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Page added on August 30, 2007

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Eni’s fading Caspian dream shows shades of Sakhalin

Oil fields don’t come much bigger than Kashagan, the colossus of the Caspian that is also threatening to become the nemesis of Eni SpA, the Italian oil company that has incurred the displeasure of Karim Masimov, the Prime Minister of Kazakhstan.

His government has suspended work on the Caspian Sea project for three months for breaches of environmental regulations. The rising tension between Eni, which operates Kashagan on behalf of an international consortium, and the Kazakh authorities was enough to cause Italian Prime Minister Romano Prodi to cut short his summer holiday.
When it was discovered in 2000, it was hailed as the biggest oil find in three decades, on the scale of Brent and Prudhoe Bay. Estimates of its reserves are between nine billion and 13 billion barrels with peak production of more than one million barrels a day.

Kashagan revived hopes that the geology of the Caspian Sea might conceal more giants, making the Caspian a resource on par with the North Sea or the Gulf of Mexico. But since Kashagan’s discovery, exploration has failed to uncover further monsters from the Central Asian sea, raising the stakes even further in the struggle to secure Kashagan’s riches.

Negotiations are in progress and many think that Eni will emerge intact from this political onslaught, but not unscathed. The Kazakh authorities’ behaviour is showing similarities to the saga of Sakhalin, Shell’s gas project on the remote island in eastern Siberia. A campaign of harassment and litigation against Shell’s alleged environmental depredations at Sakhalin culminated in a sale of half the project to Russia’s Gazprom.

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