Russia's pipe dreams fuel oil rush on Caspian Sea

The race to tap the vast oilfields lying under the deserts of Kazakhstan is a new version of the 'Great Game', writes Andrew Higgins in Tengiz

When Well No 37 exploded in flames 10 years ago the fire burned for 400 days and nights, fused earth into rock and shook the Tengiz Oil Field like an earthquake. A tank tried to seal the blazing well with shell fire.

But so plentiful and pure is oil beneath the lunar landscape of western Kazakhstan - as smooth as Jack Daniel's and honey-like in colour, the connoisseurs say - that Chevron Oil Corporation decided it could risk such perils.

After tortuous negotiations with Soviet and then Kazakh apparatchiks, it moved on to the desolate shore of the Caspian Sea in 1993 and promised to spend $20bn (pounds 12bn) over 40 years. But getting oil from the ground was the easy bit. Nature's torments are nothing to the fickle furies of pipeline politics.

"Sometimes it's difficult to drain the swamp when you are up to your ass in alligators," said Morley Dupre, the Louisiana oil man in charge of Tengizchevroil (TCO), a joint venture between America's third biggest oil company and Kazakhstan.

The scoreboard of what is called the new Great Game, a struggle for profit and political gain across the southern flank of the former Soviet Union, is a computer screen manned by Fatima Baimukhova. She is a Kazakh woman on the Chevron payroll, across whose console flash the vital statistics: the amount of oil leaving Tengiz via the pipeline to world markets.

The pipeline begins its long journey to a Black Sea port a few hundred yards from the "Pink Palace", a squat building faced in pink stone, stuffed with electronics and supervised by American engineers. Ultimate control of the tap lies 900 miles away in Moscow. It is through Russia that the most valuable assets of the former Soviet Union, whether gas from Turkmenistan or petroleum from Azerbaijan and Kazakhstan, must flow. The vast network, run by a body called Transneft, under the Fuel and Energy Ministry, may be rusting and prone to explosions, but it is Moscow's most powerful lever in the Commonwealth of Independent States.

"They control the flow by shutting the valve," said John Engelhardt, Chevron's operations manager in Tengiz. "They want to keep a choke on the CIS." Reasons cited by Russia for slowing the flow are that it was too smelly and salty and that it was corroding the pipeline.

The 19th century Great Game saw Britain and Russia wrestling over Central Asia with soldiers and spies. Today, the most important weapon is the pipeline. Russia's war in Chechnya is motivated in part by a desire to regain control of an oil route through Grozny. Yesterday, thick black smoke was billowing over that city, after oil-storage facilities were set alight by fighting between Russian and Chechen forces.

Other players include Turkey, Iran, many of the world's biggest energy companies, including British Gas and British Petroleum, the Sultan of Oman and a former car dealer from the Netherlands.

Tengiz was first developed in the Soviet-era and hailed as the biggest oil find since Alaska. It has the potential to produce 750,000 barrels of crude a day. Current capacity is about 130,000. Ms Baimukhova's screen registers only 65,000 barrels gushing into the pipeline.

Chevron has spent upwards of $1bn in Tengiz, a wasteland bedevilled by lethal gas, bandits, Arctic cold in winter and sweltering heat in summer. It formed a security force called Alpha, manned in part by former KGB agents, installed 12 satellite television channels, brought in barmaids from Britain to serve English beer, recruited a Scottish caterer to cook fried bread and bacon breakfasts, and flew in hundreds of Western oilmen.

"It is like the tower of Babel, only with English cooking," one American said.

The ultimate prize is enormous. Fields with more than a billion barrels are known as "elephants" in international oil parlance. Tengiz is a big elephant, containing 6 billion to 9 billion barrels of recoverable oil that nearly double Chevron's total reserves. Its quality makes hardened veterans sound romantic.

Chevron, though, is over a barrel. It cannot get more oil out of Kazakhstan by the existing pipeline. Plans to build a second artery are bogged down in bitter wrangling. Instead of investing $500m in Tengiz this year as planned, it will spend $50m.

What makes the oil Great Game difficult to play is that Russia is fragmented into competing fiefdoms, semi-privatised oil firms, ministries with varying interests and other power- brokers. Even President Yeltsin's chief bodyguard, Alexander Korzhakov, gives advice on energy policy.

And Russia is using its stranglehold over natural gas and petroleum pipelines to increase its influence.

The Russian gas monopoly, Gazprom, has muscled into Kazakhstan's Karachaganak gas field, obliging British Gas and Agip to give it a 15-per-cent stake. In Azerbaijan, the partly privatised Russian firm, Lukoil, gained a 10- per-cent stake in a $7.4 bn project involving British Petroleum. Azerbaijan's former president, Abulfaz Elchibey, tried to resist any such role for Russia. A military putsch forced Baku to reconsider. Mr Elchibey was removed from office, days before he was due in London to finalise a share-out of 4.4 billion barrels of off-shore oil that would have excluded Russia.

Russia now wants to entrench such gains in international law. It wants the Caspian Sea re- classified as a lake. This would deprive Kazakhstan and Azerbaijan of the exclusive rights they now claim over their own coastal waters, and place all Caspian decision-making under a joint "condominium".

Tengiz lies inland from the Caspian, and Chevron has avoided yielding a stake in its joint venture to Russian interests. But the American corporation is being pressed to foot most of the bill for a new pipeline planned from the Caspian shore to the Black Sea by a consortium comprising Russia, Kazakhstan and Oman. Chevron, while desperate for an alternative route for its oil, has rejected demands that it cough up most of the money in return for a quarter stake in the $1.2bn pipeline project.

