The choice of a pipeline route from Kazakhstan’s giant East Kashagan oilfield is certain to become one of the preeminent issues of Caspian oil politics. East Kashagan, the richest Caspian oilfield discovered to date, is being explored and developed by the multinational Offshore Kazakhstan International Operating Company (OKIOC), a venture of Agip, British Gas, British Petroleum Amoco, ExxonMobil, Inpex, Phillips Petroleum, Shell, Statoil, and TotalFinaElf. OKIOC is about to designate a project operator for field development and another project operator for the export pipeline.
On December 6, Kazakhstan’s Foreign Affairs Ministry inadvertently released in the form of an official statement what appears in fact to be an internal working document on a proposed pipeline to Iran. Two days later, the ministry denied the document’s official nature, and termed its circulation a “technical mistake.” But the French oil giant TotalFinaElf–a recent merger of the Total, Petrofina and Elf Aquitaine companies–in effect confirmed the gist of the Kazakh document and the fact that discussions on the Kazakhstan-Iran pipeline are well underway with some leading Western oil companies. The intention is to export the oil through the Persian Gulf to South Asian and Far Eastern markets.
The proposed pipeline would run from the offshore East Kashagan field to the Kazakh shore and overland via Turkmenistan and Iran to the Persian Gulf. While recognizing that the construction “would be hindered by the U.S. sanctions policy with respect to Iran,” Kazakhstan’s Foreign Affairs Ministry supports an acceleration of work on the feasibility study, with reference to Western oil companies and experts who consider the Iranian export route for Caspian oil as the “most economic and reliable.” That thesis contradicts the U.S. government’s view on both counts. Washington seriously questions the Iranian route on economic and on security grounds.
Current discussions in Astana and Almaty focus on the distribution of interest shares in the proposed pipeline consortium and on allocation of the pipeline’s throughput capacity. Kazakhstan proposes reserving for itself, Turkmenistan and Iran a subtotal of 50 percent of the consortium’s shares. The international companies would hold the other 50 percent of the shares and cover all of the construction costs. Furthermore, according to its Foreign Affairs Ministry, Kazakhstan wants a flexible share of the pipeline’s throughput capacity to be set aside for its own crude oil, in addition to the companies’ oil from East Kashagan.
OKIOC members for their part suggest that Kazakhstan, Turkmenistan and Iran should sign up for a combined 21 percent of the shares in the pipeline consortium. Once the companies reach a reasonable level of return on their investment, the three host countries would receive a further 29 percent of the shares in the consortium and a title to a corresponding share in the profits. Prior to that stage, the three host countries would only be entitled to tax receipts and other mandatory payments from the investor companies. The companies, furthermore, want to divide 100 percent of the pipeline’s throughput capacity among themselves.
The Kazakh ministry’s document indicates a preference for TotalFinaElf to become the pipeline project operator. Following its publication, top managers of TotalFinaElf made corroborating statements and urged an acceleration of preparatory work. The company strongly favors an Iranian route. According to a follow-up, on-the-record statement by Prime Minister Kasymzhomart Tokaev, Kazakhstan is negotiating with TotalFinaElf, Agip and British Gas–both of which are said to also favor the Iranian option–to prepare the feasibility study. Iran’s preliminary estimate of the construction cost is US$1.5 billion, but few seem prepared to accept it as a realistic basis for discussion.
With East Kashagan several years away from commercial development, discussions on the Iranian pipeline may in the short term affect the Baku-Tbilisi-Ceyhan (Turkey) pipeline project for Azerbaijani oil. Financing of that project hinges on the size of the oil volumes available to be committed to the pipeline. The participating companies, the host countries and a supporting U.S. government plan to maximize those volumes by adding oil from Kazakhstan. In the medium term, that intention focuses on East Kashagan. Routing that oil to Iran would, however, reduce or even nullify the volumes available for Baku-Ceyhan.
The short-term plan for Baku-Ceyhan is to increase shipments of Kazakh oil by barge from the port of Aktau across the Caspian Sea to Baku. An undersea pipeline from Aktau to Baku is also under discussion. Recently, the U.S. and Turkish governments have redesignated the Baku-Tbilisi-Ceyhan project as Aktau-Baku-Tbilisi-Ceyhan. A major expansion of the port of Aktau is planned with Western credits.
In October on his inaugural visit abroad, Turkish President Ahmet Necdet Sezer made a strong pitch in Kazakhstan for the Aktau-Baku-Tbilisi-Ceyhan option and the inclusion of East Kashagan in that project. With the administration changing in Washington, valedictory speeches by its top policymakers on Caspian issues underscored the economic and security risks of an Iranian export route for Kazakhstani oil. As the export pipeline from Kazakhstan to Russia’s Novorossiisk approaches completion, Kazakhstan courts the risks of leaving the export routes for its oil in the hands of countries which are both commercial competitors and aspirants to political hegemony (Habar, IRNA, Dow Jones Newswires, AFP, December 6-9; see the Monitor, July 7, October 23).
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