Prospects of export routes for Kashagan oil

2005, which is highly in favor of the Kazakh government.

 Foreign companies see Tengiz and Kashagan  examples as having less  to do with environmental pollution or contractual obligations than with  the  business environment, which has suffered from Kazakhstan’s efforts to pressure them into renego- tiating terms of their contracts. The more troubling trend is that the Government gets what it wants at the end. On October 31,

2008,   as    mentioned  above the  AGIP-KCO   consortium was restructured, the PSA updated, and the KazMunaiGaz share has been doubled to 16.81%, now reaching equality with the shares of other major IOCs in the project.

 These incidents were sort of a wake-up call  for the companies. Neither Tengiz nor  Kashagan deals were not considered as the settlement of these issues; instead, they were regarded as the start of a period in which they will face similar accusations and demands in the future and may be changing the operators with those who would be more willing to compromise. The evolving government attitude towards foreign energy-sector investment, coupled with the corruption issue, means investors may have to worry more in the future about how the government will treat their contracts. As Martha Brill Olcott, senior associate at the Carnegie Endowment for International Peace back in 2002 asserted rightfully, ‘‘The question of the re-nationalization of oil and gas assets is now becoming a bigger issue. It is becoming apparent that the government will try to own a majority, rather than just a part, of future energy deals. The sanctity of contracts has been a problem, and this means it could get  worse.’’  (Olcott, 2002; Berniker, 2003) From the Kazakh side, it is not yet certain whether officials realize the fact  that, with further delays in the two projects (Tengiz and Kashagan), the country’s astonishing growth in oil exports could soon come to  a halt.

 Diversification of economy and market-based rules needed for sustainable energy growth.

 Kazakhstan’s growing petroleum industry, which accounts for roughly 40% of the government’s revenues and more than half of its   export revenues, has  driven the country’s recent economic growth. There is however the growing danger of possible ‘‘Dutch Disease’’,  or   over-reliance on  the oil sector. Large  influxes of foreign currency can distort exchange rates and ultimately hinder growth in  the  non-energy sector.  More investment into  the country’s non-oil sectors required to keep economic growth in the next decade sustainable. In an effort to reduce Kazakhstan’s exposure  to  price   fluctuations for  energy and commodities exports, the government created the National  Oil  Fund   of Kazakhstan.  However, global  credit  crunch has   forced the Government to allocate significant amounts of Fund’s money to the banking system and financial market of the country.

  Many  pseudo-democratic and  economic reform  laws  were passed during the last decade in the Caspian region the notion of 

legal  accountability and transparency does not  exist fully. Kazakhstan is no exception to this fact. So far, legal accountability became an empty principle, especially with the Kazakh President Nazarbayev’s diminishing power and succession clashes between various clans. Now Kazakh ruling elites could manipulate from the top down, as they found necessary. Satisfying the lust for welfare on the part of the governing elites (corruption), while satisfying popular needs, requires a very difficult and sometimes impossible balance. In the next decade it will  become clearer where the Caspian countries and societies will  begin to gravitate:  toward greater transparency or toward more corruption. In this respect, the leaders of these countries, more so Kazakhstan is at a decisive time in its   administration; either it will  move toward greater transparency and reform or further consolidate and corrupt power in the hands of small group of people. It seems that they have tilted towards the latter.

 However, one must has  to acknowledge that recent multi- vector and well-balanced foreign policy between Russia and the West has   rewarded  Kazakhstan with the Organization and Security and Cooperation in Europe term presidency for the year

2009–2010. With that accomplishment Kazakhstan became the first former Soviet republic to head the organization. There is no successful model outside of the European context (Norway) that was roughly analogous to the Caspian region. Should Kazakhstan uses this historic opportunity to expedite its’ internal reforms with the Western involvement and support, it may have a chance to   create  a  unique   and  successful Caspian resource-based development model for whole Caspian. Whether Kazakhstan will rise to the challenge remains to be seen. Failing in this regard will give  an  impetus to the danger of Dutch disease and further corruption with ultimate result of failed economy. 
 

7.   Conclusion 

 Kazakhstan is firmly moving towards to become primary energy actor in the region. Exploration of the Kashagan oil field was led to make Kazakhstan the biggest new energy source of the basin and has  drawn significant foreign interest in  their oil  industry. If Kazakhstan’s very ambitious oil export plans are not backed by real export growth and viable routes, they will   be  useless for the country.  Kazakhstan cannot wait. Among  the possible  various export routes for Kashagan oil, BTC route which may not be the most logical or cost effective one, based on the predictive model used and a winning coalition explained will  likely be  the chosen route for its’  most viable  and strong complementary nature for Kashagan production plans and for its geopolitical attractiveness for Kazakhstan and for Western countries.

 The  most important problems that may hinder oil develop- ment  in  Kazakhstan are  linked to  the corruption and the government’s eagerness to re-negotiate the existing production sharing agreements in order to secure more concessions from the companies and re-nationalize some of the fields. Huge problems arose with foreign investors pose a threat to put Kashagan further on hold. Government however needs to understand that as an emerging developing energy industry, Kazakhstan needs to have ChevronTexaco and other investor companies in Kazakhstan. To keep them in the country and to have  them contribute  to the development of  the industry at the optimum level, Kazakhstan needs to have transparent and law abiding energy legislation and operation rules with long-term predictability.

 With the new discoveries of enormous oil and gas deposits in the Caspian basin, a renewed geopolitical offensive is on  the course to upset the delicate political landscape of the region as well. The size of the new discoveries accelerated the international haggling over the selection and construction of pipeline export

routes.  With huge estimated reserves, Kashagan  returns  the region to the top of the geopolitical agenda for the world’s major powers.

 The Caspian Basin and Central Asia are the only non-OPEC areas, together with Russian oil production, where the United States and Western powers can use low  oil price threats against OPEC by increasing  production levels.  Kashagan oil,  with  its’  abundant reserves is therefore so important from a market perspective, both for Kazakhstan as well as world oil supply security.

 The  key   to Caspian energy security is political. However, a strong, vibrant regional economy will emerge as the result of political stability. Stable countries will seek peaceful solutions to common  problems. Peace in  the region, especially in  Trans- Caucasian ‘‘de-frosted’’ conflicts must be achieved before the full potential economic takeoff can occur in the Eastern parts of the Caspian too.

 In the final analysis, however, regional instabilities (de-frosted conflicts and the legal status of the Caspian Sea and environ- mental concerns) will  not stop the development of  Caspian resources, but they could well  slow it down. Oil and gas can enhance security in the Caspian only  if its states can  achieve multiple export routes that do  not depend solely on  transit through the territory of their competitors. Therefore, opening a westbound outlet for Kashagan’s production through the BTC and Azerbaijan–Georgia corridor is becoming a major issue of energy security for the West and Kazakhstan.