Western oil majors developing one of the world's last remaining mammoth oilfields, Kazakhstan's Kashagan, are set to study a route to Iran as an option for getting their oil out of the landlocked Caspian Sea.

Christophe de Margerie, head of TotalFinaElf's upstream operations, said the consortium working the field was due this summer to sign a memo of understanding for a feasibility study on a pipeline across the Caspian to the Iranian border.

The prospect is likely to raise hackles in Washington where the Bush administration is preparing to renew the Iran-Libya Sanctions Act (ILSA) that aims to discourage non-U.S. companies from investing in Iran.

"One thing that makes sense is a pipeline linking Kashagan to the border with Iran," de Margerie told Reuters in an interview.

"We hope to sign an agreement to study it this summer. In our opinion most partners are in favour of having another route for exports and the one that is most favourable economically."

Politics allowing, extra oil from U.S.-Chevron's Tengiz field in Kazahkstan, where export flows are set to rise, could also be shipped along that route. American companies are barred by executive order from Iranian oil and gas investments but it is not clear how Washington might react to U.S. firms' participation in a pipeline to Iran's border.

U.S. ExxonMobil and Phillips are part of the Kashagan consortium that is operated by Italy's ENI. Shell, BG, Japan's Inpex and Total also have stakes. "There is nothing under ILSA to stop a pipeline from Kazakhstan to sell oil to Iran," said de Margerie. "But it is not clear how the executive order would affect U.S. companies."

Iran could use Kashagan oil domestically and sell the equivalent amount of its own crude from the Gulf on behalf of the consortium. Or a further pipeline could be built to pipe Kazakh crude across Iran to Tehran's Gulf export terminals.

Washington is backing a pipeline that would carry oil from Azerbaijan's section of the Caspian across Turkey to the Mediterranean port of Ceyhan. BP, the company that leads Azeri oil group AIOC, has made a firm commitment to the line.

De Margerie said that for Kashagan oil also to go via that route, even if there were spare capacity, would require tanker shipments or a pipeline to the Azeri Caspian export terminal Baku.
"There has been some political talk of taking Kazakh oil through this line but none of the companies has said anything and frankly we think that option is not economic," he said.

De Margerie said that Total, first back into Iran in 1995 after the 1981 Islamic revolution, did not fear punishment from Washington under ILSA. The company now has four projects under way in Iran making it Tehran's biggest investor.

De Margerie said he was hoping to win a share in the big onshore Iran Bangestan project that also is likely to include ENI and Shell. Total would like to improve on its existing "buyback" contracts with Iran to provide more reward for good results, he said.

ENI is next in line for another Iranian deal. It is expected soon to finalise a separate agreement for Iran's Darkhovin field. The contract will provide a test case for ILSA under the Bush presidency.

The Clinton administration, faced by opposition from the European Union, made no moves against companies flouting the legislation, ignored by many other companies including Shell and ENI with its stake in the Balal project.

"Frankly I cannot say we are happy to see those sanctions," said de Margerie. "There is no intent to be provocative but we will continue to rely on European and international laws." De Margerie said that the Kazakh Kashagan consortium was expecting results from its first appraisal drilling within a month or two, after two exploration wells.

"It is very, very big. A huge field and there is no doubt it is commercial, he said. The group now would focus on what type of development might best meet the Kazakh government's wishes for first oil by the end of 2005.

"We are working on how many wells we need for development, where they will be located, what is the cost of the project. We need to establish a development plan for approval by the authorities," said de Margerie.

The consortium would have to choose whether to go for a large initial phase that would bring savings at the end of the project or smaller phases that costs more overall. "The Kazakhs want to start by the end of 2005 and we have replied that we will do our best. If we go step by step with a phased project than the year 2005-06 is something we can aim for," he said.