The Saga of Kashagan

This article was published in Kazakhstan's monthly Exclusive this May. The original article was written in Russian and this translation is not great but it gives a hint of the emotions (and perhaps confusion) the Kashagan project evokes within Kazakhstan. I listed a few excerpts below and the original article can be found here.

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With a degree of exaggeration, we can say that “Kashagan is our everything!” The exaggeration wouldn’t be very big. The significant role of the oil sector in the economy of our country is known even to schoolchildren; it is also known that during recent decades, there hasn’t been any discoveries of large new oil or gas fields, and the majority of the fields exploited now are old and used up very much. Thus, the resource base of the most important industry of our economy is not in its best form. New technologies that increase the share of oil extracted from a field, more precise exploration of old fields, and the development of such projects as Tengiz and Karachaganak help, but they don’t change the situation fundamentally. Moreover, their peak extraction periods are expected at different times. As reflected in the main development programs of our country, the oil industry is the locomotive of our economy. The resources of the shore look like a salvation, like a chance for a better future. Kashagan is the biggest pearl among the resources. This has become especially true in recent years, as the shine of others, such as Tyub-Karagan, significantly reduced after unsuccessful oil exploration works. That’s why the endless delays in the commencement of development of Kashagan and full-scale oil extraction on the field are serious problems. Under some unfavourable conditions, it could influence the overall economy of the country. Let’s imagine that oil prices decreased. It will decrease the profitability of many of Kazakhstan’s old oil fields and the revenues from exports are also decreasing. Then it would be possible to compensate the price reduction with an increase in sales of oil, even at lower prices (not the best way, but it may be the only way to do under some circumstances). And the increased production could come from the shore; but then we’d have to finally start the extraction.

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Discovering oil in Eastern Kazakhstan, of course, is an important event. However, I’d like to warn the government and the people against a premature and groundless euphoria… One shouldn’t forget, first of all, about the risk of a “commercial bluff”, when very optimistic forecasts regarding the newly opened oil fields sharply increase the stock prices of the companies involved in the consortium, hence bringing large profits to the shareholders. Let’s remember that this happened with respect to many oil structures in the shallow waters of Azerbaijan (For example, Karabakh). But all of it finished sadly.

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