Energy resources have been the main driver of Kazakhstan’s economy since its independence. With one of the largest oil and gas reserves among post-Soviet states, Kazakhstan has successfully attracted foreign investment to develop its energy sector. The government of Kazakhstan signed the Production Sharing Agreements (PSAs) and stabilized contracts with international energy companies to explore and develop three major oil and gas fields – Tengiz, Karachaganak and Kashagan.
While these projects contribute significantly to the national GDP, foreign companies seem to benefit more than Kazakhstan itself. Due to the delays in project development and cost overruns, Kazakhstan has not received the revenues promised in the contracts. The share of the national company KazMunayGas in the projects is limited to one-fifth or less. Furthermore, Kazakhstan faces significant environmental implications due to hydrocarbon extraction. Greenhouse gas emissions from oil fields contribute to the shrinking of the Caspian Sea. With the upcoming expiration of contracts for these projects, it is crucial to analyze Kazakhstan’s position in relation to project operators and whether it intends to extend the agreements.
The role of foreign investors in Kazakhstan’s energy sector
First, it is important to highlight the role of foreign investors in Kazakhstan’s energy sector. Kazakhstan is well known for its abundant fossil fuel resources. Its territory covers 30 billion barrels of oil and 85 trillion cubic meters of natural gas reserves (U.S. Energy Information Administration, 2013). Thanks to these vast energy resources, Kazakhstan was able to attract foreign investments to develop hydrocarbon projects in Tengiz, Karachaganak and Kashagan.
The first project in newly independent Kazakhstan began at Tengiz, the country’s largest oil field, which holds an estimated 25 billion barrels of crude oil (Tengizchevroil, 2024). It has been operated by Tengizchevroil that was launched in 1993 by the joint agreement between Chevron and the Kazakh government. Nowadays, the company includes four shareholders, such as Chevron (50%), ExxonMobil (25%), LukArco (5%), and the state-owned company KazMunayGas (20%).
Another contract was signed in 1997 to develop the Karachaganak gas field. Its operator is the Karachaganak Petroleum Operating (KPO) company that consists of Eni (29.25%), Shell (29.25%), Chevron (18%), Lukoil (13.5%), and KazMunayGas (10%). As regards Kashagan, one of the largest oil discoveries in recent decades, it is operated by the North Caspian Operating Company (NCOC) with major shareholders, such as ENI (16.81%), Shell (16.81%), Exxon Mobil (16.81%), TotalEnergies (16.81%), Inpex (7.56%), CNPC (8.33%), and KazMunayGas (16.81%) (Crude Accountability, 2023).
These projects remain key contributors to the national economy. Together, they account for 71% of total oil output and are among the largest taxpayers in Kazakhstan (Energy Monitor, 2025). The companies paid 30 trillion tenge taxes to the National Budget from 2013 to 2023 (Dprom.kz, 2023). In addition, according to the Bureau of National Statistics of Kazakhstan, in 2024, crude oil and crude oil products had the largest share in Kazakhstan’s exports, accounting for 52.5% (Bureau of National Statistics, 2025).
Kazakhstan’s push for greater control over the PSAs
Despite significant contributions made by the oil projects to the state’s economy, Kazakhstan is not fully satisfied with the activities of the operators. This dissatisfaction has been expressed through various claims and fines imposed by state officials on the companies due to production delays and environmental violations.
The problem with project development can be particularly attributed to the Kashagan offshore oil field, the reserves of which are estimated to be up to 13 billion barrels. The exploration operations in Kashagan started in 1999 by the Offshore Kazakhstan International Operating Company (OKIOC). After discovering oil the next year, the state officials were highly optimistic about oil output from Kashagan, foreseeing that it would produce 60 million tons annually by 2015 (Crude Accountability, 2017). This optimistic prediction, however, has not been fulfilled even today. The regular oil production in Kashagan was postponed several times and started only in 2016. This is because the construction of the oil field faced many challenges due to its unfavorable geographical location. As this part of the Caspian Sea is very shallow, the water freezes for almost half a year, thus complicating the construction and production activities (Renewablematter.eu, 2024). Furthermore, the oil field contains a high level of hydrogen sulfide, which has complicated the process of exploiting the hydrocarbon (Parkhomchik, 2015).
