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Qishloq Ovozi

Infrastructure is seen on D Island, the main processing hub at the Kashagan offshore oil field in the Caspian Sea.

Production at Kazakhstan's enormous Kashagan oil and natural-gas field has started again. Already more than a decade behind schedule, and billions of dollars overbudget, the project once seen as Kazakhstan's ticket to El Dorado is now just hoping to alleviate some of the economic pain the country is experiencing and break even before too many more years pass.

Kazakh Energy Minister Kanat Bozumbaev announced on October 12 that the flow of oil from the Caspian Sea field had reached a total of 90,000 barrels per day, from four wells. Bozumbaev added that the Bolashak oil refinery was already receiving oil from the field and shareholders in the project would be announcing the first contracts in coming days.

Bozumbaev said commercial flows of oil were expected by the end of this month.

While that is good news, there are probably more than a few people who still have their fingers crossed hoping nothing else goes wrong at Kashagan, which has proven to be something of a cursed project.

Kashagan started production in September 2013, about eight years behind schedule, but was quickly shut down when leaks were detected in the pipelines running from the site, some 90 kilometers off Kazakhstan's coast, to the mainland.

Initial efforts to correct the problem proved futile as it became apparent that toxic gas in the pipeline had corroded the pipelines, necessitating the total replacement of both pipelines with more expensive nickel-based alloy pipes.

In the wake of the failure, Pierre Oliphant, the managing director of the North Caspian Operating Company (NCOC), resigned. Kazakhstan's government made clear that the consortium was responsible for the cost of replacing the pipelines.

State oil and gas company KazMunaiGaz quickly shed its 16.81 percent stake in the consortium, giving half of it to a subsidiary, KMG Kashagan BV, and the other half to Kazakhstan's Samruk-Kazyna sovereign wealth fund.

Losses from the three-year delay in production at Kashagan are estimated to run into the billions of dollars. That could be added to the cost overruns already incurred. The project was originally expected to cost some $38 billion but that figure has shot up to at least $53 billion, and according to some estimates, could eventually be more than $100 billion.

Kashagan is the biggest oil discovery since Prudhoe Bay in Alaska in 1968 and Russia's Priobskoye North field in 1982. Kashagan is believed to contain 13 billion barrels of recoverable crude oil. The NCOC says there could be as much as 38 billion barrels of oil there, and further exploration and improved technology could add to the current figure for recoverable oil.

Kashagan is also estimated to contain some 1 trillion cubic meters of natural gas.

Italy's Eni, the NCOC partner currently managing Kashagan, says oil production should reach some 230,000 barrels per day (bpd) by the end of 2016 and rise to some 370,000 bpd by mid-2017.

However, in September the Bloomberg news agency quoted Samuel Lussac, research manager in Russia for the U.K. consulting firm Wood Mackenzie, as saying, "We don't expect Kashagan Phase 1 to produce more than 300,000 bpd until the early 2020s."

Even if Kashagan reaches more optimistic production forecasts, many analysts believe the project has already missed its prime window of opportunity. With oil prices at less than half what they were just a few years ago, there is speculation Kashagan may no longer be profitable.

However, 17 years into the project the consortium has no choice but to go ahead, if for no other reason than to recoup the investment already made.

Kazakhstan's government, on the other hand, is assured of seeing some profit from the project, though again, not the large amounts Astana was counting on seeing just a few years back.

The NCOC is made up of Agip Caspian Sea, U.S. company ExxonMobil, France's Total EP, and Royal Dutch Shell, each with 16.81 percent stakes; KMG Kashagan and Samruk Kazyna with 8.4 percent each; the China National Petroleum Corporation with 8.33 percent; and Japan's Inpex with 7.56 percent.

RFE/RL Kazakh Service correspondent Yerzhan Karabek contributed to this report
The construction of a water-purification plant on Kazakhstan's southwestern Caspian Sea coast could be a game-changer for the region (file photo of a Kazakh oil-processing facility).

Look at a map showing population density in Central Asia and it is immediately apparent that the majority of the region's approximately 68 million people live in the east.The reason is equally obvious; the western part of Central Asia is home to two large deserts, Kyzyl Kum and Kara Kum -- the red and black sand deserts, respectively.

At the same time, the bulk of the region's substantial hydrocarbon wealth is located in the western half of Central Asia. Efforts to open up the region and bring people in to work these vast oil and natural gas fields have been limited to a significant extent by the inability to provide adequate water to populations in western Kazakhstan and Turkmenistan.

A solution to this equation is there -- the Caspian Sea -- and now officials in Kazakhstan's southwestern Mangistau Province are preparing to harness this resource by building a water purification plant.

The head of the provincial department for industrial-innovation development, Nurbek Karasaev, announced plans for construction of the plant at the end of September. According to Kazakhstan's news website, Karasaev said the plant would be located in the Karakiya district of Mangistau Province. Karakiya is the southernmost district of the province. To the west of Karakiya is the Caspian Sea, to the south Turkmenistan, and to the east Uzbekistan. The name Karakiya means "Black Cliff(s)" and provides an excellent idea of what the area looks like.

