BP Declined to Dive Back into Kazakh Oil Fields – The Diplomat

Crossroads Asia | Economy | Central Asia

In October 2020, the oil giant BP sent a letter to Kazakhstan’s state-run KazMunayGas withdrawing from negotiations over three offshore blocks in the Caspian Sea. The letter, stating that the blocks did not fit with BP’s new strategy focusing on renewable energy development and its existing oil and gas projects, marks the derailment of BP’s return to the Caspian. 

In 2009, BP announced it was withdrawing from its involvement in Kazakhstan’s Tengiz oil field and the Caspian Pipeline Consortium (CPC) pipeline. In May of that year, BP sold its 46 percent  stake in LukArco back to Lukoil. LukArco had been formed in 1997 as a joint venture between Russia’s Lukoil and the U.S. oil company ARCO, which in 2000 merged with BP. Along with the April 2009 sale of BP’s 49.9 percent stake in Kazakhstan Pipeline Ventures (KPV) (which held a 1.75 percent share in the CPC) to KazMunayGas, the transactions meant BP no longer had any stakes in the CPC or the Tengiz fields.

In May 2019, BP announced it was examining project possibilities in Kazakhstan, signing a memorandum of understanding with KazMunayGas to that effect. That was followed in early 2020 by a letter of intent. But BP withdrew in the fall, as the pandemic continued to depress prices.

The news was reported last week only because KazMunayGas published BP’s letter as rebuttal to reports in the Kazakh media that it was KazMunayGas’ “lack of initiative” that tanked the potential partnership. An article in Orda.kz argued that BP withdrew from negotiations because there was “no one to negotiate with.” KazMunayGas fired back by publishing the original letter (dated October 27, 2020) which states that after evaluating offshore blocks such as Bolshoy Zhambyl, Zhemchuzhina, and Kalamkas Sea, BP decided against pursuing them due to a change in company strategy to focus in renewables. 

According to Bloomberg, “The retreat from the fields — both in the area of the giant Kashagan field — was made as high costs made them uneconomic and reflected an industry-wide push to cut break-even costs.”

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Oil prices fell further in 2020 due to the coronavirus pandemic, which brought much global travel to a halt. Amid that slowdown, BP (and a handful of other oil majors) announced it would see a pathway to net-zero emissions. The jury will be out for some time on whether such efforts are genuine or shifting deck chairs on the Titanic. BP’s CEO Bernard Looney admitted during a February 2021 conference that investors are still wrapping their heads around the shift. “You can’t defy gravity, you can’t go against the will of society… I want to be the one in the room working out how to give people the renewables they want,” he said. Nevertheless, Looney went on to comment that “oil and gas will be here for decades to come, and is central to our business — fuelling our transition into a lower carbon company.” 

That BP won’t pick up the projects vacated by other companies is bad news for Kazakhstan. In October 2019, Royal Dutch Shell abandoned the Khazar field project (part of Zhemchuzhina) and North Caspian Operating Company (NCOC), a multinational joint venture in which Shell is a partner, withdrew from Kalamkas Sea. Reports at the time suggested the problems were financial: the costs too high and the developments too difficult to make affordable. 

KazMunayGas reportedly recorded an 8 percent decline in oil production in 2020. Meanwhile, gas output fell by 3 percent and the volume of gas transported by pipeline dropped 16 percent, largely on the back of declines in Chinese demand.