Oil giants

Oil and gas supplies are often a source of conflict between the countries which have these valuable natural resources and the international energy companies which have the funds, infrastructure and technical know-how required to exploit these resources.

As experts point out, we are living in a time of increasing ‘nationalism’ of resources and attempts by governments to exert control over their energy resources, most notably in Venezuela, where Hugo Chavez’s government has nationalised the country’s oil industry. The country is the world's fifth largest oil exporter.

This was followed by Bolivia, which has South America's second largest gas reserves. In 2006 the government under Evo Morales made foreign energy companies renegotiate their contracts for this valuable resource.

The latest example of this type of dispute can be found in Kazakhstan. In 2001 a consortium of the world’s five biggest oil companies led by the Italian giant Eni won a contract with the government of Kazakhstan to develop the huge Kashagan oilfield in the Caspian Sea. This is one of the few remaining untapped oilfields in the world.

It is also one of the most difficult projects ever attempted.  The oil is far below the seabed so it is under enormous pressure and there is a risk of explosion.  The oil is also mixed with high levels of the poisonous hydrogen sulphide. There are also environmental concerns about the impact of oil drilling in the Caspian. It is a natural habitat for many species of rare birds and fish. In fact, Kazakhstan’s ecology ministry says that contamination from the project could be responsible for the death of seals on the coast last winter.  It would seem that Eni underestimated the costs of the project, which it says have now doubled. The oil giant also now says that the start of oil production will be delayed by another two years until late 2010.

The surge in costs and delays in production deadlines has caused the Kazakhstan government to demand better terms and more control of the project. The feeling is that western oil companies took advantage of the country’s desperate need for foreign investment when the contract was negotiated in the 1990s.  However, the production delays, cost overruns and environmental concerns now give the government an opportunity to renegotiate terms of the production-sharing contracts.

The western oil consortium which includes ExxonMobil, Conoco-Phillips, Royal Dutch Shell, Total and Japan’s Inpex, will almost certainly agree to renegotiate the contract. The Kashagan oilfield has huge oil reserves and they have already invested large sums in developing the project.