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.

Alexis Sanchez has completed a £35m move to Arsenal, the club have confirmed
sportGunners complete £35m signing of Barcelona forward
Poor teachers should be fearful of not getting pay rises or losing their job if they fail to perform, Steve Fairclough, headteacher of Abbotsholme School, suggested
voicesChris Sloggett explains why it has become an impossible career path
world cup 2014
Ray Whelan was arrested earlier this week
Have you tried new the Independent Digital Edition apps?
ebookA unique anthology of reporting and analysis of a crucial period of history
Arts and Entertainment
In a minor key: Keira Knightley in the lightweight 'Begin Again'
Arts and Entertainment
Celebrated children’s author Allan Ahlberg, best known for Each Peach Pear Plum
peopleIndian actress known as the 'Grand Old Lady of Bollywood' was 102
Wayne’s estate faces a claim for alleged copyright breaches
newsJohn Wayne's heirs duke it out with university over use of the late film star's nickname
Life and Style
It beggars belief: the homeless and hungry are weary, tortured, ghosts of people – with bodies contorted by imperceptible pain
lifeRough sleepers exist in every city. Hear the stories of those whose luck has run out
Mick Jagger performing at Glastonbury
Life and Style
fashionJ Crew introduces triple zero size to meet the Asia market demand
Santi Cazorla, Mikel Arteta and Mathieu Flamini of Arsenal launch the new Puma Arsenal kits at the Puma Store on Carnaby Street
sportMassive deal worth £150m over the next five years
Arts and Entertainment
Welsh opera singer Katherine Jenkins
musicHolyrood MPs 'staggered' at lack of Scottish artists performing
Life and Style
beautyBelgian fan lands L'Oreal campaign after being spotted at World Cup
Arts and Entertainment
Currently there is nothing to prevent all-male or all-female couples from competing against mixed sex partners at any of the country’s ballroom dancing events
Potential ban on same-sex partners in ballroom dancing competitions amounts to 'illegal discrimination'
Travel Shop
the manor
Up to 70% off luxury travel
on city breaks Find out more
Up to 70% off luxury travel
on chic beach resorts Find out more
sardina foodie
Up to 70% off luxury travel
on country retreats Find out more
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

Business Analyst Consultant (Financial Services)

£60000 - £75000 per annum: Harrington Starr: Business Analyst Consultant (Fina...

Systems Administrator - Linux / Unix / Windows / TCP/IP / SAN

£60000 per annum: Harrington Starr: A leading provider in investment managemen...

AVS, JVS Openlink Endur Developer

£600 - £700 per day: Harrington Starr: AVS, JVS Openlink Endur Developer JVS, ...

E-Commerce Developer

£45000 - £60000 per annum + competitive: Progressive Recruitment: Exciting opp...

Day In a Page

A History of the First World War in 100 Moments: Peace without magnanimity - the summit in a railway siding that ended the fighting

A History of the First World War in 100 Moments

Peace without magnanimity - the summit in a railway siding that ended the fighting
Scottish independence: How the Commonwealth Games could swing the vote

Scottish independence: How the Commonwealth Games could swing the vote

In the final part of our series, Chris Green arrives in Glasgow - a host city struggling to keep the politics out of its celebration of sport
Out in the cold: A writer spends a night on the streets and hears the stories of the homeless

A writer spends a night on the streets

Rough sleepers - the homeless, the destitute and the drunk - exist in every city. Will Nicoll meets those whose luck has run out
Striking new stations, high-speed links and (whisper it) better services - the UK's railways are entering a new golden age

UK's railways are entering a new golden age

New stations are opening across the country and our railways appear to be entering an era not seen in Britain since the early 1950s
Conchita Wurst becomes a 'bride' on the Paris catwalk - and proves there is life after Eurovision

Conchita becomes a 'bride' on Paris catwalk

Alexander Fury salutes the Eurovision Song Contest winner's latest triumph
Pétanque World Championship in Marseilles hit by

Pétanque 'world cup' hit by death threats

This year's most acrimonious sporting event took place in France, not Brazil. How did pétanque get so passionate?
Whelks are healthy, versatile and sustainable - so why did we stop eating them in the UK?

Why did we stop eating whelks?

Whelks were the Victorian equivalent of the donor kebab and our stocks are abundant. So why do we now export them all to the Far East?
10 best women's sunglasses

In the shade: 10 best women's sunglasses

From luxury bespoke eyewear to fun festival sunnies, we round up the shades to be seen in this summer
Germany vs Argentina World Cup 2014: Lionel Messi? Javier Mascherano is key for Argentina...

World Cup final: Messi? Mascherano is key for Argentina...

No 10 is always centre of attention but Barça team-mate is just as crucial to finalists’ hopes
Siobhan-Marie O’Connor: Swimmer knows she needs Glasgow joy on road to Rio

Siobhan-Marie O’Connor: Swimmer needs Glasgow joy on road to Rio

18-year-old says this month’s Commonwealth Games are a key staging post in her career before time slips away
The true Gaza back-story that the Israelis aren’t telling this week

The true Gaza back-story that the Israelis aren’t telling this week

A future Palestine state will have no borders and be an enclave within Israel, surrounded on all sides by Israeli-held territory, says Robert Fisk
A History of the First World War in 100 Moments: The German people demand an end to the fighting

A History of the First World War in 100 Moments

The German people demand an end to the fighting
New play by Oscar Wilde's grandson reveals what the Irish wit said at his trials

New play reveals what Oscar Wilde said at trials

For a century, what Wilde actually said at his trials was a mystery. But the recent discovery of shorthand notes changed that. Now his grandson Merlin Holland has turned them into a play
Can scientists save the world's sea life from

Can scientists save our sea life?

By the end of the century, the only living things left in our oceans could be plankton and jellyfish. Alex Renton meets the scientists who are trying to turn the tide
Richard III, Trafalgar Studios, review: Martin Freeman gives highly intelligent performance

Richard III review

Martin Freeman’s psychotic monarch is big on mockery but wanting in malice