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On Frontier of Oil Business, Battle for Wealth and Power

July 8, 1995

ALMATY, Kazakhstan (AP) _ In the salty, windswept desert of western Kazakhstan, snakes, lizards and camels wander one of the most barren landscapes on earth.

Temperatures soar to 130 degrees in summer and plummet to minus 30 in winter. There’s no grass, no trees, no fresh water. And there was no reason for humans to be there _ until they struck oil.

``It depends on how you look at it,″ American oilman Bob Williams says of the harsh terrain. ``Some see it as stark beauty, others just see a hellhole.″

Oil companies see the next Saudi Arabia.

Since Kazakhstan gained independence in the breakup of the Soviet Union, Americans and Europeans have come in hopes of extracting billions of dollars worth of oil from the Caspian Sea basin, some 1,200 miles west of Almaty, the capital. Among the U.S. companies are Chevron, Exxon, Mobil and Amoco.

The scramble has also provoked a heavyweight political battle featuring the governments of the United States, Russia, Kazakhstan, Iran and Turkey.

Neighboring Russia controls the only oil pipeline out of western Kazakhstan and is using its monopoly to limit exports. A second pipeline is needed somewhere in the region, but all proposals have been dragged down by increasingly bitter wrangling among the rival powers over the route.

The stakes could hardly be higher: The winners will make billions and control the flow of what could be one of the world’s largest oil fields in the 21st century. If fully developed, the Caspian fields could change the shape of the oil industry and lessen Western dependence on the Middle East.

The most aggressive oil company has been Chevron, which has formed a joint venture with the Kazakh government to develop the Tengiz oil field on the northeastern coast of the Caspian.

The biggest of several fields in the region, Tengiz has an estimated 6 billion to 9 billion barrels of crude. That makes it one of the 10 largest oil fields in the world and the biggest to come into production since the Alaskan fields in the 1970s.

Since the project began two years ago, Chevron has invested about $1 billion and plans to invest up to $20 billion over 40 years.

``It’s a super-giant oil field,″ said Dale Wooddy, head of operations for the joint venture, TengizChevroil. ``We are on the frontier of the oil patch.″

But the pipeline dispute with Russia has limited exports to about 65,000 barrels a day, half of what was hoped for at this point. The Kazakhs alone were exporting almost as much before Chevron arrived.

This year Chevron had planned to invest some $500 million, but slashed that to $50 million because it cannot increase its exports.

``We’ve essentially put on hold expansion of the Tengiz project,″ said Wooddy.

Russia seeks to develop its own oil reserves and says it can take only a limited amount of Kazakh oil through its pipeline. Also, Russia considers Kazakhstan and the Caspian region part of its sphere of influence and wants to maintain political and economic sway over the area.

``I don’t rule out that there are political motives here to put Kazakhstan on its knees,″ Viacheslav Gizzatov, Kazakhstan’s deputy foreign minister, said of Russia’s policy.

One reason Russia has been so forceful in its war with Muslim separtists in Chechnya is that control of the Caucasus region is essential if Moscow wants to dictate oil export routes from the Caspian.

Everyone agrees on the need for an additional pipeline to handle increased output from the Caspian. Azerbaijan and Turkmenistan, two other states on the Caspian shoreline, also have huge oil and gas reserves that they seek to export as well.

``In the decades to come, we believe Kazakhstan and the Caspian region will be one of the world’s main sources of oil,″ William Courtney, the U.S. ambassador to Kazakhstan, said recently. ``We believe several pipelines will promote healthy competition in the transport of oil.″

But where to build the second pipeline?

A pipeline through Russia to the Black Sea would probably be the most efficient route, but that would let Russia keep full control over the region’s oil flow.

A proposed pipeline to Turkey and the Mediterranean would involve crossing the politically volatile Caucasus Mountains region.

Laying a pipeline through Iran to the Persian Gulf would face opposition from the U.S. government, which does not want to see the Iranians benefit from increased oil revenues or control over the flow of oil.

While the talks drag on, Chevron sits on its large pool of oil and waits.

Even at present levels, it is a huge operation with some 4,000 employees in the Tengiz field, including 180 Chevron specialists, mostly Americans.

It is a strange existence, with workers pulling 12-hour shifts, seven days a week. After 28 days of work, they get 28 days off. The Americans fly home, with most having roots either in Texas or near San Francisco, Chevron’s headquarters.

In Tengiz, they live in dormitories with scant diversions, save a bar, a pool table, some televisions and occasional softball games. There are no towns or cities nearby, and workers have to rely largely on electronic mail and a fax machine to communicate with their families.

``It’s taken a lot of work just to make it liveable year-round,″ said Williams, one of the top executives on the TengizChevroil project. ``I’m not sure you’ll ever be able to call it comfortable.″

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