World's Energy

07 February 2008 - Upstream OnLine - Kazakhstan fired a warning shot at foreign producers today, saying the government would repeat tactics used during a row over the huge Kashagan oilfield if they violated their contracts. The Central Asian state's new-found assertiveness in energy diplomacy has alarmed foreign investors who see its actions as part of the growing global trend of resource nationalism. Astana reinforced the view last month when it doubled its stake in Kashagan and stripped Italy's Eni of operatorship of the AgipKCO consortium, which is developing the giant Kashagan field, after months of tense negotiations. Prime Minister Karim Masimov, speaking at an energy ministry meeting, said foreign companies needed to show willingness to abide by Kazakh laws if they wanted to press ahead with their work. "All existing contracts with foreign investors will be respected by the Kazakh side and will not change if investors are fulfilling all their contractual obligations," Reuters quoted him as saying. "But if he (investor) is not fulfilling them, then we will hold friendly talks, just like with Kashagan." Masimov did not say whether he was unhappy with certain specific sectors or projects. Foreign producers have grown increasingly jittery as Kazakhstan, emboldened by booming global energy prices, took action to boost its weight in the strategic industry. It set alarm bells ringing further last year by passing legislation empowering the government to break oil contracts with foreign and Kazakh natural resource producers if it judged they posed a threat to its national security. Separately, Masimov urged state-run KazMunaiGaz to hold off any talks with investors on new projects until a new tax code comes into effect later this year. The code, due to be submitted to parliament by September, cuts taxes for companies operating outside the natural resources sector but raises some of the burden for oil and gas players. Its exact details are being mapped out by the government. KazMunaiGaz, which has a London-listed upstream subsidiary, by Kazakh law has the right to buy any oil assets before they are offered on the market. Mynbayev told the same meeting that Kazakhstan will produce between 69 million and 70 million tonnes of oil this year, slightly above last year's 67.5 million tonnes.