Kazakhstan is in the midst of an oil boom that has made it one of the fastest-growing economies in the world. The oil revenues are transforming what was once a remote backwater that served as a gulag for hundreds of thousands of Soviets deported by Joseph Stalin into an economic powerhouse in Central Asia. Foreign companies and governments are all competing for a slice of Kazakhstan's energy pie.
One company drilling in the western Kazakh steppe is Max Petroleum. Lars Kejser, an oil worker from Denmark, heads to one of the company's fields on a recent day, driving over rough, dirt roads through countryside as flat and barren as far as the eye can see. However, deep below the surface lie vast quantities of untapped oil.
"We're approximately 24 meters below sea level," Kejser says, as the vehicle approaches a dusty camp. A gas flare burns in the distance, from a neighboring state-controlled oil field where dozens of donkey-shaped derricks bob as they suck oil out of the ground.
Kejser has come to oversee repairs on a malfunctioning 3,000-foot-deep oil well, where sand has been clogging the pump. A team of Kazakhstanis and mustachioed Romanians struggle with a series of pipes. At one point, a stream of bright green oil spills out of a pipe.
By lunchtime, the pump is repaired. A black hose running out of the well throbs as highly pressurized oil jets through it into a nearby tank.
"This well is producing 650 to 630 barrels a day right now," Kejser explains. "At this rate, it will pay itself back in a month's time."
In the Midst of a Boom, Competition Is Fierce
Thanks to Kazakhstan's enormous deposits of oil, natural gas and uranium, the Central Asian republic has become a much sought-after prize in the global scramble for dwindling energy supplies.
Kazakhstan currently produces more than a million barrels of oil a day, mostly from the Caspian Sea basin in the western part of the country. Analysts predict those exports will double, perhaps even triple, within the next five years, when oil wells are completed on the offshore Kashagan field, described as the world's single largest oil discovery in 30 years.
"As our demand for oil grows, we're going to be increasingly dependent on Caspian resources," says John Roberts, an energy security analyst with Platts. "We're a little concerned with how we're going to get it to the market."
Until recently, all of the pipelines used to transport oil and natural gas from Kazakhstan and neighboring Turkmenistan went through Russia, which is itself an oil- and gas-producing state.
The U.S. and Europe have tried to break this Russian monopoly by lobbying for the construction of a new pipeline toward Europe that would bypass Russian territory. The proposed Trans-Caspian Pipeline would run under the Caspian Sea from Central Asia to Azerbaijan, where it would link up with a recently constructed U.S.-backed pipeline to Turkey.
Alternate Pipeline Plan Faces Challenges
American oil companies are the biggest players in Kazakhstan, with more than $13 billion invested. But it's the European Union that perhaps stands to gain the most from an alternate pipeline. The EU depends on natural gas from Russia to generate much of its heat and electricity. That supply was threatened last year when Moscow shut off the gas pipeline to Europe during a price dispute with Ukraine.
"It was very dangerous for Europe," says Aliya Baydebekova, an energy specialist at the Delegation of the European Commission in Almaty. "The EU depends very much on Russian supplies of gas, so it is for security reasons that they need to diversify their sources of energy."
But last month, Russian President Vladimir Putin dealt a blow to European plans for an alternate pipeline when he signed an agreement to construct a new natural gas pipeline from Turkmenistan across Kazakhstan to Russia.
"The Russians basically don't respond kindly to the idea of competition," Roberts says. "They view alternative routes as at the very least a challenge, and probably more likely, a threat."
Focusing on Business, Not Politics
In the past few years, a new player has emerged in what some analysts are calling Central Asia's pipeline wars. In 2005, Kazakhstan began pumping oil through a new cross-border pipeline to its eastern neighbor, China. This month, Kazakhstan's president announced plans to extend that pipeline across Kazakhstan, all the way to the Caspian Sea.
"Everyone wants a piece of the energy pie," explained an executive from a Chinese state oil company operating in Kazakhstan, who asked not to be identified because he was not authorized to speak on the company's behalf.
Tanya Costello, an analyst with the Eurasia Group, says Chinese companies are increasingly competitive in Central Asia, in part because Beijing does not concern itself with internal politics.
"The Chinese government is more willing to overlook issues such as democratic failings of governments in the region," she says.
Last month, Kazakhstan's authoritarian president, Nursultan Nazarbayev, changed the constitution to grant himself unlimited terms in office — a move critics say makes him de facto president for life. But that issue apparently wasn't raised at a biannual meeting this month between Nazarbayev and top executives of more than a dozen major Western companies doing business in Kazakhstan, including Deutsche Bank, Chevron, Baker and McKenzie, and Exxon Mobil.
"It's very difficult for us as an industry to presume to tell people how to run their country. Its not becoming of us," says Ole Udsen, a senior executive at Max Petroleum and the chairman of the Kazakhstan Petroleum Association.
But some critics say foreign investors, particularly the oil companies who have helped drive Kazakhstan's economic boom, bear a responsibility for the widespread corruption and inequalities in the country.
"Officially [oil] contracts are confidential in Kazakhstan," explains Anton Artemyev, director of the Soros Foundation's Kazakhstan Revenue Watch. "The citizens of the country should be able to know ... how much the country receives from oil and gas revenues and they should be able to participate in the management of these ... revenues."
Togzhan Kizatova, a political activist in the western city of Atyrau, argues that "the arrival of foreign oil companies sped up the corruption process."
She points out the gleaming office towers and luxury hotels that have sprung up in the center of the dusty city, dubbed the oil capital of Kazakhstan. On the western bank of the river that bisects Atyrau, the company Tengiz-Chevroil has constructed a gated community for its employees that locals call the "American village" because its lawns, sidewalks and houses closely resemble an American suburb.
"It looks like modern city," Kizatova explains, "but over there it's the 19th century!"
She points just two blocks away to a slum neighborhood where barefoot children wander on trash-strewn, unpaved streets that run between sagging apartment buildings without modern plumbing.
When a Kazakhstani teenager is asked why the road is paved in front of the American village, just 200 yards away, he answers, "That's the center of town. This isn't."
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