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Oil and Gas

Kashagan and Karachaganak: Will Kazakhstan’s Claims Lead to Changes in the Shareholder Structure?

The beginning of 2026 has been marked by a new round of confrontation between Kazakhstan and the international consortia developing the country’s largest oil and gas fields, North Caspian Operating Company N.V. (Kashagan) and Karachaganak Petroleum Operating B.V. (Karachaganak). Below is an overview of the current situation and the possible scenarios. Arbitration proceedings initiated in early 2023 have expanded from $16.5 billion to more than $170 billion. Over three years, Kazakhstan has secured preliminary victories on several claims, enough, in my view, to suggest that the era of foreign oil consortia dominating Kazakhstan’s strategic projects may be coming to an end. Ecology and NCOC Violations This week, Bloomberg reported in its article “Oil Majors Seek Arbitration Over $5 Billion Kazakh Sulfur Fine” that the NCOC consortium is filing in international arbitration to challenge a Kazakh court decision to collect 2.3 trillion tenge (KZT). The Bloomberg headline, however, presents the issue inaccurately. Environmental violations, including the excessive storage of approximately 1 million tons of sulfur, were identified during an inspection in March 2023, when the exchange rate stood at 451.71 KZT per $1. The rate later rose to 520-540 and currently stands at around 500 KZT per $1. According to investment forecasts, it may reach 600 KZT per $1 by the end of 2026. As a result, the dollar equivalent of the fine has decreased significantly. At the March 2023 rate, 2.3 trillion KZT amounted to approximately $5.1 billion. At 500 KZT per $1, it equals about $4.6 billion. At 600 KZT per $1, it would fall to roughly $3.8 billion, a difference of about $1.3 billion. After my earlier publications arguing that foreign consortia should be fined in foreign-currency equivalent at the exchange rate prevailing at the time of filing, the proposal was also raised in Parliament. Such an approach would be logical: the consortia export their oil and receive revenue in foreign currency, yet fines are imposed in tenge. After several rounds of appeals, the consortium lost what became the largest environmental dispute in Kazakhstan’s history, initially involving more than 20 systematic violations of environmental legislation. Correspondence between consortium members published in Western media indicated they were aware of the violations but considered remediation and compliance financially costly. NCOC’s annual revenue is approximately $10 billion. Media reports also stated that the consortium offered around $110 million, roughly 50 times less than the fine, for regional social programs in exchange for waiving environmental claims. Neither NCOC nor the Kazakh government confirmed such negotiations. In 2010-2011, similar environmental and tax claims against the Karachaganak consortium resulted in Kazakhstan receiving a 10% stake in the project. The current ownership structure of NCOC is: ENI (Italy) - 16.81% ExxonMobil (U.S.) - 16.81% CNPC (China) - 8.33% INPEX (Japan) - 7.56% TotalEnergies (France) - 16.81% Shell (UK) - 16.81% KazMunayGas (Kazakhstan) - 16.88% Total investment in Phase One of Kashagan is estimated at $60 billion. By analogy with Karachaganak, the environmental fine could hypothetically lead to an increase in Kazakhstan’s share by 5-7 percentage...

Oil and Gas

Kazakhstan vs Eni: How a Swiss Lawsuit Could Reshape the $160 Billion Kashagan Dispute