Unexpected cost overruns and production delays at Kashagan led Kazakhstan to engage in disputes with the operating company (Reuters, 2025). In 2008, the shareholders agreed to double Kazakhstan’s stake to 16.8% as compensation for delays. In 2012, they allocated $1 billion to KazMunayGaz to cover its extra costs. However, the claims from the Kazakh authorities have not stopped with the launch of production. In 2023, they issued an arbitration claim for $13 billion related to production costs and lost revenue. Furthermore, this year, the claim has been increased to more than $150 billion (Gizitdinov, 2024).
In addition, Kazakhstan has been engaged in arbitration procedures on profit-sharing with shareholders of the Karachaganak project (Reuters, 2025). In 2011, Kazakhstan gained a 10% stake in the project as a settlement of the dispute. In 2020, it was awarded $1.9 billion after a six-year dispute. A recent claim by the Kazakh authorities against the KPO was in 2023, comprising $3.5 billion.
Environmental concerns
Kazakhstan’s claims against the project companies extend beyond lost revenues to include environmental concerns. One of the most pressing issues is related to the future of the Caspian Sea. The water level of the Caspian Sea has been alarmingly decreasing since 1995 and has reached its lowest recorded point of 29 metres below sea level. The main reason for the water level drop is climate change. As greenhouse gas emissions trigger climate change, it is possible to assume that hydrocarbon production on the Caspian Sea affects its declining level (Amangeldina, 2025).
The Tengiz and Kashagan oil fields, located around the Caspian Sea, have contributed to this environmental challenge. Their operators have not only engaged in large-scale fossil fuel production but have also repeatedly violated environmental regulations. For example, the operator of the Kashagan project, the NCOC, has been notorious for environmental violations along with the problem of delayed launch (Crude Accountability, 2017). In 2012, there were no water treatment facilities in the territory of the oil field. In order to dump wastewater resulting from oil pipe testing, the NCOC used the municipal sewage system in Atyrau and lakes near the Caspian Sea.
In addition, in 2013, when oil production was supposed to be launched, several gas leaks from the pipelines were observed. The accident was caused by hydrogen sulfide content in fossil fuels, which exceeded the permittable threshold, as well as problems with selecting the right equipment to withstand the chemical composition of the gas. As a result, 2.8 million cubic meters of gas were flared, and the oil production was suspended for three years.
In 2014, the Atyrau Regional Department of Ecology issued a fine to the NCOC equal to 134.2 billion tenge (about $749 million) for environmental damage due to the abovementioned gas leak accident. The consortium refused to pay the reimbursement and instead allocated $50 million to the construction of EXPO-2017 in Astana.
Furthermore, the NCOC did not stop dismissing compliance with environmental regulations in their activities at Kashagan. In 2022, local authorities inspected the oil field and found that sulfur storage limits had been exceeded and several provisions of the environmental protection action plan, including those related to water treatment and gas flaring, had been violated (Renewablematter.eu, 2024). To hold the NCOC accountable for environmental violations, the Ministry of Ecology of Kazakhstan issued a $4.4 billion fine on the NCOC (Vlast.kz, 2024). In turn, the NCOC again appealed the amount of the fine and proposed to reimburse $110 million through funding social projects. This year, the arbitration court granted their appeal (Gizitdinov, 2024), and the imposition of a fine is not possible before the consideration of the issue. Moreover, the company achieved a court decision according to which the tax authorities of Kazakhstan cannot audit the contract’s profit share.
Similar to NCOC, Tengizchevroil was consistently involved in environmental violations, such as excessive gas flaring, emissions of pollutants, and a pipeline explosion. In 2007, the court of Atyrau committed Tengizchevroil to pay a fine of 37 billion tenge (about $302 million) for causing environmental harm by unsafe extraction of sulfur (online.zakon.kz, 2007). Three years later, in 2010, there were three accidents when the company exceeded the limits of gas flaring. For causing high emissions of pollutants, the company paid a fine of 509.52 million tenge (about $3.5 million) (Vesti.kz, 2010). From 1993 to 2011, the volume of pollutant emissions at the Tengiz oil field amounted to more than 1 million tons (Crude Accountability, 2013). Accidents related to emissions of pollutants were also observed in 2017 (Vlast.kz, 2017) and 2021 (Kazakhstan Today, 2021).
