Monday, September 10, 2007

Kazakhstan v. A Western Led Oil Consortium: The High Stakes of Oil


A fight is brewing over the largest oil discovery in the last thirty years: the Kashagan oil field offshore of Kazakhstan. The oil field could make Kazakhstan one of the largest ten oil producers in the world. Initially scheduled to start production in 2005, oil may not be produced until 2010 and costs have dramatically increased. The Kazakh government has become upset with the western-led consortium's management of the oil field. Upset with delays and costs, Kazakhstan governmental entities ordered a three month suspension of operations at Kashagan to avoid irreparable damage. The Kazakh government also filed suit for fire-safety regulations, a criminal case against senior staff at the Consortium, and is seeking more than $10 billion in compensation for the delays.

Participants in the Kashagan consortium include Eni, Total, KazMunaiGaz, Shell, ExxonMobil, ConocoPhillips and Japan's Inpex. Notably, KazMunaiGaz is Kazakhstan’s state energy company. While Kazakh Prime Minister Karim is pushing for KazMunaiGaz to play a large role in running Kashagan, some industry analysts do not believe the state owned company has the ability to run Kashagan. This issue showcases the amazing impact resources like oil can have on a smaller country.

Questions for discussion:
1. What are your thoughts on whether Kazakhstan should push for their state energy company to play a lead role?
2. What about the number of suits filed by Kazakhstan governmental entities?

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