Kazakhstan's national oil firm KazMunayGas intends to cover its share of a contested $5 billion environmental penalty (2.356 trillion tenge) that the Kashagan operation is fighting, as per sources close to the situation.
On June 19, an Atyrau court confirmed the penalty, which is now legally binding and can be paid voluntarily before July 20. Following that deadline, authorities could take enforcement actions against the project's operator, NCOC, and its partners, "including the withholding of an additional enforcement sanction of 10% of the amount collected," according to the Kazakhstan's Justice Ministry.
By choosing to pay its share, it is breaking ranks with its foreign partners, who say the fine is unwarranted.
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The foreign side is not backing down. The companies in NCOC - China National Petroleum Corp., Eni, Shell, TotalEnergies SE, Exxon, and Inpex Corp. - released a statement on July 15.
"NCOC and the contracting companies reject the fine and the allegations underlying the fine, and are contesting them by all available means - including not only in the ICSID arbitration noted by the republic, but also in an UNCITRAL arbitration initiated by the republic," NCOC said. "In the UNCITRAL proceedings, the arbitral tribunal has issued a restraining order that prohibits the republic from taking any measures to enforce the fine while the arbitration is pending."
According to the Justice Ministry, the "interim measure granted by a foreign commercial arbitration court does not take precedence over mandatory provisions of the legislation of the Republic of Kazakhstan, does not impede the enforcement of a final and binding judicial decision on the collection of an environmental fine, and does not limit the state's exercise of its sovereign powers to protect the environment and public interests."
The Kashagan field is one of the world's largest oil discoveries, with estimated recoverable reserves of 9 to 13 billion barrels, and its development has cost partners more than $50 billion amid repeated technical delays. The sulfur byproduct, accumulated in massive piles near the Caspian Sea, has long drawn environmental concerns, setting the stage for this penalty.
This sulfur penalty is linked to a larger $166 billion international arbitration case focused on the Kashagan field. The bulk of that sum stems from lost revenue claims, yet it also encompasses environmental breaches and contracts that the government claims were marred by corrupt practices. Kazakhstan ranks as Central Asia's foremost oil producer and Europe's second-largest supplier. Its strategic significance has grown as Europe reduced reliance on Russian energy after the 2022 Ukraine invasion and the US-Iran conflict that curtailed Middle Eastern exports this year.
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