I. The Petroleum Sector—A Brief Overview of Developments and Prospects1
1. Kazakhstan’s petroleum sector continued to develop rapidly, with a 14 percent output increase in 2001 (Text Table 1). Volume growth would have been 2 percent greater in the absence of a 2-month shutdown of the major gas condensate field, owing to a dispute with the Russian authorities about the application of the VAT subsequent to the conversion to the destination principle (except on energy products) from July 1, 2001. The difference of interpretation over the classification of condensate was resolved in October. with average prices declining about 14 percent, export revenues are estimated to have stagnated at around $4.5 billion in 2001. Nevertheless, several oil producers in Kazakhstan are investing heavily to expand production over the coming years. TengizChevroil, with production of around 12 million mt in 2001 and operating the largest field in Central Asia with recoverable oil in the range of 6–9 billion barrels, is investing heavily to almost double production within 5 years. The operators of the Karachaganak gas and gas condensate field in the northwest of the country are also investing heavily over the next three years, largely to expand production and reorient export transport capacity to link-up to the Caspian Pipeline Consortion (CPC) pipeline (a $2.6 billion, 1,500 km pipeline from the Tengiz field through Russia to Novorossiysk on the Black Sea). Production at Karachaganak will also broadly double by 2005. Long-term prospects Kazakhstan as a whole depend on the size of the offshore Caspian field of Kashagan. Though exploration work continues and the exact size of the deposit is not expected to be announced before late-2002/early 2003, preliminary indications suggest a very large field. Commercial production would not begin before 2005.
|of which: through CPC||…||…||…||1.0||20.0||28.0||28.0||32.0|
|(In millions of dollars)||1,650||2,164||4,682||4,458||4,063||4,658||5,262||6,136|
|Budget revenue from oil||…||158||604||1,430||967||1,018||1,212||1,544|
|(In millions of dollars)|
|World oil price ($/bbl)||13.1||18.0||28.2||24.3||19.0||19.0||19.0||19.0|
|Oil revenue/Budget revenue||…||5.5||15.3||25.8||18.2||…||…||…|
2. Until very recently, Kazakhstan has been virtually entirely dependent on the Russian Transneft pipeline system (from Atyrau, Kazakhstan to Samara, Russia) for its primary access to international markets. This dependence has involved monopsony practices—binding quotas on the volume transiting the Russian system, the absence of a quality bank resulting in significant discounts on better quality Kazakhstan crude, and the application of Russian domestic prices for exports to Russia. With the coming into operation of the CPC in the autumn of 2001, the situation has improved dramatically. While the CPC runs through Russia, it is independently owned and operated on commercial grounds and includes a quality bank mechanism. In addition, it covers a shorter distance, with the result that export costs from Tengiz will be cut about in half. The CPC has an initial rated capacity of 28 million mt per annum, which would rise to 67 million mt in the medium term. Initially, only crude from the Tengiz field is using the CPC. However, with these developments in view, several important fields are rushing to link up with the CPC over the next 2 years, notably the large gas and condensate field at Karachaganak (by end 2003), the Aktobe oil field in the north (by end 2002); and the Hurricane/Kumkol complex to the east of the Aral sea. One of the key challenges facing the operators of the CPC pipeline, and which resulted in some delays, has been to ensure that an oil quality bank was in place and approved by the Russian tax authorities.
3. Perhaps as importantly, the CPC has provided a competitive alternative to the monopsony position of the Transneft pipeline system of Russia. The staff estimates that for the industry as a whole, export costs (operating and transport costs) will have dropped by at least 20 percent over the period 1998–2003, with an output increase of about 100 percent. Perhaps more strikingly stated, the export costs of the highest cost producer would have dropped 40 percent from around $14/bbl in 1998 to around $9/bbl in 2003 (Figure 1). In part also reflecting competitive pressures emerging from the CPC, Kazakhstan’s quota through the Samara pipeline has risen steadily. For 2002 it has been announced that 12.5 million mt will be allocated to Kazakhstan (up from 10 million mt in 2001 and out of total pipeline capacity of 15 million mt). Government-to-government talks have also reportedly resulted in agreement on a quota of 2.5 million mt to be shipped through the pipeline from the Russian Caspian port of Makhachkala, through Chechnya, to Novorossiysk.
Figure 1.Kazakhstan: Marginal Cost of Crude Petroleum Exports (Supply)1/ 1998–2003
Source: Fund staff estimates and projections.
1/ Defined as the well operating cost plus transport cost to world markets for the major fields, normalized for quality.
4. Two other developments are worthy of note as they reflect structural changes in the industry. Firstly, the share of exports going to CIS countries has been steadily declining (from 40 percent in 1998 to about 17 percent in the first 10 months of 2001) as producers find ways to reach international markets where prices are much higher. This trend is expected to continue and even accelerate in coming years as export capacity develops further. A second trend involves the growing role of swaps. As the major petroleum producing areas of Kazakhstan are in the extreme west (around the Caspian Sea and northward), while the main industrial area is in the north and northeast and the large population area is in the south and southeast, there are clear benefits for swap operations involving Russia and this has been developing rapidly in recent years. Since 2000, a triangulation with the Ukraine has developed. Oil is delivered from western Kazakhstan to a refinery at Orsk in the Urals and to a refinery at Kherson in the Ukraine from fields operated by the parastatal Kazakhoil. Kazakhoil purchased a share in the Kherson refinery in 2000. In exchange, Russian oil from Siberia is shipped to the Pavlodar refinery in northeastern Kazakhstan. In 2000, this transaction involved about 1 million mt (up 25 percent from 1999). For the first 10 months of 2001 this has risen further to 1.8 million mt. For 2002 press reports indicate a target of 2.5 million mt, although some is part of a new transit arrangement to China. There has not be any significant transit of oil, but this may change in the near future as there are proposals to develop use the pipeline from Omsk, Russia through Pavlodar in the east and then by rail to northwestern China.
Prepared by Paul Mathieu.