Tengiz, Kazakhstan’s biggest onshore oil field, is known to produce sulphur-rich crude. ChevronTexaco, exploring, developing and producing at Tengiz since the early 1990s, has had different ideas how to get rid of this unwanted by-product. Until today, these attempts have not yielded any noticeable success, though. In 2001, St. Petersburg Times correspondent Christopher Pala reported:

There are 4.5 million tons of sulfur at Tengiz spread out on football-field-sized cakes that are 7.5 meters thick. And every day another 4,500 tons of liquid sulfur comes up with the oil and is sprayed with agricultural watering equipment out onto the yellow slabs, solidifying rapidly into a luminous, porous material that gives off hardly any odor at all.

The sheer size of the amassed sulphur deposits became an environmental hazard, and several people had to get relocated several miles away from wind corridors. The Guardian ran a story on this in 2002:

The mountain has become a huge embarrassment to field owners Chevron and ExxonMobil. Not only is it the focus of local protests, but yesterday field operator Tengizchevoil, or TCO, was fined 11bn tenge (£45m) by a court in Kazakhstan for “ecological damage”. TCO said it was “very disappointed” and considering an appeal to the supreme court.

The fine was subsequently reduced to $7 million. Still, environmental concerns usually don’t weigh that heavy for post-Soviet countries. Despite the heart-warming thought that the authorities were trying to protect their citizens from greedy corporations, some analysts saw relatively cold fiscal deliberations behind the fine:

The central government decided in 2002/2003 that all taxes should first be paid to the capital, Astana. Following this the Atyrau Oblast realised it faced a shortfall. They then had the idea of suing TengizChevrOil for damaging the environment.

Chevron has just come under renewed pressure to sort out the mess in its backyard. However, now it’s the Kazakh government that is turning on the heat, not just the regional administration. Chevron has one month to come up with an action plan on how to get rid of the now almost 10 million tonnes of sulphur that have piled up.

There is not a lot Chevron can do. The world market price for sulphur is relatively weak and would of course not survive a massive injection of the Tengiz deposits without plunging. The further reprocessing of the sulphur to chemical fertiliser has been attempted, but also here prices are volatile and of course very supply-elastic.

The bottom line is that Chevron would have to invest millions of dollars to get rid of the stuff - without earning a single dime.

But why is the Kazakh government suddenly threatening to withdraw its license to Chevron? It has known about the problem all along, and it seemed to have been the rule that the Atyrau oblast administration can fine corporations on their soil for such legal violations.

The Environment Minister Nurlan Iskakov has repeatedly brought forward allegations against the US giant, but the Energy Ministry never took any action. Only when he appealed to the government did he get green light to go ahead with a tougher handling of the environmental crisis.

It’s relatively obvious that the Kazakh government will not withdraw its license from Chevron - and the latter might find ways (while incurring losses) to get rid of some of the sulphur and mitigate the risks to the environment in the vicinity.

The whole story, however, is also slightly reminiscent of the recent Sakhalin-2 row between Shell and the Russian government. Under the guise of environmental concerns, we witnessed the transfer of drilling rights from a foreign consortium to state-owned gas monopolist Gazprom.

Both Tengiz and Sakhalin-2 are two technologically-demanding projects, but Gazprom seems already capable of developing Sakhalin-2 relying on in-house expertise. Maybe it’s just a question of time before we’ll see such an “environmental buy-out” in Kazakhstan.