Soviet agriculture, and where the Soviet Union tested its nuclear weapons. It was the place from whence the Soviet Union launched its spy satellites and where Russia today shoots tourists into space, at $20 million a shot.
Kazakhstan had had a small local oil industry going back to the nineteenth century, an eastern extension of the great Azeri boom that had made the Nobels and the Rothschilds into oil tycoons. If West Siberia had been the giant “third generation” of Soviet oil, then it was expected that Kazakhstan, centered in Tengiz, would be a key part of the “fourth generation.”
But Kazakhstan’s development was held back in the 1980s by lack of investment and technology in the face of difficult and unusual challenges, as evidenced at Tengiz. As former Soviet oil minister Lev Churilov wrote: “Exploration and production equipment stood frozen in time, with few technological advances after the 1960s.” In the effort to bolster the faltering economy and facilitate technology transfer, in the final years of the Soviet Union, Mikhail Gorbachev had tried to lure in foreign investors. Under that umbrella, a controversial American promoter named James Giffen brought together a group of U.S. companies that would serve as an investment consortium. 2
TENGIZ: “A PERFECT OIL FIELD”
One of the companies in the consortium was Chevron, which after looking around the Soviet Union came to focus on Tengiz. The company was deeply impressed by the huge potential. A “perfect oil field” is the way one Chevron engineer described it. With what was finally estimated as at least 10 billion barrels of potential recoverable reserves, Tengiz would rank among the ten largest oil fields in the world.3
There were, unfortunately, a few ways in which it was not quite perfect. One was the problem of the “sour gas,” so-called because of the heavy concentrations of poisonous hydrogen sulfide. Sickeningly noxious with its rotten-egg-like smell, hydrogen sulfide is so toxic in large concentrations that it deadens the sense of smell, potentially dulling the ability of people to respond to inhaling it before it is too late. It would take considerable engineering ingenuity and a good deal of money to solve that problem. Other problems included the generally poor condition of the field and the enormous investment that would be required. There was an additional problem that would come to loom quite large—location. Tengiz was a far-off field with no real transportation system.
In June 1990, the Soviets signed a pact with Chevron that gave the company exclusive rights to negotiate for Tengiz. It was a very high-priority deal. For in the words of Yegor Gaidar, Moscow regarded Tengiz as “the Soviet Union’s trump card in the game for the future.”
But the Soviet Union was experiencing what Nazarbayev called “the distinctive symptoms of clinical death throes. The state organism sank into a coma.” When it collapsed altogether, Nursultan Nazarbayev became president of the independent nation of Kazakhstan. His communist days were over. He was now a nationalist, who would now look not to Marx or Lenin for his role model, but to Lee Kuan Yew and the emergence of modern Singapore. And never again, he said, would Kazakhstan be “an appendage.”
The Tengiz field loomed as absolutely crucial to the new nation’s future; it was what Nazarbayev called the “fundamental principle” underpinning the country’s economic transformation. But it was in very poor shape. In many parts of the oil field, electric power was available only two hours a day. Tens of billions of dollars of investment would be required to bring the field up to its potential.4
THE PIPELINE BATTLE
After arduous negotiations, Kazakhstan and Chevron came to agreement on how the immense and immensely expensive field would be developed. It would be a 50-50 deal in terms of ownership but not in terms of the economics. Eventually, after various costs were recovered, the government take would be about 80 percent of the revenues. Chevron would fund much of the estimated $20 billion investment until Kazakhstan started receiving cash flow, which would fund its share. Nazarbayev hailed this as “truly . . . the contract of the century.” It was certainly a very big deal, with the objective of increasing output tenfold. Extraordinarily complex engineering was necessary to produce from very deep, very high-pressure structures, and then to treat the sour gas and separate the toxic hydrogen sulfide from petroleum.
Geography presented an additional challenge—getting the oil out of the country to world markets. The route was obvious—a 935-mile putative pipeline that would go north out of Kazakhstan, curve west over