Shell and Eni are on the outs with Kazakhstan. The two energy companies have lost the right to develop a natural gas processing facility at the Karachaganak gas field.

PSA, the Kazakh-government-authorised entity overseeing the project, cancelled an agreement with Shell (LON: SHEL) and Eni (BIT: ENI) on March 21. It cited “significant [cost] overruns,” “low economic attractiveness” of the project and the two companies’ “persistent linkage” of construction “to other issues unrelated to” the processing facility.

The further participation of Shell and Eni in the Karachaganak project “is not feasible from a technical, commercial and legal point of view,” according to a PSA statement.

The statement goes on to say that the Kazakh government has assumed responsibility for completing the work at the processing facility, “with the aim of ensuring national energy security.” Kazakh officials had wanted the facility to be finished by last spring.

The plant is intended to process gas from the Karachaganak field, which holds one of the world’s largest known gas condensate deposits. Once completed, the facility is expected to have an annual capacity of up to 4bn cubic metres (bcm). Karachaganak gas is currently sent to a Russian processing facility in Orenburg. That facility was hit by a Ukrainian drone attack last October, forcing Kazakhstan to curb Karachaganak production.

Shell and Eni are the leading stakeholders in a consortium that lost an arbitration case in January with the Kazakh government, stemming from disputes over cost recovery and revenue sharing of Karachaganak gas production. The appeals process is continuing but if the ruling stands, the consortium could owe Kazakhstan upwards of $4bn.

Shell opted to pause its investments in Kazakhstan in February while the arbitration dispute plays out. Even so, in early March, the company signed a deal with the Kazakh government to explore the feasibility of developing oil and gas in an area known as the Zhanaturmys block. 

This article first appeared on Eurasianet here.