A recent fact-finding mission by Crude Accountability and CRBM (Campaign for reform of the World Bank) found expansion of Kazakhstan’s Kashagan field by an international consortium promises environmental degradation and economic uncertainty for residents of western Kazakhstan. Elena Gerebizza and Kate Watters investigate – This article was first published in Platform’s Carbon Web Newsletter Issue 6.

Kazakhstan’s Kashagan oilfield is the largest untapped oil and gas discovery of the last 10 years. Operated by Italian company Agip as part of a consortium including Exxon, ConocoPhillips, Total, Shell and the Kazakh state oil company, the offshore field is estimated to hold 13 billion recoverable barrels of crude – twice Azerbaijan’s total oil reserves. Extracting this oil from beneath the Caspian Sea remains highly problematic, with extremely shallow water and a volatile climate. Fenceline communities have raised serious concerns, while the project threatens endangered sturgeon and the whelping grounds of the Caspian seal. Despite the many social and environmental problems, western development banks have already financed Kashagan, and are looking to work with private banks to finance further oil extraction.

Agip faces conditions in the northern Caspian hostile to oil and gas development. Temperatures range from -40 degrees C in winter to 40 degrees C in summer and the sea is frozen from November to March. Unlike Azeri Light, the Caspian crude produced off Kazakhstan contains high levels of sulphide impurities, which must be removed before oil can be exported. Sulphur removal is extremely polluting, and carries major risks for nearby communities. A fudged waste management plan has heightening local concerns over a lack of consultation.Phase 1 of Kashagan’s development, now due for completion in 2008, has already been extended twice. Construction costs have spiralled from $27 billion, towards current projections of $60 billion. The Kazakh government is pressing the consortium to conclude Phase 1 and begin commercialisation.In November 2006, the EBRD (European Bank for Reconstruction and Development) pledged to finance construction of the Bautino Supply Base, making it easier for private banks, particularly Equator Principle signatories, to join a project finance deal. Export credit agencies are also likely to become involved; Japan’s JBIC has already financed Phase 1 and is likely to finance the expansion of export pipelines.

With Azeri oil production set to peak in 2012, EU and US energy policies support a “trans-Caspian” pipeline linking Kashagan to BP’s Baku-Ceyhan pipeline. Chevron has already begun to tanker Kazakh crude from its Tengiz field to Baku. With competing incentives to pump Kazakh oil east towards China or through the existing Russian pipeline network, the EU and US are offering financial support and political pressure for West-oriented oil projects, while social and environmental problems disappear off the agenda.

Elena Gerebizza is Finance Campaigner with CBRM (Campagna per la Riforma della Banca Mondiale – Campaign for reform of the World Bank). The campaign brings together environmental, human rights and development NGOs and works for democratisation and deep reform of international finance institutions.

Kate Watters is Executive Director of Crude Accountability and has been working with environmental activists in the Former Soviet Union since the early 1990s. Crude Accountability works in partnership with local activists and citizens’ groups in the Caspian region to ensure environmental justice for communities impacted by resource development.

Crude Accountability, CRBM and local partners are campaigning to stop or condition IFI financing of the Kashagan field in Western Kazakhstan. For more information see:

www.crudeaccountability.org
www.crbm.org