Kazakh Oil Fields Hold Large Promises

ATYRAU, Kazakhstan- This small Kazakh river port, a little inland from the north coast of the Caspian Sea, is a bleak, cold place in winter, all wide avenues, grim apartment blocks and smoke billowing from factory chimneys.

A gigantic figure of Lenin still dominates a city park which, unusually, also boasts a bust of Stalin. At first glance Atyrau could be anywhere in the former Soviet Union.

But with one important difference: it is the oil capital of the vast Central Asian state of Kazakhstan, which is set to become one of the world's great oil producers in the next 15 to 20 years.

The city of 150,000 is just beginning, if one uses a little imagination, to show signs of the boom town it could become.

Oil is nothing new in Kazakhstan. Last year, Atyrau got a facelift for celebrations to mark the centenary of oil production there.

But the Soviet oil industry favoured cheaper, more easily exploitable reserves from Baku, the birthplace of the industry, then from Tatarstan and Bashkortostan in Russia, and, from the 1960s onwards, from Siberia. Kazakhstan took a back seat.

Independence has changed that. From 1991, big foreign oil companies -- and money -- arrived and started developing some gigantic finds. The onshore fields of Tengiz and Karachaganak have long been household names in the industry.

Now an international consortium, the Offshore Kazakhstan International Operating Company (OKIOC), is exploring what could be the biggest field of all -- indeed, the largest discovered in the world in the last 30 years, some believe.

OKIOC unites Phillips Petroleum, ExxonMobil, Agip, Royal Dutch/Shell, BP Amoco, BG plc, TotalFinaElf, Japan's Inpex and Norway's Statoil.


Such is the potential of OKIOC's offshore Kashagan field that Kazakh President Nursultan Nazarbayev has predicted that the country will be producing eight million barrels per day (bpd) by 2015, putting the central Asian state on a par with Saudi Arabia.

Even if that figure is never reached, output is already rising, to a forecast 795,000 bpd this year from 710,000 in 2000. And Tengiz and Karachaganak will produce more when pipelines and other infrastructure are in place.

Add to that the eventual output from Kashagan, if OKIOC -- officially tight-lipped, though confident, about its potential -- decides that the oil already discovered there is commercially exploitable, and an output surge is on the way.

While big money may be some way off, official Atyrau is already looking forward to a future as a new Houston.

A huge "American suburb" of large U.S.-style executive homes, incongruously called "cottages" in Russian, is near completion on the banks of the river, ready for an army of oil executives from around the world.

Some decent hotels have gone up, although some distinctly grotty ones remain. High quality office buildings are appearing. The little airport now offers regular scheduled flights to Budapest, Moscow and Istanbul. And the city is thinking big.

"We have approved guidelines for the development of our city until 2005," says Nurgul Baymenshina, spokeswoman for the mayor's office. "We're going to improve the local road network and, more importantly, upgrade the drainage system to prevent huge areas turning into swamps each year."

Important indeed: Atyrau must be one of the world's muddiest places. Baymenshina adds that a special commission is looking at ways of improving the soil and deciding what plants to grow in a massive green belt planned to circle the town.

New bridges are also appearing, and a rash of sports complexes, restored concert halls and other civic buildings.

Direct air links are set to increase.

"A special commission is implementing this programme and is carrying out intense negotiations with the embassies of the Netherlands, Italy and many other countries to introduce direct flights," Baymenshina says.


Alan Dabbs of Social Capital Group, a consultancy employed by OKIOC to consider the social implications that a sudden oil boom could bring, warns that certain problems tend to recur in such circumstances.

These include high expectations of an employment boom, although after an initial phase of construction and building pipelines and other infrastructure, he says operating an oil field creates relatively few permanent jobs.

"Traditional problems are migration, as people come looking for work, and with that can come prostitution, rising prices, and a rise in alcoholism," he says, adding that these problems can be minimised if properly anticipated and managed.

Many locals are delighted by the prospect of their nondescript, somewhat dismal town transformed by oil, even if just as many seem to doubt the possibility.

"There are huge changes for the better," says local journalist Artur Shakhnazaryan, citing more money for schools, a new university building, a rebuilt hospital and a programme to connect Atyrau to the natural gas grid. "This is the most socially advantageous place to live in Kazakhstan".

Vera, a shopkeeper, disagrees. "Foreigners will get the money. Our lives won't change," she says, referring to the fact that most of the huge new Kazakh fields are being developed by international companies.

"It's a living city," says Zhanibek, a taxi driver. "The changes only really started two or three years ago, but little by little people are getting used to European standards".

Much of the money will not benefit Atyrau at all. A lot of extra revenue from rising oil output at high prices is funding the construction of the new capital city, Astana, the biggest investment project in Kazakhstan.

And indeed, in these early days it still takes a gigantic leap of the imagination to see Atyrau as a new Dubai, even if the oil money materialises.

"It may become a boom town," says one Western oil executive. "But it's still got a long way to go."