Eni and Shell were reportedly told to suspend construction work

Kazakhstan has reportedly frozen work on a key gas processing project at the Karachaganak field as tensions escalate between the government and international oil companies involved in the venture.

According to an Upstream piece published on June 2, PSA–the agency responsible for Karachaganak-related investments–had ordered on May 17 that Shell and Eni stop construction work at an associated gas processing plant they were building.

Shell and Eni are the largest shareholders in the Netherlands-based Karachaganak Petroleum Operating consortium, which also includes US Chevron, Russia’s Lukoil, and state-owned Kazmunaigas.

KPO planned to build a $3.5 billion gas processing plant with an annual capacity of 4 billion cubic meters near the Karachaganak gas and condensate field. Disputes over costs and, crucially, over the timeline of commissioning, led Kazakhstan’s authorities to put pressure on the western oil majors contracted for the project.

In July 2024, then-energy minister Almasadam Satkaliyev said that the “implementation of the Karachaganak GPP construction project will be carried out at the expense of the operator.”

Since then, however, the plant did not show significant progress. After yet another public spat earlier this year, KPO said it had started preparatory engineering work in March.

Russia’s Orenburg Gas Processing Plant is the principal buyer of Karachaganak gas. KPO sends 9 bcm to Orenburg, which ships processed gas back to Kazakhstan for domestic market sales.

Because KPO was considering increasing annual gas production from 9 to 13 bcm, the new processing plant could have met the demand that the extra volume would have generated.

With the new timeline for commissioning the plant shifting from 2028 to 2030, Kazakhstan’s authorities could decide to build the plant alone, without foreign participation, in an effort to speed up the process.

According to a letter sent by PSA to KPO, “shareholders should disperse a joint working group formed to manage the implementation of the project,” Upstream reported.

The letter reportedly dates two days before yet another meeting between Shell and Prime Minister Olzhas Bektenov, where the parties discussed plans to fast-track construction.

Kazakhstan’s government and Karachaganak shareholders are involved in a long-standing arbitration battle.

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