Kazakhstan’s oil

Leaked US embassy cables show that, as in Turkmenistan, Amer ican interests in Kazakhstan focused on energy, security, and democracy.1 Washington’s level of engagement with Astana on all of these issues was considerably more robust, however. In April 2004, Deputy Secretary of State Richard Armitage described Kazakhstan as ‘the largest, most stable and prosperous Central Asian state’, which could and should serve as a ‘guiding light’ in the region.2 After becoming the first state to recognise its independence on 25 December 1991, the US developed what the State Department described as ‘a wide-ranging bilateral relationship’ with Kazakhstan.3 According to a cable from January 2009, the US and Kazakhstan shared an interest in ‘helping Kazakhstan to become a strong independent nation, capable of governing its vast terrain, expanding its hydrocarbon transport infrastructure for export of its energy resources to the global market, and enhancing stability throughout the region’.4 While Russia was recognised as very influential and China was seen to be becoming increasingly so, ‘US policy allow[ed] Kazakhstan to keep and exercise a greater range of options’.5 The difference between US-Turkmen and US-Kazakh engagement was also reflected in assistance figures. Total US assistance to Kazakhstan rose steadily between FY 2000 ($77.97 million) and FY 2004 ($111.4 million), declined until FY 2006 ($80.16 million), and rose again in FY 2007 ($165.59 million) and FY 2008 ($176.01 million).6 Between FY2001 and FY2008, total US budgeted assistance to Kazakhstan was around $899.58 million.7 As noted previously, US aid to Turkmenistan remained below $20 million per annum throughout this period. US interests in Kazakhstan were, in part, shaped by it being Central Asia’s primary oil exporter. The country’s total proven oil reserves were estimated as being between nine and 40 billion barrels – somewhere between the equivalent of Algeria and Libya.8 In 2007, it produced around 1.45 million barrels per day (bpd), consumed 250,000 bpd, and exported around 1.2 million bpd. Of these exports, 408,000 bpd went northward via Russian pipelines and by rail, 620,000 bpd went westward via the Caspian Pipeline Consortium (CPC) project (not including an additional 72,000 bpd that was Russian oil), 70-80,000 bpd were sent southward through a swap agreement with Iran, and 85,000 bpd went eastward to China via the Atasu-Alashankou pipeline.9 In 2008, Kazakhstan produced around 70 million tons of oil and exported 63 million tons.10 Oil has been

the foundation of Kazakhstan’s economy and the driver of its buoyant (prefinancial crisis) growth rate.11 Real GDP grew by 9.5 per cent in 2007. Around 30 per cent of the country’s GDP came from the petroleum industry, as did more than half of its export earnings. In October 2007, the state-run National Oil Fund of Kazakhstan had international reserves and assets valued at $20 billion. Kazakh oil production was expected to grow substantially over the following decade. Output from the Tengiz field was predicted to double and the Kashagan field was overoptimistically expected to add an additional one million bpd after 2011.12 Kazakhstan’s oil boom was the result of an influx of foreign investment, including substantial investment by Amer ican companies.13 Most future growth was expected to come from four enormous fields: Tengiz, Karachaganak, Kurmangazy, and Kashagan. The Tengiz field was the country’s largest source of production. It had been developed since 1993 by the Tengizchevroil (TCO) joint venture. Average production was almost 280,000 bpd in 2007, while recoverable crude reserves were estimated at 6-9 billion barrels. In 2009, Chevron owned 50 per cent of the project; Exxon Mobil CPC had 25 per cent; Kazmunaigaz had 20 per cent; and LukArco BV (of which 46 per cent was owned by BP and 54 per cent by Lukoil) owned 5 per cent. The Kashagan field was operated by the Agip Kazakhstan North Caspian Operating Company (Agip KCO), of which Kazmunaigaz owned 16.81 per cent; Shell, ENI, Exxon Mobil, and Total SA each held 16.66 per cent; and ConocoPhilips and Inpex controlled 8.28 per cent each in 2009. The field’s recoverable reserves were estimated at 13 billion barrels of oil, making it the fifth largest in the world. In 2009, production was expected to begin in 2011, initially yielding 300,000 bpd. Full-scale commercial production was not expected to commence until 2013 and was expected to peak at 1.3 million bpd. The field was expected to bring the government $20 billion through 2041. The Karachaganak oil and gas/condensate field was operated by the Karachaganak Petroleum (KPO) consortium, which in 2009 was owned by British Gas (32.5 per cent), Chevron (20 per cent), ENI (32.5 per cent), and Lukoil (15 per cent). KPO estimated oil reserves at 8-9 billion barrels and gas condensate reserves at 47 trillion cubic feet. The consortium planned to triple output by investing up to $10 billion. Most of Karachaganak’s crude used to be processed at Russian facilities across the border. In April 2003, the field was connected to the Caspian Pipeline Consortium project via a spur to Atyrau. This allowed for increased exports from Karachaganak and reduced the Consortium’s dependence on Russian buyers.14 According to the February 2009 issue of the State Department’s official magazine the ‘Tengiz and Kashagan oil fields are strategically important to the United States because of their size, location and ownership’. It noted that, during the previous 10 years, US companies ‘invested billions of dollars in oil exploration and production and tens of millions more in regional environmental and social development projects in Kazakhstan, making the United States the largest single foreign investor in the largest country in Central Asia’.15 High-level US officials paid regular visits to the fields to highlight their importance.16