The legal landscape surrounding Kazakhstan’s energy sector has taken an unexpected turn. What began as a closed commercial arbitration dispute has now entered the public sphere in Switzerland’s courts. This marks a significant escalation in Astana’s confrontation with international oil and gas majors. According to Bloomberg, PSA LLP, a structure representing Kazakhstan’s interests in production-sharing agreements (PSAs), has significantly broadened its claims. The lawsuit now directly targets alleged schemes involving units and executives of the Italian company Eni. Kazakhstan alleges that during the early development of Kashagan infrastructure, including the Bolashak processing plant and pipeline systems, corruption and fraud may have occurred. Arbitration claims against the NCOC consortium, which includes Shell, ExxonMobil, TotalEnergies, and Eni, exceed $150 billion. Within this context, the Swiss case has become the most sensitive element. The Swiss case itself is much smaller – $15 million plus interest – and is being used to gather evidence and strengthen the larger arbitration case. While the financial stakes are high, the proceedings reflect a deeper political shift. Kazakhstan is moving away from the 1990s model of offering investors exceptional privileges. Under President Kassym-Jomart Tokayev’s “Fair Kazakhstan” policy, the state is aiming to secure more balanced and equitable cooperation with foreign partners. Distinctiveness of Swiss Proceedings The Swiss case is distinctive due to the nature of its allegations. The plaintiffs claim that during the tenure of Agip KCO (an Eni subsidiary) as project operator, contracts were awarded amid corrupt practices. Allegations include inflated prices and kickbacks to contractors. Targeting Eni is deliberate. The company led the project during its most troubled phase from 2001 to 2008. Kashagan’s budget swelled during this period, with repeated delays. Following a 2013 gas leak, production was halted for nearly three years. Kazakh officials have long linked Kashagan’s massive cost overruns and technical failures to poor procurement and mismanagement, and the current legal offensive zeroes in on alleged corrupt tenders. Cost estimates rose from a few tens of billions of dollars to around $60 billion, and by 2007, projections for total project costs had reached about $136 billion. Why Switzerland? The selection of the Swiss jurisdiction is strategic. Switzerland’s laws on corruption and financial crimes allow for the prosecution of both corporations and individual executives. Moreover, many entities connected to Kashagan’s operations are registered there. Another factor is the PSA’s stabilization clause, which forbids altering the contract’s terms. However, under international legal norms, if corruption is proven in the contract’s formation, such protections can be voided. This opens the door for Kazakhstan to challenge key financial terms of the agreement. Resource Nationalism 2.0: Legal Strategy Meets Political Logic Astana’s current posture can be described as a form of “new-generation resource nationalism.” Rather than using administrative leverage, the state is deploying legal tools to address grievances. This is driven in part by Kazakhstan’s fiscal needs, ranging from infrastructure upgrades to social spending. Amid these pressures, the vast expenditures reported by Kashagan operators have drawn public skepticism. Kazakhstan’s claims aim to re-evaluate the cost recovery model...

Kazakhstan Oil Output Projected to Reach 100 Million Tons Annually

Kazakhstan is projected to reach an annual oil production level of 100 million tons in the coming years and sustain that output over the long term, according to Askat Khasenov, Chairman of the Board of the national oil and gas company KazMunayGas (KMG). The Ministry of Energy initially forecast oil production at 96.2 million tons for 2025, later adjusting the estimate to 96 million tons. In 2024, Kazakhstan produced 87 million tons of oil, with growth driven by the Tengiz expansion and the development of the Karachaganak and Kashagan projects in western Kazakhstan and the Caspian shelf. In November 2024, the ministry announced plans to surpass 100 million tons annually starting in 2026. KMG believes this level can be maintained for the foreseeable future. “The government officially plans to produce more than 100 million tons of oil per year, and I believe this plateau will last for a long time. New geological projects will allow us to maintain this level in the long term,” Khasenov said during Kazakhstan Energy Week 2025 in Astana. “Our company is actively developing exploration under a strategy focused on the sustainable replenishment of the country’s mineral resource base. Currently, KMG’s portfolio includes 13 exploration projects, implemented both independently and in partnership with international companies such as Eni, Lukoil, CNOOC, Sinopec, and Tatneft. Our goal is to achieve an increase in reserves of up to 200 million tons of oil in the short term.” Khasenov also noted that KMG is conducting geological studies in underexplored regions of Kazakhstan, with eight new projects already initiated. The overall potential of ongoing exploration is estimated at 800 million tons of oil equivalent. In parallel, the company is applying enhanced oil recovery techniques to sustain production at mature fields. Another strategic priority for KMG is oil refining. The company aims to fully meet domestic demand for gasoline, diesel, and other fuels while expanding its petrochemical footprint to produce polymers and carbamide, boosting Kazakhstan’s non-resource exports. Temirlan Urkumbaev, Director of the Department of Petrochemistry and Technical Regulation at the Ministry of Energy, emphasized that petrochemicals are becoming a cornerstone of economic diversification. “Petrochemistry is not just about new sources of revenue. It brings new jobs, export income, and sustainable development. For Kazakhstan, the transition from a raw-material model to deep processing is a strategic necessity,” Urkumbaev said. The ministry has developed a 2024-2030 Roadmap for the petrochemical industry, which includes six major projects worth approximately $15 billion and expected to create more than 19,000 jobs. Among these is a polyethylene plant with an annual capacity of 1.25 million tons, scheduled to begin operations in 2029. The facility will produce over 20 grades of polyethylene, including premium types, and is projected to account for around 1% of the global market. Other planned projects include the production of butadiene, carbamide, and alkylate. In 2022, Kazakhstan launched one of the world’s largest polypropylene plants KPI Inc. with an annual capacity of 500,000 tons. As previously reported by The Times of Central Asia, the Kazakh...