In 2022, a serious accident took place at Tengiz. A pipeline exploded during a hydrotest at the field, and as a result, two workers died, and three others were injured (Azattyq.org, 2022). Furthermore, in the year after the accident, there was an oil leak at Tengiz, contaminating 12×18 meters of land area (Ak Jayik, 2024). The Department of Ecology of the Atyrau region considered this leak as noncompliance with the environmental legislation of Kazakhstan and initiated an administrative case against Tengizchevroil (Ak Jayik, 2024). The company did not agree with the accusation and filed an administrative lawsuit in the interdistrict court of Astana. The court returned the lawsuit, in turn, the company filed a cassation appeal. In the same year, the local court imposed a fine on Tengizchevroil totalling 2.8 billion tenge (about $6.3 million) for emissions of harmful substances exceeding the permissible standards and land pollution (Kapital, 2023). There is no information, however, on whether Tengizchevroil paid the fine.
These cases demonstrate that both the NCOC and Tengizchevroil have actively avoided paying fines and taking responsibility for environmental violations. Their actions suggest a stronger focus on maximizing revenue from fossil fuel production than on mitigating the environmental and social consequences of their activities.
What is the future of the PSAs?
Kazakhstan’s position toward project operators remains ambiguous. On the one hand, foreign shareholders have substantially contributed to the development of the country’s energy and economic sectors. On the other hand, they have not met the production targets due to delays and excess costs related to project development. Additionally, their activities have had a negative environmental impact on the Caspian Sea.
The question of whether Kazakhstan will continue its PSAs and stabilized contracts is particularly relevant now, considering that the contracts are about to expire in the upcoming decades. The contract of Tengizchevroil will be the first to expire in 2033, followed by the PSA of the KPO in 2037, and finally, the PSA of the Kashagan project in 2041 (Orda.kz, 2024).
As for now, Kazakhstan is more likely to extend the contracts by balancing foreign investments and national interests. This position was officially confirmed by President Kassym-Jomart Tokayev at a government meeting on January 28, where he ordered stepping up negotiations on the extension of the PSAs (Reuters, 2025). He emphasized the importance of retaining foreign investments in the country, as well as achieving more favorable terms for Kazakhstan in the extended projects. According to the then Minister of Energy Almasadam Satkaliyev, there are three possible scenarios if the contracts are extended: Kazakhstan will increase its share, change the project operators, or improve the terms of the contract.
It is possible to expect that the shareholders are also interested in extending the contracts. They have invested significant funds and time in project development. The investments in Kashagan, one of the most expensive oil projects, account for about $55 billion (Gizitdinov, 2024). The KPO invested $27 billion (Reuters, 2025), and Tengizchevroil invested $70 billion (The Astana Times, 2023) for the development of the project with $48 billion additional investments for its expansion. Considering the big investments and resources allocated to the projects, it is more likely that the shareholders will agree with Kazakhstan’s terms in order to extend the contracts.
The extension of contracts with favorable terms will definitely strengthen Kazakhstan’s economy. Despite the growing role of renewables, oil and gas will remain dominant in the energy sector. Therefore, it is important that Kazakhstan retain beneficial terms in the extended contracts. However, along with maximizing the national benefits, the terms should be kept attractive to foreign investors. The development of the projects highly depends on the expertise and capacities of the international oil companies.
In addition to economic interests, it is crucial that Kazakhstan promote environmental concerns during contract negotiations. Project operators must acknowledge the environmental damage their activities have caused to the Caspian Sea and recognize the importance of strict compliance with environmental regulations and standards. Properly extending these contracts could be pivotal not only for economic growth but also for preserving the ecological balance of the region.
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Note: The views expressed in this blog are the author’s own and do not necessarily reflect the Institute’s editorial policy.