifri brings together political and economic decision-makers, researchers and internationally renowned experts to animate its debate and research activities. With offices in Paris and Brussels, Ifri stands out as one of the rare French think tanks to have positioned itself at the very heart of European debate.
The opinions expressed in this text are the responsibility of the authors alone.
ISBN : 978-2-86592-384-7 © All rights reserved, Ifri, 2008
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Contents
INTRODUCTION ...... 2
1. KASHAGAN: KEY FACTS AND FIGURES ...... 5 Kashagan and Kazakhstan’s oil and gas potential ...... 5 Consortium arrangements...... 8 Technical challenges...... 10
2. KAZAKHSTAN’S EVOLVING ENERGY STRATEGY ...... 14 The PSA regime ...... 14 The government’s new stance on Kashagan...... 17
3. KAZAKHSTAN’S ENERGY SECTOR: DOMESTIC POLITICS AND SOCIETY21 Kazakhstan’s top elite groups...... 23 Succession and stability...... 26
4. THE GEOPOLITICS OF KASHAGAN ...... 28 Oil exports ...... 28 Gas exports ...... 33
CONCLUDING REMARKS ...... 41
ANNEX 1. KAZAKHSTAN’S PROFILE...... 44
ANNEX 2: KAZAKHSTAN: SELECTED OIL/NATURAL GAS PROJECTS ...46
1 © Ifri N. Campaner and S. Yenikeyeff / The Kashagan Field
Introduction
This study focuses on the factors behind Kazakhstan’s decision to re- negotiate the terms of the existing Production Sharing Agreements (PSAs) with International Oil Companies (IOCs), in the context of the development of the huge Kashagan oil field1. The development of Kashagan, one of the largest and most recently discovered oil fields in Kazakhstan, is crucial for Kazakhstan’s ambitions of becoming a global oil producer. Kazakhstan, which has the largest oil reserves in the Caspian Sea region, is the second largest regional producer after Russia in the former Soviet Union. The country’s potential for oil exports is also strategically significant as a future source of non- OPEC supplies. Amongst the CIS states, Kazakhstan is considered one of the most open countries for foreign investments. International projects in the form of Joint Ventures, Production Sharing Agreements (PSAs) or exploration/field concessions have brought foreign investments into the country’s natural resources sector, particularly in the oil and gas industry. However, new developments have recently taken place, which have marked a shift in the Kazakh government’s approach towards foreign investment in its energy sector. This study will therefore examine the following issues: Kazakhstan’s plans to abandon the practice of attracting foreign investments in its energy sector through new PSAs.