Kazakh oil minister sees larger role for Caspian oil in global markets

April 24, 2001
Kazakhstan will have an increasingly important role to play as a secure supplier of crude to Western markets, Vladimir Shkolnik, the country's oil minister, told OGJ Online in an interview Tuesday. And he said US and other major oil companies will play an expanding role in producing Caspian crude.


By Maureen Lorenzetti
OGJ Online

WASHINGTON, DC, Apr. 24 -- Kazakhstan will have an increasingly important role to play as a secure supplier of crude to Western markets, Vladimir Shkolnik, the country's oil minister, told OGJ Online in an interview Tuesday.

Shkolnik, who holds the titles of Deputy Prime Minister and Minister of Energy and Mineral Resources, was in Washington to meet with US Energy Sec. Spencer Abraham and assistant secretaries at the departments of Defense, Commerce, and State.

The minister said a major area of discussion in his Apr. 25 meeting with Abraham will be "the expanding role" he sees for US and other major oil companies in his country and the Caspian region.

Kazakhstan is the second largest Caspian-area oil producer after Russia. Half of Kazakhstan's production is from three massive onshore fields: Tengiz, Uzen, and Karachaganak.

In 2000, overall production was 35 million tonnes while domestic use was only 8 million. This year, production will increase 13%. By 2010 production should reach 100 million tonnes with the bulk available for export, said Shkolnik.

With those production volumes, and strong world oil prices likely, a western pipeline from the Caspian port city of Baku, Azerbaijan, to the Turkish Mediterranean port of Ceyhan should be feasible, although "it is up to the oil companies to decide if they want it," he said.

The $2.7-billion pipeline project is controversial, however. The Clinton administration championed the 1,000-mile Baku-Ceyhan route as an alternative to routes that crossed Russia or Iran. But oil companies fear production levels may not justify the cost. Companies are considering funding about 70% of the line with the expectations that international financial organizations would supply the rest.

The Bush administration has been mildly supportive of the pipeline route but has not yet endorsed the use of government backed loans by the US Export-Import Bank for the project. The BP PLC-led Azerbaijan International Operating Co. is expected to meet with US officials this month. Meanwhile, the second phase of a detailed engineering study is expected to begin in June.

A shorter and less expensive export route for Caspian oil would be through Iran, but Shkolnik had no opinion on what steps the US might take to ease sanctions against Tehran.

Although his country sees Baku-Ceyhan as "a top priority" that will help bring crude to international markets, the pipeline route is not a specific agenda item in meetings with US officials, he said. However, Shkolnik planned to discuss with Abraham trends in international oil markets and how his country can provide reliable oil supplies to the US. The Kazakhs are looking East as well: they hope to see companies build export pipelines to serve what is expected to be explosive demand in Asia.

He said Kazakhstan sets high environmental standards for its foreign investors. Last week the government ordered a group of western oil companies to stop work at a rig in the Caspian after a minor spill that occurred during the testing of a West Kashagan well Apr. 17.

Kazakhstan also strongly supports the Kyoto global climate change treaty and Shkolnik suggested all nations will have to take some unified steps to curb greenhouse gases.

"We've seen what global warming can do first hand," he said, referring to the Aral Sea, which shrunk to half its size in less than one generation. "Every nation one way or another will have to look at this at least for our children's sake," he said.

Another issue Shkolnik is not shy about discussing is corruption. He acknowledged that US oil companies are concerned about this, but said President Nursultan Nazarbayev has taken aggressive steps.

"Transparency, transparency, transparency," he said. "This is a certainty. We are fighting against this evil."

Presidents Bush and Nazarbayev are expected to meet later this year and protecting growing US oil investment in the region is expected to be a major topic of discussion.

Contact Maureen Lorenzetti at [email protected]