Production at Kashagan, one of the world’s biggest oilfields, has been postponed by two years to 2013, Kazakhstan said at the weekend. It warned that new setbacks, blamed on rising costs, would lead to severe penalties for the western consortium developing the Caspian Sea project.

A memorandum of understanding signed by the government and the Eni-led consortium builds on a framework agreement from January, when investors pledged to compensate Kazakhstan for late production and ballooning costs at Kashagan and committed to start production by late 2010 The consortium includes Shell, Exxon Mobil, Total, ConocoPhillips, KazMunaiGas and Japan’s Inpex Holdings .