The shareholders of the Kashagan project were informed in advance about the risks associated with potential fines for exceeding sulfur storage norms at the field. They cited the case of Tengizchevroil, which was fined 37 billion tenge in 2007 for a similar violation. However, it seems that the consortium members decided to postpone the sulfur processing project, believing that under low prices for this product, it would not be profitable. In 2022, the Ministry of Ecology and Natural Resources imposed a fine of 2.3 trillion tenge (over $4.7 billion at the current exchange rate) on the operator of the field, North Caspian Operating Company (NCOC). The company is currently contesting this decision in court. According to sources from Exclusive.kz, the shareholders were aware of the likelihood of such an outcome long before the fine was imposed.
The Problem of Temporary Storage
According to Bloomberg data, documents were presented in the Astana court from the Ministry of Ecology, including internal correspondence and presentations from NCOC, confirming that consortium members were aware of the risk of fines for non-compliance with sulfur storage norms in Kazakhstan but took no action to address this issue due to concerns about costs.
In 2022, the Ecology Department of the Atyrau region conducted an inspection of NCOC facilities and found a number of violations.
In particular, at the sulfur storage facility located on the territory of the Bolashak oil and gas processing plant, more than 1.7 million tons of sulfur had accumulated by November 1, 2022, while the storage permit limited the volume to 730,000 tons. This means that the operator exceeded the quota by more than two times.
NCOC had the opportunity for temporary sulfur storage; however, since the start of sulfur mining, no sulfur exports had been conducted, and all volumes remained in storage. In its annual report, the company reported an annual sulfur export of between 1 to 1.2 million tons from 2018 to 2021.
The operator did not provide protection for the open storage of sulfur with a film, which, according to ecologists, created a risk of hydrogen sulfide formation due to exposure to atmospheric precipitation and oxygen.
The process of transporting and loading sulfur was also carried out without proper dust suppression measures. Crushed sulfur was transported by road to the Bolashak railway station without being covered, contributing to the spread of sulfur dust in the air.
Furthermore, the Kashagan operators did not fully implement the environmental protection action plan and did not meet deadlines. For example, the commitment to increase water reuse in production was not fulfilled. Ecologists also discovered instances of wastewater discharge into an evaporation pond without prior treatment and ecological permission.
As a result, the Ecology Department imposed a fine on NCOC, but the company appealed this decision in court. Throughout the process, NCOC claimed that it had all the necessary permits for sulfur storage, the volumes of which had increased from 2016 to 2022.
Documents presented in court confirm that some consortium members were aware of the risks of fines even before 2022.
In 2017, one of the shareholders – Eni – noted that the project could exceed sulfur storage limits. At the end of 2020, NCOC warned of potential risks associated with the new Environmental Code adopted in 2021. According to Bloomberg, Eni executives proposed starting sulfur processing for further sale in international markets, but other partners, such as ExxonMobil, TotalEnergies, CNPC, and Inpex, did not support this idea, while KMG had not yet determined its position.
Disappointed Expectations?
According to documents available to Exclusive.kz, NCOC proposed to shareholders to include funding for the sulfur processing project in the budget for the following year to start exports in 2021.
As part of this project, it was planned to process 1.2 million tons of sulfur annually over 2-3 years. However, shareholders expressed doubts about its feasibility, citing falling sulfur prices and potential losses from transportation.
The parties also agreed that there was a risk of environmental fines but considered it insignificant, as they did not expect an immediate threat of punishment.
Experience with TCO indicated that the sulfur storage permit for NCOC had a significant margin of safety. In 2020, the permit allowed for the storage of 720,000 tons of sulfur, while only 69,000 tons were actually shipped. The potential fines were considered "insignificant," comparable to the $0.8 billion imposed on TCO in 2007, the documents state.
Under the Production Sharing Agreement (PSA) for the North Caspian project, consortium members are required to manage their share of hydrocarbons and by-products, including sulfur, extracted from the field. They must ensure reliable methods of transporting and selling products, avoiding fines and potential conflicts with authorities. According to Kazakh regulations, fines and penalties for sulfur storage above permissible volumes can reach up to $3,200 per ton.
Sulfur blocks were supposed to be processed; however, due to operational difficulties, this task was deemed unfeasible. To reduce the risks of incurring fines, NCOC annually obtains a special permit from the Ministry of Ecology to continue storing sulfur in the designated area.
In the future, such permits will be issued on the condition of reducing sulfur storage volumes due to the introduction of stricter environmental standards provided by the new Environmental Code that came into effect on July 1, 2021.
Therefore, NCOC proposed to start processing and exporting approximately 1.2 million tons of sulfur over three years, starting from the first quarter of 2022. The main goal was to reduce the risks of environmental fines. However, consortium members did not support this proposal and refused to invest in the processing and export of sulfur.
“The fine of 2.3 trillion tenge is not so significant for Kashagan shareholders, who receive 94% of revenues ($10 billion), while the republic receives only 6% (3.5% royalty, 2% profit oil, 1% other taxes). This fine is less than half of the annual cash flow of the shareholders, and its amount is tied to the MRP of 2022, while now it is already 2026,” notes Nurlan Zhumagulov, director of the public foundation “Energy Monitor.”
He also emphasized that in 2008, during the revision of the PSA and changes to the start dates of commercial oil production, Kashagan shareholders deceived the government.
“They promised that with an oil price of $120 per barrel, they would pay royalties (from 3.5% to 18%), in exchange for demanding an increase in the budget for the first phase and changing the production timelines. Over these 17 years, the oil price has not risen above $120, and the full development of Kashagan has been completely forgotten. In Western countries, concealing environmental facts leads to serious consequences, and the decline in company stock prices is just the tip of the iceberg, because there, reputation is worth more than money,” the expert added.
In December 2025, the court in Astana rejected NCOC's appeal, but the decision has not yet come into legal force and can be appealed within two months.
Foreign shareholders of NCOC include Eni, ExxonMobil, Shell, and TotalEnergies (each with a 16.81% stake), CNPC (8.33%), and Inpex (7.56%). The Kazakh company KMG owns 16.88% of the shares.