Mangistau is one of Kazakhstan's major oil-producing regions. Therefore, it is not surprising that a co-sponsor of the water purification plant is KazMunaiGaz [KMG], the state oil and gas company. Technically the co-sponsor is KMG subsidiary OzenMunaiGaz. Karasaev noted the plant was being built "in the first place for the needs of OzenMunaiGaz and for the population, to relieve the shortage of fresh water."

Mangistau Province is not only oil country, it's where two of Kazakhstan's most important Caspian ports are located -- Aktau and Kuryk, the administrative center of the Karakiya district.

Trans-Caspian Pipeline

Kuryk port facilities are currently under construction but the town is to have a new oil terminal for loading tankers. It is also set to be the end point for the Erskene-Kuryk pipeline, which is to bring oil from Kazakhstan's offshore field Kashagan.

There are plans to construct a trans-Caspian oil pipeline that would link the pipeline from Kuryk to Baku, Azerbaijan's capital, on the western shore. Azerbaijan's energy minister just authored an article about it.

The population of Mangistau Province, currently well under 500,000, is nearly certain to see a noticeable increase in coming years as the oil and shipping industries expand, with the accompanying greater demand for water.

I would be remiss not to mention the social situation in Mangistau Province, which is home to Zhanaozen, an oil town that shot to infamy in December 2011 when police opened fire on striking oil workers. At least 16 people were killed.

The drastic fall in oil prices on world markets has caused Kazakhstan to keep production levels in check. With diminished revenues, Kazakhstan's oil companies have been implementing the inevitable reductions in the work force, although with Zhanaozen in mind authorities are moving very slowly. That said, there have been many reports in Kazakhstan that more layoffs are coming soon -- and that oil workers in Mangistau will be affected.

A new source of potable water can't prevent dismissals in Mangistau's oil sector but better social conditions generally have been a frequent demand from people in the region.

New Possibilities

If successful, the water-purification plant could open up new possibilities along the eastern coast of Caspian Sea, in agriculture for example.

Turkmen leaders have spoken about constructing desalinization plants on the Caspian coast for more than a decade but the focus there has remained on internal water-treatment plants and reclamation programs. The country, nearly 90 percent covered by desert, could use a lot more water.

Turkmenistan's Balkan Province borders the Caspian Sea and is a major oil-producing region. But water is available in the provincial capital Balkanabat for only four hours a day.

Playing with water in Central Asia is a very dangerous proposition. It always has been -- even in the much better supplied regions in the east, where the mountains are.

The horribly desiccated Aral Sea is the best-known example of what can happen. The over-planting of cotton and a population almost 10 times larger than it was 100 years ago has left the "Island Sea" little more than alkaline depression in the Kara Kum Desert with water left in only a very small area.

The Karakiya plant would seem to be an answer to these sorts of problems.

PHOTO GALLERY: The Slow Death Of The Aral Sea

In fact, the water level in the Caspian Sea is rising, more than two meters since the late 1970s. The Caspian Sea is fed by some 130 rivers but has no outlet, so water accumulates with only evaporation causing loss.

So an argument could be made that this is, for now, "extra" water that could do much good for coastal areas in Kazakhstan and Turkmenistan if purified.

That process will not be so easy. Water from the Caspian Sea needs to be desalinated.

Back more than 65 million years, the Caspian Sea was the Paratethys Sea and connected the Atlantic, Pacific, and Indian Oceans. Only fresh water flows into the Caspian now but there is still a large amount of residual salt left in the Caspian region.

On the average, water salinity is one-third that in the oceans, but the concentration changes, becoming denser further south in the Caspian. There is one exception, the area around the Kara-Bogaz-Gol; the great shallow gulf off northwestern Turkmenistan where water salinity is ten times that of the ocean.

It also happens to be just south of Kuryk.

Still, the planned purification-desalinization plant in Karakiya district presents few apparent downsides while promising what could be ample reward. In a region that has been short on solutions for a multitude of problems, this is one project that could be key to one of the most basic of needs.

RFE/RL's Kazakh and Turkmen services contributed to this report. The views expressed in this blog post do not necessarily reflect he views of RFE/RL.

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About This Blog

Qishloq Ovozi is a blog by RFE/RL Central Asia specialist Bruce Pannier that aims to look at the events that are shaping Central Asia and its respective countries, connect some of the dots to shed light on why those processes are occurring, and identify the agents of change.

Bruce Pannier
Bruce Pannier

Content draws on the extensive knowledge and contacts of RFE/RL's Central Asian services but also allow scholars in the West, particularly younger scholars who will be tomorrow’s experts on the region, opportunities to share their views on the evolving situation at this Eurasian crossroad.

The name means "Village Voice" in Uzbek. But don't be fooled, Qishloq Ovozi is about all of Central Asia.



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