Kazakhstan: Shuffle the deck

There's a great summary post at Global Voices that shows the many changes being implemented in the oil and gas industry; political appointments; and media ownership.  The effect of this much change in such a short time is to make Central Asia watchers paranoid, and with good reason: in general,  it takes time to assimilate the meanings of even the most transparent announcements. 

The oil price cycle
However, many of Kazakhstan's personnel and policy changes are not terribly unpredictable economically.  For instance, when oil prices are high, almost every state will consider the advantages of expropriation.  This phenomenon is a feature of the oil price cycle since the 1970's: in 1973, when much of the Persian Gulf expropriated oil; in 1979, during Iran's revolution; and in the past few years, states in Latin America, this year, Russia, and now–possibly–Kazakhstan. 

Although all scenarios that consider power and political consolidation may be true,  such as the changes that include Mr. Kulibaev's departure from Samruk, the state holding company and the problems at ENI are related to a current high price for production, and ENI's inability to get the oil out of the ground.  Discussions of environmental or safety violations legitimize the state's act of expropriation, but I’m pretty sure these act as legitimizers alone.  According to Dow Jones on August 31st:

The government of Kazakhstan expects compensation for what it sees as “tens of billions of dollars” of economic harm due to massive cost overruns and delays at the Kashagan oil project, led by Italy's Eni SpA (E), a government official said Friday.

 According to RigZone, an oil industry news source, the Kashagan field was supposed to be developed in three phases.  The first phase included extensive research into the technical problems of the Kashagan field; the second, “rapid development” of production, and the third, production stabilization.  The same article describes many of the environmental fail-safes included for drilling.   The technical problems include large amounts of sulphur, poisonous gases, and an offshore situation where water is so shallow that it freezes in the winter and makes safety and cleanliness more difficult. 

Reading between the lines of an April 2007 article on the project, it appears that the first phase is now completed–because Kvaerner & ERSAI are now building (r just finished) support structures for a new phase of development.  In this case, with plans already made available and public to Kazakhstan, most of the brain work is done.  The project is now more vulnerable to takeover because this is the kind of work that independent oil companies do so well.  Now that state-of-the-art procedures have been deduced, drawn-up, and put into a production schedule, it becomes an art of implementation, (which a firm such as Russia's Lukoil , which was mentioned at Global Voices Online) or any set of different oil companies could involve themselves.  Kazakhstan could expropriate the entire field, retain the technical specs and solutions, and then ask for re-bidding on the field.  It's not a pretty picture. 

But while most people are looking at Russia's oil companies as the spur for expropriation, this may be a mistake.  China's CNPC purchased PetroKazakhstan, a Canadian company, for 4.18 million after Kazakhstan insisted that all buyouts of oil consortiums within their territory be approved by their government.  ONGC (India), which had been considering a buyout, bowed out and CNPC came forward to invest.

So remember economics . . .
With so many customers available, and oil prices so high, it is perhaps to be expected that Kazakhstan would want to change the manner of its oil deals.  ENI and the rest of the Kashagan consortium has been in a vulnerable position due to the lateness of production and the step of production that they have completed, which comprises most of its competitive edge.  The question then becomes: what does Kazakhstan hope to gain?  The first answer is income.  But there are other items: OSCE leadership; continued interest from other states even as all the oil has been bespoken and lease arrangements made; a more varied economy; a better monetary policy.  On a purely domestic level, Kazakhstan may well be trying to change in the coalitions of power within the state–perhaps to further consolidate Mr. Nazarbaev's power or perhaps to change what powers other coalitions have for other reasons.  In the end, however, I believe that economics and production are