Kazakhstan is important to world energy markets because it contains significant oil and gas reserves. In particular, the Tengiz oil field alone is estimated to contain between 6 and 9 billion barrels of proven oil reserves.
Note: information contained in this report is the best available as of April 2000 and can change.
Kazakhstan declared its sovereignty from the Soviet Union on October 25, 1990 and became an independent country on December 16, 1991. Kazakhstan is a constitutional republic with a strong presidency, and President Nazarbayev is the country's central political figure. On January 10, 1999, he was re-elected president.
Kazakhstan's foreign affairs are strongly influenced by its location between two great powers, Russia and China. Political decisions in Kazakhstan are made in consideration of the reactions of both of these countries, and oil and gas companies from both countries have been awarded contracts to develop Kazakhstan's energy potential.
Kazakhstan moved its capital in November 1997 from Almaty in the southeast to Astana (formerly Akmola) in the north both for security reasons and in recognition of its ethnic minorities, including a heavily Russian population in the north. In addition, Kazakhstan has worked to increase economic cooperation with neighboring states in Central Asia, the Caucasus, and Turkey.
Kazakhstan has begun to shift its trade away from the former Soviet Union and towards its neighbors in Central Asia, the Causasus, and Turkey. The TRACECA Program (Transport System Europe-Caucasus-Asia, informally known as the Great Silk Road) was launched at a European Union (EU) conference in 1993.
TRACECA encourages the development of a transport corridor on an East-West axis from Central Asia, through the Caucasus, across the Black Sea, to Europe. In September 1998, twelve nations (including Azerbaijan, Bulgaria, Kazakhstan, Romania, Turkey, and Uzbekistan) signed a multilateral agreement known as the Baku Declaration to develop the transport corridor through closer economic integration of member countries, rehabilitation and development of new transportation infrastructure, and enhancement of stability and trust in the region.
The corridor would include all forms of transport, including air, automobile, pipeline, rail, and sea as well as telecommunications.Kazakhstan's economy has been affected by several factors over the past three years, including the Asian economic crisis, the Russian financial crisis, and fluctuations in prices for export commodities such as energy and metals.
The 1997-1998 Asian crisis hurt investor confidence in developing markets such as Kazakhstan, and the re-emergence of developing markets as this crisis has eased renewed investor interest in Kazakhstan.
The 1998 Russian monetary crisis had a greater effect because Russia is Kazakhstan's largest trading partner, and Russia's devalued ruble discouraged exports to Russia and encouraged imports from Russia. In addition, Kazakhstan's economy was hurt by weak demand and low prices in 1998 -1999 for commodities that comprise its three leading exports - petroleum, steel, and copper.
Renewed Russian economic growth in 1999-2000 increased the demand for Kazakh goods. The rise in world oil and metals prices later in 1999 also helped Kazakhstan's economy recover, as have economic reforms and Kazakhstan's privatization program.
Kazakhstan is the second largest oil producer among former Soviet republics after Russia , producing over half a million barrels per day (bbl/d). Almost half of Kazakh production comes from three large onshore fields - Tengiz, Uzen, and Karachaganak.
Kazakhstan has been eager to tap its production potential of over 3 million bbl/d, and former Prime Minister Nurlan Balgimbayev (now the head of Kazakhoil) has estimated that Kazakhstan could earn $700 billion in revenues (including taxes) from offshore oil and gas fields over the next 40 years.
In order to develop its production, Kazakhstan has opened its resources to development by foreign companies. International oil projects have taken the form of joint ventures, production sharing agreements (PSAs), and exploration/field concessions.
By far the largest of these is the Tengizchevroil joint venture. In April 1993, Chevron concluded the $20 billion Tengizchevroil joint venture to develop the Tengiz oil field, with 6-9 billion barrels of estimated oil reserves. The Tengizchevroil joint venture produced 190,000 bbl/d in 1999, and production could increase to 340,000 bbl/d by 2002. Given adequate export outlets, the Tengizchevroil joint venture could reach peak production of 750,000 b/d by 2010.
Tengizchevroil exported about 170,000 bbl/d of crude oil in 1999 through the Russian pipeline system; by barge and rail to the Baltic; and by ship, pipeline, and rail to the Black Sea.
Tengizchevroil is also considering using the $100 million upgrade of the Tengiz-Aktau pipeline, which will increase the pipeline's export capacity from its current 60,000 bbl/d to 160,000 bbl/d in 2000.
Kazakhstan projects that its crude oil and gas condensate production will rise to 660,000 bbl/d in 2000, to 750,000 bbl/d in 2001, and to 830,000 bbl/d in 2002. Most of the growth will be provided by the Tengizchevroil venture, the Karachaganak gas condensate field consortium, and from new fields coming on stream: North Buzachi, Sazankurak, Saztobe, Airankol, and others.
By 2002, Kazakhstan plans to have other major fields on stream: Alibekmola, Urikhtau, and Kozhasai. In addition, drilling has begun on the offshore Kashagan block being developed by the Offshore Kazakhstan International Operating Company (OKIOC).
This project, with estimated possible oil reserves of up to 40 billion barrels, is being closely watched as an indicator of the Caspian region's oil supply potential.
Kazakhstan needs to resolve two major issues in order for it to further increase oil production. Development of the offshore potential of Kazakhstan in the Caspian Sea has been slowed by a dispute over ownership rights.
This disagreement ties in with a broader debate between Caspian Sea Region states over how the Caspian Sea should be treated under international law (including environmental issues).
In 1997, Kazakhstan signed a communique with Turkmenistan pledging to divide their sections of the Caspian along median lines, and in July 1998 Kazakhstan signed a bilateral agreement with Russia (not yet ratified) dividing the northern Caspian seabed (but not the rest of the Caspian Sea) along median lines between the two countries.
Both of these agreements are interim until the status of the Caspian Sea is settled among all of the littoral states. The other major issue is the development of export routes to bring Kazakhstan's oil to world markets. Kazakhstan exported about 340,000 bbl/d of crude oil and condensate in 1998.
The majority of Kazakh exports -216,000 bbl/d - were shipped by pipeline, of which about 180,000 bbl/d were transported by the Atyrau-Saransk-Samara pipeline through Russia. In addition, 88,000 bbl/d was shipped by rail, and 36,000 bbl/d was shipped across the Caspian Sea. About half of all Kazakh exports -195,000 bbl/d - was exported to countries outside the former Soviet Union.
Under the former Soviet Union, Kazakhstan's pipeline network was integrated with the Russian pipeline system, and all of Kazakhstan's oil was exported through the Russian pipeline system. Kazakhstan's oil production is concentrated in the west, and two export pipelines transport this oil to refineries and export pipelines in Russia.
However, Kazakhstan's urban and industrial centers are concentrated in the east, and because they are not connected to the production centers, they must import oil via an oil pipeline from Siberia. As a result, Kazakhstan's pipeline system is fragmented, consisting of the two export pipelines in the west, the import pipeline in the east, and a smaller internal line in the south.
Source: United States Energy Information Administration.
© 2000 Mena Report (www.menareport.com)