Kazakh court throws out $5.1 billion environmental claim against country’s largest offshore oil project

A Kazakhstan court has rejected key claims made by the country’s Environmental Protection Ministry against the operator of the nation’s largest offshore oil and gas development, Kashagan.

Kazakhstan has the 12th-highest proven crude reserves in the world and is the largest producer in Central Asia, according to the International Energy Agency, and Kashagan is one of the country’s three giant foreign-led oil developments — alongside Tengiz and Karachaganak — that led to the nation gaining an exemption from Western sanctions imposed on Russia following the invasion of Ukraine last year.

The ruling by a regional court in the Kazakh capital of Astana in favour of North Caspian Operating Company (NCOC) has been made public after several hearings that were held in May and June.

NCOC in March had appealed to the court to contest a $5.1 billion fine for alleged environmental damage caused by sulphur storage at its onshore facility in Bolashak following onsite inspections by the ministry at the end of last year

The Bolashak facilities handle incoming hydrocarbons produced offshore, processing poisonous and corrosive hydrogen sulphide into elementary sulphur so that treated oil can be pumped into the country’s pipeline network.

The court rejected the ministry’s key claim that the operator exceeded the permitted amount of sulphur in storage at Bolashak by 1 million tonnes, which served as the basis of the fine.

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The ruling also rejected ministry claims that NCOC had committed violations in preparing a sulphur storage site and failing to install the required ammonia filters at the processing facilities.

However, the court added that NCOC will have to remedy other environmental compliance violations uncovered during the inspection that did not warrant fines.

Oleg Chervinsky, publisher of Kazakh oil industry magazine Petroleum, linked the ministry’s failure to defend its claims with a weak preparation for the court hearings.

He said that while the ministry may talk publicly about environmental protection, large foreign-led operators in Kazakhstan have “teams of excellent lawyers”.

The Kazakh government and NCOC remain locked in another legal dispute at an international arbitration court, in which Astana wants Kashagan’s shareholders to agree to its interpretation of how previous investments in the project are reimbursed.

At stake is $13 billion of foreign investments that authorities want to be no longer classify as “reimbursable”, according to government officials.

If the government wins its case, NCOC will have to pay more taxes instead of prioritising investment repayments.

NCOC said Kashagan is currently producing at more than 400,000 barrels per day of oil after reducing output recently to ensure the integrity of sour gas injection wells at its offshore production facilities in the Caspian Sea.