Kazakhstan Presses Oil Giants as Kashagan Revenues Face Scrutiny

The media in Kazakhstan is once again debating the revision of production sharing agreements (PSAs) with foreign companies in the country’s major oil consortia. PSA LLP, the state-owned operator authorized by the Ministry of Energy to represent Kazakhstan’s interests in the North Caspian Production Sharing Agreement, has released new data on revenues from the Kashagan field, information expected to reignite calls to amend agreements with major Western oil producers in Kazakhstan’s favor. President Kassym-Jomart Tokayev has publicly backed the discussion. In January, he instructed the government to intensify negotiations with foreign investors. "The implementation of production-sharing agreements for large fields has allowed Kazakhstan to become a reliable supplier of energy to the global market. These projects have made a great contribution to the country’s socio-economic development. However, large investments require a long-term planning horizon. Therefore, the government must intensify negotiations on extending PSA contracts, possibly on revised terms that are more favorable for Kazakhstan,” Tokayev said at an expanded government meeting. The PSA company, headed by Tokayev’s nephew, Beket Izbastin, reported that in 2024, the Kashagan consortium’s total revenue from oil, gas, and sulfur sales exceeded $11 billion. Of this, 80% covered capital and operating costs (“Cost Oil”), while only 20% came from “Profit Oil,” amounting to $2.2 billion. Kazakhstan’s share was 10%, or $220 million. Including the $430 million in taxes paid by the operator, NCOC, the country’s total revenue was $650 million. “With revenues of $11 billion, the republic’s share, including taxes, was only 6%, the lowest among oil companies not only in Kazakhstan but globally,” PSA said. Under the current terms, Kazakhstan’s share of Profit Oil will not increase until three billion barrels have been extracted from Kashagan. Only the first billion has been produced over the past decade. Shareholders are expected to begin paying a 30% income tax soon; KazMunayGas has already transferred an initial $45 million payment from the Kashagan profits. The fairness of this revenue distribution is now a central point of debate. Some observers believe the renewed focus ahead of the next parliamentary session could signal that Tokayev will again raise the issue in his annual address, alongside agreements for Karachaganak and Tengiz, the other pillars of Kazakhstan’s oil sector. Tengiz operates under a contract expiring in 2033, earlier than Karachaganak (2037) and Kashagan (2041). At his press conference in Astana last month, Prime Minister Olzhas Bektenov confirmed that negotiations with major oil companies had only just begun. “Indeed, there is a view that the country’s interests are significantly infringed upon. We are starting negotiations with our consortium partners to conclude new PSAs for a new period. This will be done in a measured and balanced manner, without sudden moves, while defending the national interests of our country,” Bektenov stated. The question of what exactly constitutes “national interests” remains open. In February, Mazhilis deputy Edil Zhanbirshin linked the issue to Kazakhstan’s dependence on imported fuel. Despite the $3.7 billion spent on modernizing the country’s three oil refineries, annual processing volumes remain below 18...

What Will Kazakhstan Make of the Novorossiysk Constraint?

