Kazakhstan: Oil Money Threatens to Make Killing Fields

ATYRAU, KAZAKHSTAN December 4, 2002 -- 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.

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