Representing Oman, which was expected to provide much of the financing, is John Deuss, an elusive Dutch fortune-hunter typical of the murky world of money and oil in post-Soviet central Asia. He came to prominence in connection with allegations of sanctions-busting on behalf of South Africa. Another endeavour was a failed attempt to corner the market for North Sea Brent crude.

A senior Kazakh official, frustrated by haggling over the new pipeline and by Oman's fancy footwork, describes Mr Deuss as "odious". Mr Dupre says Chevron is also "chomping at the bit" but is more diplomatic about the Bermuda-based Dutchman: "He's a businessman trying to make a buck."

Turkey is lobbying for a pipeline that would skirt Russian territory and carry oil from the Caspian to the Mediterranean through Turkey. Such a route would dramatically alter petroleum - and power-politics in the region. Russia, which stands to lose its stranglehold, is not keen. The US supports the idea but has its worries; one of the proposed routes to Turkey passes through Iran.

Start your day with The Independent, sign up for daily news emails
Have you tried new the Independent Digital Edition apps?
ebooksA special investigation by Andy McSmith
Keith Fraser says we should give Isis sympathises free flights to join Isis (AFP)
Life and Style
Google celebrates the 126th anniversary of the Eiffel Tower opening its doors to the public for the first time
techGoogle celebrates Paris's iconic landmark, which opened to the public 126 years ago today
Cleopatra the tortoise suffers from a painful disease that causes her shell to disintegrate; her new prosthetic one has been custom-made for her using 3D printing technology
newsCleopatra had been suffering from 'pyramiding'
Arts and Entertainment
Coachella and Lollapalooza festivals have both listed the selfie stick devices as “prohibited items”
Nigel Owens was targeted on Twitter because of his sexuality during the Six Nations finale between England and France earlier this month
rugbyReferee Nigel Owens on coming out, and homophobic Twitter abuse
  • Get to the point
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs General

Recruitment Genius: Senior Web Designer / Front End Developer

£28000 - £32000 per annum: Recruitment Genius: This fast expanding web managem...

Ashdown Group: Trainee Consultant - Surrey / South West London

£22000 per annum + pension,bonus,career progression: Ashdown Group: An establi...

Ashdown Group: Trainee Consultant - Surrey/ South West London

£22000 per annum + pension,bonus,career progression: Ashdown Group: An establi...

Ashdown Group: Recruitment Consultant / Account Manager - Surrey / SW London

£40000 per annum + realistic targets: Ashdown Group: A thriving recruitment co...

Day In a Page

No postcode? No vote

Floating voters

How living on a houseboat meant I didn't officially 'exist'
Louis Theroux's affable Englishman routine begins to wear thin

By Reason of Insanity

Louis Theroux's affable Englishman routine begins to wear thin
Power dressing is back – but no shoulderpads!

Power dressing is back

But banish all thoughts of Eighties shoulderpads
Spanish stone-age cave paintings 'under threat' after being re-opened to the public

Spanish stone-age cave paintings in Altamira 'under threat'

Caves were re-opened to the public
'I was the bookies’ favourite to be first to leave the Cabinet'

Vince Cable interview

'I was the bookies’ favourite to be first to leave the Cabinet'
Election 2015: How many of the Government's coalition agreement promises have been kept?

Promises, promises

But how many coalition agreement pledges have been kept?
The Gaza fisherman who built his own reef - and was shot dead there by an Israeli gunboat

The death of a Gaza fisherman

He built his own reef, and was fatally shot there by an Israeli gunboat
Saudi Arabia's airstrikes in Yemen are fuelling the Gulf's fire

Saudi airstrikes are fuelling the Gulf's fire

Arab intervention in Yemen risks entrenching Sunni-Shia divide and handing a victory to Isis, says Patrick Cockburn
Zayn Malik's departure from One Direction shows the perils of fame in the age of social media

The only direction Zayn could go

We wince at the anguish of One Direction's fans, but Malik's departure shows the perils of fame in the age of social media
Young Magician of the Year 2015: Meet the schoolgirl from Newcastle who has her heart set on being the competition's first female winner

Spells like teen spirit

A 16-year-old from Newcastle has set her heart on being the first female to win Young Magician of the Year. Jonathan Owen meets her
Jonathan Anderson: If fashion is a cycle, this young man knows just how to ride it

If fashion is a cycle, this young man knows just how to ride it

British designer Jonathan Anderson is putting his stamp on venerable house Loewe
Number plates scheme could provide a licence to offend in the land of the free

Licence to offend in the land of the free

Cash-strapped states have hit on a way of making money out of drivers that may be in collision with the First Amendment, says Rupert Cornwell
From farm to fork: Meet the Cornish fishermen, vegetable-growers and butchers causing a stir in London's top restaurants

From farm to fork in Cornwall

One man is bringing together Cornwall's most accomplished growers, fishermen and butchers with London's best chefs to put the finest, freshest produce on the plates of some of the country’s best restaurants
Robert Parker interview: The world's top wine critic on tasting 10,000 bottles a year, absurd drinking notes and New World wannabes

Robert Parker interview

The world's top wine critic on tasting 10,000 bottles a year, absurd drinking notes and New World wannabes
Don't believe the stereotype - or should you?

Don't believe the stereotype - or should you?

We exaggerate regional traits and turn them into jokes - and those on the receiving end are in on it too, says DJ Taylor