An offshore oil project in the north Caspian Sea, Kashagan is part of the North Caspian Sea Production Sharing Agreement (PSA), a 40-year contract that was signed in 1997 and includes the development of 11 offshore blocks. Kashagan is estimated to hold 13 billion recoverable barrels of crude, making it the largest new oil found worldwide in over a decade.

Phase I of Kashagan’s development has been extended twice, and current reports put the end of Phase I and the beginning of commercialization anywhere from 2008 to 2011. Construction costs have spiraled from $27 billion to $60 billion in 2006. In July 2007, the latest projection made by the consortium was $136 billion.

In addition to the offshore extraction itself, a number of supporting infrastructure projects throughout western Kazakhstan and the Caspian Sea, pose great environmental and social risks. These projects include the development of the Bautino Supply Base north of Aktau, the Koshanai Cuttings, Oily water treatment Facility (near Bautino) the construction of the Bolashak Onshore Processing Facility (commonly called the Karabatan Refinery, the largest processing area ever planned) near Atyrau, oil pipeline construction and extension projects, and a future trans-Caspian transportation system linking Kashagan to BP’s Baku-Tbilisi-Ceyhan pipeline.

Kashagan and its supporting infrastructure projects combine a dangerous mix of new untested technologies, a fragile environment, a multinational oil consortium operating under a confidential agreement with the government of Kazakhstan and the prospect of financing by the world’s largest international finance institutions. 

On 24 January 2007, a Memorandum of Understanding was signed by the participant companies in the Agip KCO consortium, those in the TengizChevroil consortium and KazMunaiGaz to create an estimated $3 billion trans-Caspian oil transport system.

As reported by the Jamestown Foundation’s Eurasia Daily Monitor, the “agreement envisages a shuttle system of sea tankers to carry oil from Kazakhstan to Azerbaijan and into the Baku-Tbilisi-Ceyhan (Turkey) pipeline. The tanker system’s capacity is projected at 25 million tons per year in the first stage and 38 million tons in the second stage. The oil port on the Kazakh side will be built in Kuryk.”

On July 30th, the government of Kazakhstan warned Agip KCO that it will demand better terms on Kashagan to compensate for soaring costs and the delayed launch of production announced by Eni in April. According to what Baktykozha Izmukhambetov, Kazakhstan's energy minister, told a government meeting and reported by the FT, Eni had lifted its estimate of the full cost of developing Kashagan from $57bn (€41.6bn, £28bn) to $137bn after encountering technical difficulties in the field.

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On August 21st, at a government meeting the Kazakh Minister of Environment announced that "development of Kashagan field may be halted due to violations of environmental protection legislation by the project operator Agip KCO consortium. 

On August 27th, the government of Kazakhstan called a three-month halt of the development of Kashagan field, on the grounds of environmental violations and evasion of customs duties on imported equipment by the consortium.

On January 13th 2008, the re-negotiation of the North Caspian Production Sharing Agreement was concluded - with the Kazakh government demanding up to 40% of shares in the project for the national oil company KazMunaiGaz plus a compensation to cover the costs suffered due to delays in starting the extraction in Kashagan by the operator Agip KCO. Re-negotiations took over three months.

The main changes after the new agreement - still unbalanced in favour of foreign companies - includes new distribution of shares in the project, new operator (Agip KCO will have to conclude the construction phase by the end of 2011, when it will be sided by Shell, Total, Exxon in joint-operation of the project), and new deadline, from third quarter of 2010 (announced in July 2007) to end of 2011. This latest announcement may be hiding another bad news, on the side of the extra costs for both companies and the Kazakh government: Agip KCO probably have not solved yet the technical problems connected with the exploration of the field, which caused the spiralling of costs and ultra-delayed beginning of operations (from the first deadline of 2005 to 2008, 2010, 2011) and which is source of concerns among local communities, ngos and public officials for the connected risks at which the people and the fragile Caspian environment are exposed.