Vast Caspian Oil Field Found

By David B. Ottaway, Washington Post, Tuesday 16 May 2000; A01

A consortium of Western oil companies has found a vast petroleum reserve in the northern Caspian Sea off the coast of Kazakhstan that may well be the largest oil discovery anywhere in the world in the past 20 years, according to U.S. officials and industry sources.

While efforts to map out the confines of the vast field have just begun after nine months of drilling, initial estimates of its size range from 8 billion to more than 50 billion barrels of oil, the sources said.

If the 480-square-mile deposit, called the Kashagan field, proves to be anywhere near the higher estimate, it could surpass the size of the North Sea fields. The last oil find of comparable size was in 1979, also in Kazakhstan, when it was part of the Soviet Union. That field, located onshore at Tengiz, is now being exploited by an international consortium led by the American oil company Chevron Corp.

"The Caspian is back on the map in a big way," said an administration official, who said the offshore Kazakh field may hold 32 billion barrels of oil "or maybe more."

Kazakhstan's prime minister, Qasymzhomart Toqaev, announced on May 10 that the consortium had found "big deposits of oil" but refused to speculate about the size.

The immediate political impact of the new Kazakh oil discovery is likely to be an acceleration of the competition between the United States and Russia for control over the pipelines that are being built, or planned, to transport growing volumes of Caspian oil to markets in Europe.

The Clinton administration has been promoting the building of a $2.4 billion, 1,080-mile pipeline running from Baku, the capital of Azerbaijan on the western side of the Caspian, through Georgia to the Turkish port of Ceyhan on the Mediterranean coast. U.S. officials want to prevent any Caspian pipelines from running south through Iran and would also like to keep Russia from dominating all the export routes.

But the proposed Baku-to-Ceyhan pipeline, capable of carrying 1 million barrels a day, needs more Caspian oil to make it commercially viable. U.S. officials are hoping that Kazakhstan will solve this problem by exporting more of its crude to Azerbaijan across the Caspian in barges, or under it through a pipeline.

"If [the discovery] is confirmed, it would be a tremendously important boost to the Baku-Ceyhan pipeline," said John S. Wolf, the administration's chief Caspian oil negotiator.

Meanwhile, Moscow is pressing Kazakhstan, a former Soviet republic that still launches satellites for Russia, to ship the bulk of its oil through pipelines crossing Russian territory to their own ports. It has offered to expand one of its pipelines just to accommodate Kazakh exports.

Industry sources warned that it could be another five years before the Kashagan offshore field begins producing oil. Nevertheless, Kazakhstan appears to be emerging as the Caspian's major oil producer, overtaking Azerbaijan, where exploration for oil has yielded disappointing results.

Kazakhstan, a land of sparsely populated vast steppes, shares a 4,250-mile border with Russia and was the former Soviet Union's second largest republic. Its population was 16.5 million in 1998. Since gaining independence in 1991, it has been under the rule of President Nursultan Nazarbayev, a semi-authoritarian leader who has struggled to build an economy independent of Russia mainly by expanding its oil sector.

Even before the latest discovery, oil was the country's main export and main source of hope for development. In 1997, oil shipments abroad were valued at $1.5 billion, a quarter of the country's total exports.

The nine-company consortium, in which Exxon Mobil Corp. and Phillips Petroleum Co. are the only American partners, is expected to issue a preliminary statement this week about the Kashagan field. Oil analysts said the statement is likely to avoid any estimate of the oil field's size, or even use the word "discovery." This is because formal announcement of a discovery triggers time limits for the development of the field and the start of exports.

The consortium is also likely to be cautious at this stage because only one test well has been drilled so far in an area known as East Kashagan--the easternmost bulge of what is described as a dog bone-shaped field in shallow waters, stretching out deep underground. Sources familiar with the state of exploration there said initial indications are extremely promising and that the bottom of the field has not yet been reached.

Lending credence to the probable discovery of a major find, the private Russian oil company, Lukoil, announced in March that it too has found a major deposit in an adjacent Caspian exploration zone that it estimates contains over 2 billion barrels of "proven reserves."

The initial estimates of the size of the new offshore Kazakh field do not represent proven reserves--the amount of recoverable oil in the field--but instead the total amount of oil that might be there. Oil companies are currently able to recover between one-quarter to one-third of the oil in most fields, but the proportion varies with the price of oil and the techniques used.

The North Sea fields, shared mainly by Britain and Norway, are currently estimated to hold around 17 billion barrels in proven reserves. The Kazakh onshore giant at Tengiz holds somewhere between 6 billion and 9 billion barrels in proven reserves. The world's largest oil field, at Ghawar in Saudi Arabia, contains 70 billion to 85 billion barrels of proven reserves.