Russia’s July decree requiring FSB approval for foreign vessels entering Novorossiysk introduces a new procedural constraint into the regional export environment. Modest in scope, the measure nevertheless grants Moscow a latent mechanism for influencing Kazakhstan’s primary oil export route via the CPC pipeline, and by extension, its westward orientation. The CPC terminus, long treated as infrastructurally neutral, has been “recoded” as a site of discretionary oversight. This development coincides with the gradual erosion of the energy governance model inaugurated by foreign concessions at Tengiz, Karachaganak, and Kashagan, where Production Sharing Agreements (PSAs) created juridical islands largely external to domestic legal and fiscal regimes. It is possible that a new phase is emerging whereby infrastructural flows are re-anchored in sovereign discretion, as an accumulation of procedural instruments favors regional currencies and reduces Western intermediation. Kazakhstan’s energy model was built on upstream Western capital and downstream Russian transit. The fragility of that erstwhile equilibrium has now been revealed, even though the disrupter is not a single actor but a convergence of pressures. This dual-dependency now appears more vulnerable, unsettled by converging geopolitical and institutional pressures. The superficial continuity of physical infrastructure masks deeper shifts in logistical autonomy, fiscal sovereignty, and international alignment. Structural Exposure and Strategic Compression The fiscal layer exposes the shifts. Revenues from Western-operated concessions are routed into the National Fund, which reinvests them into foreign debt instruments, often issued by the same economies that operate Kazakhstan’s extractive infrastructure. Kazakhstan’s export of physical assets and reinvestment into external liabilities constitutes a structural contradiction. The state’s constitutional control over subsoil resources is not matched by operational authority. The CPC pipeline, though formally multinational, is routed entirely through Russian territory. The new decree does not immediately alter its function, but it inserts a potential instrument of political leverage. The bargaining terrain has consequently already shifted: what was previously a matter of contractual detail is now entangled with external discretion. For the present, the decree’s practical impact is limited, but it reveals the current system’s embedded asymmetry. Moscow’s move signals a readiness to formalize political leverage. It lays the groundwork for a possible reconfiguration of Eurasian energy flows under post-conflict conditions. In this vision, transactions would be conducted through sovereign institutions, denominated in rubles, tenge, or other regional currencies. The intent is clear: to reduce reliance on Western frameworks and to re-anchor Russia’s “peripheries” within its institutional orbit. The maneuver unfolds within a broader context of strategic adjustment. Europe is searching for non-Russian energy inputs. Turkey is expanding corridor-based integration. China’s Belt and Road Initiative continues to institutionalize long-term infrastructural absorption. Kazakhstan has become a contested node within overlapping geopolitical networks that pull it in different vectorial directions. Against this backdrop, the once legal-technical re-negotiations over Tengiz, Karachaganak, and Kashagan are situated within a tectonically shifting geopolitical matrix. Trans-Caspian connectors, digital corridors, and regulatory frameworks are coalescing into a new infrastructural logic. The decree has little practical effect for now, but it points to a deeper condition where sovereignty is declared but not...

Tokayev Moves to Reclaim Kazakhstan’s Energy Future

In January 2025, Kazakhstan’s President Kassym-Jomart Tokayev instructed the government to seek revisions to the nation’s production-sharing agreements (PSAs). The first known result of that directive has now surfaced, with the International Consortium of Investigative Journalists (ICIJ) publishing a report regarding a confidential interim ruling in an arbitration case. According to this information, Kazakhstan is pursuing a $160 billion claim against the North Caspian Operating Company (NCOC), the consortium managing the Kashagan oil field. The ruling states that after royalty payments, NCOC receives 98% of remaining revenue from Kashagan’s output. The document concerns a narrower environmental dispute, but the 98% figure alters the landscape. The contract in question dates to the 1990s, when Kazakhstan — newly independent, fiscally constrained, and eager for technical expertise — entered into deals that prioritized attracting investment over securing long-term national benefit. The government now argues that those historical constraints no longer apply, while the revenue-sharing terms remain effectively frozen in place. Rather than seek unilateral redress or executive override, Tokayev’s administration has turned to arbitration. The venue, the Permanent Court of Arbitration in The Hague, and the legal framing mark a continuation of Kazakhstan’s methodical approach to reasserting national interests in its domestic political economy. This latest move cannot be understood as an isolated decision. It reflects a trajectory of state behavior extending back three decades. In the early 1990s, when Chevron’s bid for Tengiz was effectively imposed as a condition for U.S. bilateral assistance, Kazakhstan lacked both the leverage and the institutional competence to resist — a dynamic I analyzed in detail at the time. Chevron’s refusal to direct more than a token amount of investment to social infrastructure nearly sank the agreement. A similar dynamic surrounded the financing and structuring of the Caspian Pipeline Consortium (CPC). Kazakhstan’s attempts to assert greater influence were often thwarted, not least by the asymmetry of legal expertise and negotiating experience. That imbalance began to shift by the early 2000s. The creation of KazMunaiGas (KMG) in 2002 consolidated the state's participation in the energy sector and enabled its strategic action to become more coordinated. By 2003, Kazakhstan was insisting on conformity with international accounting standards at Tengiz, not only to ensure transparency but also to block attempts by foreign operators to defer investment obligations. Environmental enforcement became more assertive as well, with fines imposed on Tengizchevroil for massive open-air sulfur storage, a practice that had long provoked public concern. The Kashagan field, discovered in the late 1990s and described as the largest oil find since Alaska’s Prudhoe Bay in 1968, became the focal point of these tensions. From the outset, Kazakhstan’s participation in the consortium was marginal. A restructuring of the consortium in the early 2000s brought KMG back in, but cost overruns and delays continued. By 2007, the government had suspended work at Kashagan, citing both ecological violations and spiraling expenditures, in a sequence of events I traced contemporaneously during the legislative and consortium restructuring that followed. Amendments to the Law on the Subsurface followed, granting...