[A-List] Kazakhstan: oil stampede & the wild east

[Michael Keaney]

Oil money threatens to make killing fields of Kazakhstan

'Wild east' could end the west's dependence on Opec but at a heavy cost

Paul Brown in Atyrau, Kazakhstan
Wednesday December 4, 2002
The Guardian

The largest oil find for more than 20 years - almost the size of the world's
biggest, the Ghawar field in Saudi Arabia - is being developed in the
Caspian Sea amid growing anger from the local people.

The first oil from the Kashagan field is expected to be brought ashore by
2005 but, although it should provide a strategic alternative to the Middle
East, its importance has hardly been recognised.

The scramble for the gas and oil riches of the Caspian Sea has dubbed it the
"wild east" but the potential and problems have remained hidden.

Kashagan will be second largest in the world. The field is so big that new
pipelines will be required to deliver the oil to western markets. A
neighbouring onshore field is producing 271,000 barrels a day, making it the
fifth largest in the world. This oil is feeding into existing pipelines
running to the Black Sea port of Novorossiisk from where it is exported in
tankers.

There are eight other, smaller fields in Kazakhstan, including a very large
gas field to the north, but even that is medium-sized by Kashagan standards.

The successful first wells driven into the reservoir of 40bn barrels of oil
under the seabed found high quality light crude at 1,000 times atmospheric
pressure.

Lack of publicity about the find, located south-west of the city of Atyrau,
is due to the Kazakhstan government which has placed tight restrictions on
the consortium that owns the field. Kashagan, in which British Gas and Shell
have 16.67% stakes, is poised to bring to an end the dominance in oil supply
of Opec and the Middle East. Other partners include ExxonMobil and
TotalFinaElf.

The field is not without its problems. There is potential environmental
damage to the shallow sea; a risk of earthquakes and the risk of sulphur.
Despite the potentially immense riches, BP and Statoil both sold their
stakes.

Endangered

The field has attracted widespread local environmental objections because it
is right at the mouth of the Ural river, the last natural breeding ground of
the famed, but endangered beluga sturgeon, which produce the world's most
expensive caviar. Local fishermen and green groups believe the exploitation
of the field will cause the demise of the sturgeon.

The Kazakh government, which is not a democracy and has clamped down on its
independent press, has ignored the protests but potential damage to the
valuable fish is perhaps not the biggest headache.

Professor Muftach Diarov, director of the Atyrau Institute of Oil and Gas,
an independent geological school, believes that exploiting the field in a
known seismic zone could trigger a massive earthquake.

He said that the oil was under enormous pressure at temperatures of
100C-120C. "This is a volatile area in geological terms. We had an
earthquake here in 2000. We just don't have enough experience working under
such extreme conditions and [we don't] know what would happen should this
oil be released and a void created under such pressure. "Releasing oil at
1,000 atmosphere pressure is like releasing a genie in a bottle. Who knows
what will happen? If there is another earthquake, the new pressures created
in the oilfield could trigger a man-made earthquake. Oil would spill out
into the sea and cause an environmental catastrophe."

The northern Caspian is very shallow - only three metres deep - and freezes
in winter. The consortium has had shallow draught icebreakers built to keep
the area open during the five months of freeze. The waters are also too
shallow for traditional oil rigs so the operator, Agip of Italy, which also
has a 16.67% share, is building artificial islands from which to operate the
wells.

Professor Diarov is also concerned that the five nations that border the
Caspian - Russia, Iran, Kazakhstan, Turkmenistan and Azerbaijan - have no
joint agreements about the safety of the sea or conservation. "It is only
oil dollars that talk round here," he said.

Local environmental groups have sent a petition to the United Nations asking
them to intervene in getting the five nations of the Caspian round a table.

Their petition talks about "deep disquietude" over the fate of the sea and
the potential for man destroying its unique wildlife - including the four
commercially important species of sturgeon.

They are also concerned about human health. The air pollution from existing
refineries is one objection but the other is "sour gas" - natural gas mixed
with oil which is heavily contaminated with hydrogen sulphide. The nearby
onshore field, which has been producing high quality crude, has a similar
sour gas problem. This field, 50% owned by ChevronTexaco and 25% by
ExxonMobil, is run by Tengizchevroil, known locally as TCO, and claims to
contribute £1bn a year to the Kazakhstan economy.

Hostility

The firm cleans up this gas and exports the LPG and methane but has, as a
byproduct, stockpiled six million tonnes of sulphur - almost a mountain on
the flat steppes next to the Caspian Sea. The resultant pollution has led to
a deal with the local authority to evacuate 3,000 people from the area to a
settlement 40 miles away - but so far only 80 families have been moved.

TCO was planning a further £2bn investment to clean up the sour gas and
reinject it into the wells but that has been cancelled because the firm
could not get an extended lease on the field. Sour gas is as much a problem
for the new field.

Such is the hostility to the plan that Agip has been forced to move its gas
cleaning plant for the Kashagan field 30 miles from Atyrau. The pressure
groups wants the plant put 150 miles away, despite the work it will bring.

Agip hopes that eventually the sour gas can be reinjected to the oilfield
but acknowledges this will not be possible for some time. The oil is already
under such high pressure that reinjection is impractical.

With an eye on neighbouring TCO's sulphur mountain, Agip plans to build
giant underground storage bunkers for the chemical. They will need a
capacity of 10m-20m tonnes.

Because of agreements with the Kazakhstan government, Agip could not answer
questions from the Guardian. However, after an earthquake near Baku 300
miles away, the company issued a statement of confidence that the north-east
Caspian was not susceptible to "extreme seismic activity" and that this
would not be a problem.

In a Russian-language brochure the Italian oil company also boasted of
"world class environmental and stewardship programme." The sulphur problem
would be dealt with in a state-of-the-art gas plant and the million tonnes
of unwanted sulphur buried underground.