Kazakhstan Bets on Tengiz Expansion
to Secure Oil Wealth Amid Geopolitical and Contract Risks
After spending nearly $50 billion to expand
the country’s Tengiz oil field, Chevron and its partners encounter more uncertainty.
Kazakhstan
is seeking to deepen its oil fortunes by ramping up production at the giant Tengiz
oil field, even as geopolitical tensions and looming contract negotiations
inject new uncertainty. After nearly a decade of work and about $48 billion
in investment, Chevron and its partners have completed a massive expansion
that lifts Tengiz’s output by roughly one-third to around one million
barrels per day, cementing its status as one of the world’s top 10
producing oil fields.
Tengiz,
operating for over 30 years, has been central to Kazakhstan’s economic
development since independence in 1991. It accounts for almost 10% of
national GDP, over 40% of oil output, and is the country’s largest
single taxpayer. Chevron, with a 50% stake in operator Tengizchevroil (TCO), relies heavily on the field for
profits, while Kazakhstan depends on it for fiscal stability, jobs, and
infrastructure.
Despite
the scale of the resource—25 billion barrels at Tengiz plus 1.6 billion at
the adjacent Korolev field—the project faces growing challenges.
Kazakhstan’s landlocked geography leaves it dependent on a pipeline through
Russia to the Black Sea, which has been disrupted by Ukraine-linked drone
attacks, temporarily cutting output. Higher production has also complicated
Kazakhstan’s compliance with OPEC+ quotas.
More
strategically significant are upcoming negotiations to extend the Tengiz
operating agreement beyond 2033. President Kassym-Jomart Tokayev has
personally engaged Chevron’s leadership, balancing domestic pressure for better
terms against the risk of undermining a project vital to the economy. Analysts
note that while Chevron would lose a significant asset, Kazakhstan has more at
stake given the technical complexity of the field and its reliance on Chevron’s
expertise.
Beyond
oil revenues, TCO’s footprint includes local employment (over 90% Kazakh
staff), urban development, and social programs in the Atyrau region. As
Kazakhstan looks to extract more value from its vast subsurface riches, Tengiz
stands as both a pillar of prosperity and a test of how the country manages
foreign partnerships, energy security, and sovereignty in an increasingly
volatile global environment.
More than two miles
below the windswept steppe of western Kazakhstan, porous rocks composed of the skeletons
of coral and other ancient marine life form the matrix for one of the world’s most
prolific oil fields.
Tengiz, as the field
is known, has been producing oil for more than three decades, helping to nurture
Kazakhstan, Central Asia’s largest economy.
The oil field has
also contributed handsomely to the earnings of Chevron, the American oil giant,
which owns 50 percent of the company that operates Tengiz, known as Tengizchevroil, or TCO.
The participation
of Chevron and Exxon Mobil in TCO and other projects in Kazakhstan also provides
the country, which shares a 4,750-mile border with Russia, with an important tie
to the United States.
These days, those
relationships are being tested just as Chevron and its partners have completed a
$48 billion expansion of Tengiz.
Recently, Ukraine
has attacked the main oil export route from Kazakhstan through Russia, a 940-mile
pipeline that includes flows from the Tengiz field, as part of an effort to crimp
Moscow’s earnings from energy. Chevron and the Kazakhstan government are also beginning
what could be difficult negotiations to extend their agreement on the oil field,
which is set to expire in 2033.
These talks are
important for Chevron, which has built relationships in Kazakhstan over decades,
and whose free cash flow, a profit metric, from Tengiz is likely to be around $4
billion for 2025.
They may be even
more crucial for Kazakhstan, not least because Tengiz has played such a large role
since the early 1990s in helping the country gain its economic footing. Kazakhstan
became independent in 1991 with the collapse of the Soviet Union.
“It’s huge for Kazakhstan,”
said Kate Mallinson, a partner at Prism Strategic Intelligence, a firm that advises
that country and others in the region. “It’s really symbolic, that relationship
with TCO,” she added.
During a recent
visit to Tengiz, the field’s operators were savoring the
completion of one of the largest oil projects ever: the expansion of output by about
one-third to one million barrels a day.
Typically, output
from oil fields declines over time, but Tengiz is far from depleted. “Where you
have large oil fields, they typically get larger,” said Clay Neff, Chevron’s president
for exploration and production.
According to TCO,
the field contains 25 billion barrels of oil. Korolev, an adjacent field that would
be considered very large almost anywhere else, contains another 1.6 billion barrels.
In 2016, the field’s
size helped persuade Chevron and its partners to embark on one of the largest oil
projects ever, drilling new wells and adding giant compressors and other equipment
to further boost output.
A decade later,
at a cost of an estimated $48 billion — about $11 billion above initial projections
— the facilities seemed to be operating smoothly.
Andrew O’Connor,
manager for production operations at Tengiz, explained that the field had produced
below its potential in the past because its processing facilities were insufficient.
“We were plant limited,” he said in an interview at Tengiz. “We now have increased
the capacity of the plants to better match the reservoir.”
As you drive around
the site near the Caspian Sea, its vast size becomes apparent. Landmarks like power
plants and immense processing units come into view and then recede.
