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Kazakhstan: Coastal Oil Discovery Confirmed

Western oil companies have finally confirmed the discovery of Caspian oil off the coast of Kazakhstan, but their claims are far more cautious than those of President Nursultan Nazarbaev. There may be many good political reasons for promoting the potential of the Kashagan oilfield now, but the companies say that accurate estimates are likely to take two more years. Correspondent Michael Lelyveld reports.

Boston, 25 July 2000 (RFE/RL) -- The first results from an oilfield off the coast of Kazakhstan have renewed hopes for Caspian countries but have also drawn cautious reactions from industry experts.

An announcement Monday by the nine-member Offshore Kazakhstan International Operating Company, or OKIOC, confirmed that the group has found oil at the offshore Kashagan field.

The statement was the first official word from the companies on their findings. Kazakhstan President Nursultan Nazarbaev has been saying for months that the deposit will be one of the world's largest, containing perhaps 7 billion tons of oil.

Earlier this month, Nazarbaev said, "I can tell you today that there is oil, big oil, and it is good quality oil." The president estimated that Kashagan would be six times larger than Kazakhstan's giant field at Tengiz, inviting comparisons with Saudi Arabia.

Nurlan Balgimbaev, head of the state-owned company Kazakhoil, also declared, "We can say with confidence that we are on the verge of the largest oil and gas discovery in the world over the past 30 years."

But statements by the companies and an independent expert suggest that Kazakhstan may remain on the verge of such a dramatic discovery for quite some time.

On Monday, the companies of the OKIOC consortium would say only that they were "encouraged" by the initial results and hoped they would be supported by further exploration. The group may be unable to give a reliable estimate of reserves until late 2002, Reuters reported.

Robert Ebel, director of the energy and national security program at the Center for Strategic and International Studies in Washington, said the companies have to be more conservative than the politicians in maintaining credibility.

Ebel said, "They have to be very careful about the claims that they make. It's very treacherous to make any judgments at this stage."

Ebel said, "You've got good shows of oil and gas, but it's still awfully early. Call back in two years."

Nazarbaev may have several good reasons for publicizing the potential of Kashagan prematurely. Some of the interest in the Caspian has waned in recent years with more discoveries of gas than of oil. Commercial finds of oil have been few since 1994, when Western companies signed their "contract of the century" to develop oil off the coast of Azerbaijan.

Kashagan has also been a focus of U.S. policy, because more oil is needed to fill the planned Baku-Ceyhan pipeline. Nazarbaev has been courted by both the United States and Russia to commit Kashagan's oil to their respective preferred routes.

Russia has several alternatives including a pipeline to Samara and two more to Novorossiysk. The first Novorossiysk line, which is under construction for Tengiz oil, could carry crude from Kashagan and new fields in Russia's Caspian sector. A second line to Novorossiysk from the port of Makhachkala in Dagestan was recently detoured around Chechnya.

Nazarbaev clearly has interests in pleasing Russia while keeping all of his pipeline options open. One way to do that is to promote the potential of Kashagan.

By stressing Kazakhstan's strategic importance, Nazarbaev may also hope to make Washington overlook his failure to pursue democratic reforms. It is also notable that Nazarbaev's last claims about Kashagan came only days after reports that the United States was investigating alleged payments made by U.S. oil investor James Giffen.

The attention to Kashagan comes at a time of increasing concern over the environmental consequences of Caspian oil development. The Moscow Times reported Monday that environmental activists are suspicious that sulfur gas from exploration may be responsible for the mass deaths of Caspian seals and sturgeon. While the OKIOC has taken extraordinary precautions, one political measure may be to stress its economic importance to Kazakhstan.

Nazarbaev is also likely to need strong support from the West if it is found that a part of Kashagan overlaps its offshore border with Russia. Viktor Kaluzhny, Russia's deputy foreign minister, recently proposed that all border fields in the Caspian be shared between neighboring countries. Four such fields are already under negotiation with Russia, but the addition of Kashagan could mean hundreds of millions of dollars for Moscow.

If Kashagan is the real target of Kaluzhny's proposal, Nazarbaev may feel the need to publicize the importance of the oilfield to Western audiences every chance he gets.