Kazakhstan Starts Pursuit of Kashagan Partners Over Gas Flaring

Kazakhstan made a move against the Kashagan venture for allegedly exceeding pollution levels by burning off natural gas to clear leaky pipelines from the country’s biggest oil field.

The ecology department in Atyrau, the Caspian Sea region where the project operates, sent the results of its gas-flaring review to the Kashagan venture on Feb. 8 and has a month to estimate the economic damage, the Environment and Water Resources Ministry said today in an e-mailed reply to questions.

Kazakhstan, which devalued its currency by 19 percent on Feb. 11 to boost its economic competitiveness, is considering a $1.2 billion fine to punish the partners in the Kashagan oil field for pollution from the flaring last year, according to two people with knowledge of the matter. Output at the field has been halted since October, less than a month after it started, because of defects found in pipes carrying lethal sulfur-laden natural gas from the oil field.

The partners, which include Eni SpA, Exxon Mobil Corp., Royal Dutch Shell Plc and the Kazakhstan’s state oil producer, are accused of burning more than the permitted level of natural gas at both the project’s production island in the Caspian Sea and the onshore processing plant, the people said.

The Kashagan venture has the right to appeal the review through the Environmental and Water Ministry or the courts, the ministry said. The checks were carried out in September through November, according to the ministry.

‘Serious Output’

Kazakhstan is planning for “serious output” from the nation’s largest oil deposit this year, President Nursultan Nazarbayev, who has waited almost half his 23 years in office for the $48 billion project to start, said in an interview last week with Bloomberg.

Last month, energy consultant Wood MacKenzie Ltd. estimated output will start no earlier than the end of the second quarter, while Visor Capital, an Almaty-based investment bank, has said the field may be out for the rest of the year.

The world’s largest discovery in 40 years, Kashagan promised to make Kazakhstan one of the world’s top 10 oil producers. The project, which included the construction of man-made islands in the Caspian Sea, has been beset by cost overruns and delays, postponing billions in revenue for the government.

North Caspian Operating Co., Kashagan operator, said the inspection of the 90-kilometer (56-mile) gas pipeline has been completed and the data is being interpreted.

Exxon, Shell, Total SA and Eni each hold 16.81 percent in the project. Japan’s Inpex Corp. owns 7.56 percent. State-owned KazMunaiGaz National Co. retains 16.88 percent. China National Petroleum Corp. agreed to buy an 8.33 stake percent in September.

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