The oil-bearing
rocks lie below a swath of scrubby grassland 13 miles long and 12 miles wide, pocked
with the occasional salty pond.
This spread, coupled
with a column of oil that extends roughly a mile from top to bottom, is “what makes
it one of the largest fields in the world,” said Stephen Conner, general manager
of operations at TCO.
Tengiz is among
the world’s top 10 fields in production, according to Wood Mackenzie, an energy
consulting firm.
It originated as
a reef in a tropical sea more than 300 million years ago. At that time, the area
that is now western Kazakhstan was a “magical place,” said James Bishop, a Chevron
earth scientist. Later, oil migrated into the rocks and was trapped by layers of
salt from evaporating seas.
The area, known
as the Pricaspian basin to geologists, also spawned other
giants, including one called Kashagan, that could eventually produce even more oil
than Tengiz. “We have big neighbors,” said Alexei Vyssotski,
manager for reservoir management at TCO.
Despite the blessing
of these resources, Kazakhstan’s oil industry faces challenges.
Kazakhstan is landlocked.
Exports from Tengiz and other fields, including some crude from Russia, flow through
a pipeline that loops around the north end of the Caspian Sea and winds up at Russia’s
port of Novorossiysk on the Black Sea.
Chevron, a part-owner
of the pipeline, and other companies have managed to keep the crude flowing throughout
the war in Ukraine.
But Ukraine has
used drones to target this route along with other Russian energy infrastructure,
and in late November succeeded in knocking out one of the three tanker loading facilities
at the Black Sea port, which forced an output cutback at Tengiz of around 30 percent.
Last year, the higher
production levels from Tengiz also created tension between Kazakhstan and its partners
in the OPEC Plus oil cartel. Kazakhstan, though, has been reluctant to rein in the
output of international investors like Chevron or of smaller domestic producers.
“Kazakhstan has no easy options” for OPEC Plus compliance, said Craig Saunders,
senior research analyst at Wood Mackenzie.
The talks on extending
the agreement governing Tengiz are likely to have greater lasting impact than these
disputes. In an indication of how important these talks are to both parties, Kazakhstan’s
president, Kassym-Jomart Tokayev, met with Chevron’s chief executive, Mike Wirth,
three times in 2025.
“We are off to what
I would characterize as a good start to the negotiations,” Mr. Wirth told financial
analysts in October.
Mr. Tokayev is an
experienced diplomat who came to power in 2019 after the resignation of the country’s
longtime leader Nursultan Nazarbayev, who brought in the international oil companies.
He now has the tricky task of pleasing those of his constituents who want a better
deal while not disrupting the revenues the projects produce.
While Chevron would
be wary of losing what amounted to an estimated 13 percent of its global production
in 2024, Kazakhstan has more at risk, analysts say.
Chevron dominates
TCO with a 50 percent holding. Other partners include Exxon Mobil (25 percent),
KazMunayGas, a Kazakh company (20 percent), and Russia’s
Lukoil (5 percent).
Tengiz plays an
enormous role in the Kazakh economy, accounting for almost 10 percent of its gross
domestic product, according to S&P Global Commodity Insights, a research firm.
TCO is Kazakhstan’s largest oil producer, accounting for more than 40 percent of
the country’s output in the first half of 2025, and is also its largest taxpayer.
“The performance
of a sizable segment of Kazakhstan’s economy is at stake,” wrote Matthew J. Sagers,
head of Eurasian Energy at S&P Global Commodity Insights.
Some industry experts
say that it would be difficult to replace the management and technical skills that
Chevron brings to Tengiz, which is considered a demanding field because of high
pressure and the presence of large amounts of toxic hydrogen sulfide gas, among other factors.
“TCO is a prime
example of how to work on enormously large oil and gas fields that are technologically
complex,” said Talgat Imangaliyev, a Kazakh oil professional.
Under pressure from
the government, locals already account for more than 90 percent of TCO’s 4,000 employees.
“Our first role is to mentor,” said Bevin VanGilder, a West Virginian who is deputy
manager for production at Tengiz. “We want to make sure that there’s good leadership
in place to be able to take over the operations.”
TCO helped build
modern water and natural gas systems, as well as housing like the apartment building
where Utebay Dyussenov, a recently
retired project consultant, and his wife, Gulzada Dasheva, an information technology
professor, live. TCO “laid the foundation for a new kind of city,” Mr. Dyussenov said.
TCO has also pumped
money into local businesses and social programs, especially around the city of Atyrau,
Kazakhstan’s oil center.
For instance, TCO
supports a local charity called Biz de Adambiz, which
translates to “we are also human,” that helps people with severe disabilities, often
resulting from car accidents, to live more normal lives.
The group’s founder,
Gulnaz Kosmurziyeva, who was injured two decades ago in a car accident, has become
an advocate for disabled people. The foundation’s scope would need to be pared back
sharply without the oil company’s backing, said Ms. Kosmurziyeva,
who has become a local political figure through her work. “I think in Atyrau, we
live very well in comparison to other regions,” she added.