In previous years, almost all of Karachaganak's crude oil production was processed at Russian facilities associated with the Orenburg field located just across the border. In April 2003, a pipeline spur southward to Atyrau was completed that connects the Karachaganak field to Kazakhstan's primary export pipeline, the Caspian Pipeline Consortium (CPC) project. The new connection has enabled increased exports from Karachaganak, and has reduced the consortium members' dependence on Russian buyers.

Kashagan
The Kashagan field, the largest oil field outside the Middle East and the fifth largest in the world (in terms of reserves), is located off the northern shore of the Caspian Sea, near the city of Atyrau (see Map 1). Although the field is still being appraised, in June 2002 the consortium operating the field, the Agip Kazakhstan North Caspian Operating Company--Agip KCO (formerly known as OKIOC), estimated the field's recoverable reserves at 7-9 billion barrels of oil equivalent, with further potential totaling 9 to 13 billion barrels using secondary recovery techniques (gas injection, for example). Oil production is not expected to begin until 2008 at initial levels of 75,000 bbl/d, with subsequent levels of around 450,000 bbl/d. Peak production of 1.2 million bbl/d is expected by 2016.

Costing approximately $29 billion to develop, the Kashagan field has presented particular challenges for its developers. Kashagan contains a high proportion of natural gas under very high pressure, the oil contains large quantities of sulfur, and the offshore platforms require construction that can withstand the extreme weather fluctuations in the northern Caspian Sea area. A new tax structure was introduced by the government this year, so the ownership rights of the field remained unclear for almost two years after British Gas (BG) decided to sell its 16.7 percent share of the field. Only recently after drawn-out negotiations, consortium members decided to redistribute BG's share, giving half to themselves and half to Kazmunaigaz. While the share was being negotiated, little progress was made on the field's development, thereby possibly extending the field's online date beyond 2008.

Kurmangazy
Located on the maritime border between Russia and Kazakhstan, the Kurmangazy field is the least developed of Kazakhstan's upcoming oil field developments. Russia and Kazakhstan signed a new $23 billion PSA agreement for the 7.33 billion barrel Kurmangazy oil field in July 2005. Oil output from this field could raise Kazakhstan's total oil output even further by adding up to 600,000 bbl/d in the next decade. After some delay on the terms of the agreement, Russian and Kazakh state oil firms Rosneft and Kazmunaigaz signed the deal in the hopes that this would hasten the field's development. A bilateral agreement signed by Kazakhstan and Russia in May 2002 delineated the Kazakh and Russian sectors of the Caspian seabed and defined the development of Kurmangazy and two other disputed offshore fields that are situated near the Kazakh/Russian border.

For a detailed map of the Caspian Region's oil and gas infrastructure please click here.

OIL EXPORTS

For the first half of 2005, Kazakhstan's exported on average 1.1 million bbl/d in three directions: northward (via the Russian pipeline system and rail network); westward (via the Caspian Pipeline Consortium Project and barge to Azerbaijan); and southward (via swaps with Iran). Kazakhstan also exported approximately 30,000 bbl/d eastward to China via the Alashankoy rail crossing in 2005. The majority of Kazakh oil is exported via pipeline through Russia and other neighboring countries. Connections to ports on the Black Sea and the Persian Gulf have allowed some Kazakh oil (or proxy oil from Iran) to be traded on the world market. Efforts are underway to expand the country's export infrastructure (see MAP) (especially to the east) over the next decade as Kazakhstan's oil production increases. The Kazakh energy minister stated at a conference in June 2005 that despite the Kazakhstan-China and BTC pipelines, Kazakhstan will still have a need for additional export routes (roughly 300,000-400,000 bbl/d) by 2011. When the BTC project opened in May 2005, Kazakhstan announced that it would agree to increase overseas shipments on the Caspian to Baku from around 145,000 bbl/d to around 760,000 bbl/d by 2016. Also, there is a proposal to build an export pipeline from Kazakhstan to Iran via Turkmenistan but the proposal has yet to gain support from Western investors. Kazakhstan has also taken a heightened interest in sending oil over the Black Sea to the reversed Odessa-Brody pipeline.

In January 2004, Kazakhstan started taxing crude oil exports for the first time. Now, oil producers must pay taxes on oil exports in increasing magnitude as the world oil price fluctuates. The tax ranges from 1 percent when oil prices are around $19/bbl to 33 percent if prices rise as high as $40/bbl or more. All exporters except those in fixed price production-sharing agreements are liable to pay the tax.

Caspian Pipeline Consortium (CPC)
The 980-mile long CPC connects Kazakhstan's Caspian Sea area oil deposits with Russia's Black Sea port of Novorossiysk (see BG project page). The governments of Russia, Kazakhstan, and Oman developed the CPC project in conjunction with a consortium of international oil companies. It is actually an extension of the existing oil transit infrastructure surrounding the Caspian Sea. Newly constructed components of the line run from the Russian town of Komsomolskaya straight westward to Novorossiysk. The pipeline is supplied with Kazakh oil through the Soviet-era links surrounding the Sea, which the consortium members have refurbished. The first crude oil was loaded onto a tanker in Novorossiiysk on October 15, 2001, and the pipeline was officially opened on November 27, 2001. Initial capacity of the CPC pipeline is 560,000 bbl/d, and the consortium has plans for a $1.5 billion expansion project to increase the pipeline's peak capacity to 1.35 million bbl/d by 2009. The pumping tariff will rise by 34¢/bbl to $4.21/bbl. No timetable for implementation of the new tariff has been set. CPC will add 200,000 b/d in capacity in 2007 and a further 200,000 b/d in 2009, with the balance to be completed by 2011.

Since October 2001, the CPC has transported roughly 275 million barrels, or roughly one-third of Kazakhstan's exports. Most of this oil came from the Tengiz field. With the completion of the two pipeline spurs from Kenkiyak and Karachaganak to the CPC at Atyrau (see Map 1), CPC transport levels increased from around 310,000 bbl/d in 2003 to 450,000 bbl/d in 2004, an increase of 45 percent. Export levels reached a peak of 655,000 bbl/d in April 2005 but have decreased about 50,000 bbl/d each month until July 2005. Russian oil companies TNK-BP and Rosneft have begun to use CPC more due to constraints on the Russian pipeline system. According to Transneft, Russia's pipeline monopoly, Russian oil producers used the CPC for approximately 85,000 bbl/d in May 2005.

Atyrau-Samara
Kazakhstan's other major oil export pipeline, from Atyrau to Samara, is a northbound link to the Russian distribution system. Before the completion of the CPC pipeline at the end of 2001, Kazakhstan exported almost all of its oil through this system. But, since Kazakhstan desired more independence from the Russian transit systems, it favored the development of transport alternatives. Still, in June 2002, Kazakhstan and Russia signed a 15-year oil transit agreement under which Kazakhstan will export 340,000 bbl/d of oil annually via the Russian pipeline system. Russia's trade ministry also pledged to increase the capacity of the line to around 500,000 bbl/d. As the CPC project grows with Kazakh production, absolute volumes though Atyrau-Samara are expected to grow, but this pipeline will become relatively less significant.