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Editorial comment

Let’s talk about the notorious Kashagan field: the largest oil discovery in the world in the last 40 years, a costly, troublesome, headache of a find and one that continues to give good gamble.

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Estimated to hold 38 billion bbls of oil and gas reserves, 10 billion bbls of which are thought to be recoverable, Kashagan in the North Caspian Sea has sucked up decades of development work and over US$ 30 billion in costs and still it stubbornly refuses to produce. Its operators ExxonMobil, Eni Spa, Royal Dutch Shell and KazMunaiGas (KMG – the Kazakh state oil company) have a lot to cope with. The climate in particular is very challenging, as the sea freezes for a few months every year. This means that concrete drilling islands must be built, because normal offshore equipment sitting in the water would freeze and be destroyed. In addition, the reserves sit approximately 4200 m below the seabed and are mixed with toxic sulphur gas. I also suspect if you mentioned seals, or rare sturgeon, to the North Caspian Operating Company (NCOC), which represents the oil companies involved in the project, you might prompt an exasperated sigh or two. Even without factoring in the ongoing Italian investigation into alleged bribes paid by Eni to Kazakhstan (with regards to a Joint Venture owned by a former Kazakh Deputy Energy Minister), this project has seen a lot of drama.

Along with penalties for missed production deadlines, the operating companies face the prospect of not having their production sharing agreement renewed past its 2041 expiration date, as a result of friction with the Kazakh government.

This is one of the largest, most complicated engineering projects in the world. There are plans to produce 10 000 - 15 000 bpd of oil later this year – so where will it go?

The CEO of KMG, Lyazzat Kiinov, has spoken confidently that “there is all the needed infrastructure in place to supply the crude to global markets”.

Pipeline transport capacity is set to be found in: the Caspian Pipeline Consortium’s pipeline network, which is mooted for expansion; the Aktau-Baku-Batumi pipeline; and the Atasu-Alashankou pipeline to China.

Another country building pipelines towards China is Myanmar: two pipelines to China are due to start up in a few months, sending 12 billion m3/yr of gas and 440 000 bpd of oil to hungry Chinese markets. China has been shrewdly diversifying its import routes so as to reduce its reliance on shipping through the Malacca Straits near Singapore, where the US has a large naval presence, and the South China Sea, where territorial disputes with Japan (not to mention the Philippines, Vietnam and Taiwan) have caused tension.

Work began in 2010 on the pipelines, which will run parallel from Myanmar’s west coast, across the country’s midsection, entering China at Riuli in Yunnan province. CNPC cinched the pipeline deal in 2008, when

Myanmar was still under Military Rule. Since then a new government has allowed citizens free reign to protest the project. Subsequent unrest has been violent and escalating. The Myanmar-China Pipeline Watch Committee reports that only 0.128% of the project’s estimated US$ 2.5 billion budget was used for land compensation, in cases where people were displaced. China is spending millions of dollars on schools and health clinics in Myanmar in an attempt to soothe relations and ensure the safe passage of the oil and gas once the pipelines are up and running. China is gambling on Myanmar being an obedient and acquiescent transit route, just as the NCOC is gambling on the hope that Kashagan can be tamed.

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