Kazakhstan's oil and gas industry review
Jusan Analytics team analyzed Kazakhstan's oil and gas industry
- In terms of proved oil reserves, Kazakhstan’s ranks 12th place in the world – 3.9 billion tons, and in natural gas reserves it ranks 14th – 2.7 trillion cub. m.;
- In 2021, oil production amounted to 85.9 million tons (the share of domestic consumption – 23%), and gas production – 54.2 billion cub. m. (61%). Oil production is expected to amount to about 87 million tons in 2022, and after 2024 it may reach 100 million tons;
- Kazakhstan has increased oil production by 3.5 times over the past 30 years, and in oil production in 2021 it ranks 13th in the world (2% of global production);
- The largest oil development and production projects are Tengizchevroil LLP (31%), North Caspian Operating Company N.V. (19%) and Karachaganak Petroleum Operating N.V. (13%);
- The total length of the gas transportation system of the Republic of Kazakhstan is more than 56 thousand km of gas distribution networks, more than 20 thousand km of main gas pipelines and 56 compressor stations;
- More than 80% of the oil produced in Kazakhstan is exported, and the rest is supplied to the domestic market for processing;
- In the structure of Kazakhstan’s total exports for 2021, oil accounts for 51.5% of all goods, and gas – for 3.8%. For 2020 – 50.5% and 5.3%, respectively;
- By the end of 2021 production of gasoline of all brands amounted to 4.81 million tons (+ 7.4% compared to 2020): exports – 0.1, domestic consumption – 4.71, aviation fuel – 0.59 (+33.1%). Diesel fuel production – 4.99 million tons (+6.8%): import – 0.3, export – 0.2, and its domestic consumption – 5.1;
- The republican budget of Kazakhstan is replenished by 30-50% at the expense of the oil and gas industry;
- Over the past 10 years, the average share of oil and gas in the gross inward investment to Kazakhstan was about 33%;
- Kazakhstan’s energy exports is still dependent on transit countries;
- The recovery of global demand for energy resources, high oil and gas prices allow increasing the volume of revenues from the oil and gas sector.
Threats and risks
There is uncertainty in the global energy markets today. In addition, anti-Russian sanctions and currency fluctuations also negatively affect the country’s export potential.
The major risks of Kazakhstan’s oil and gas industry are:
- Dependence of Kazakhstan’s energy exports on transit countries;
- Lack of investment resources due to the high capital intensity of projects and the shift to green energy;
- The low-cost build-up by OPEC+ countries despite the dynamics of demand, as well as the active involvement of Iran as an oil seller without sanction restrictions;
- The increase in the cost of oil production at old deposits and the tightening of oil company regulations;
- Insufficient infrastructure development. For example, the low throughput capacity of pipelines and the Kazakhstan sector of the Caspian Sea;
- The trend of carbon neutrality transition in the oil and gas industry;
- The introduction of the EU carbon tax, which can significantly reduce oil export revenues;
- A large share of revenues from oil and gas production and exports go to foreign companies;
- A possible global recession may lead to a decrease in demand for energy resources and a reduction in industrial production;
- Uncompetitiveness of the oil refining sector and poor development of the petrochemical sector.
Prospects and trends
There has been a tendency for energy demand to outstrip supply since 2021.
Due to the containment of crude oil production by OPEC+ members and the recovery of economic activity after the COVID-19 pandemic, the price of Brent crude oil in 2022 surged to record values. According to the US Energy Information Administration forecasts, the average oil price will be $105 per barrel in 2022 and $95 in 2023.
We can note following prospects for the industry:
- Recovery of global energy demand and high oil and gas prices. And according to forecasts of international experts, implementation of a new supercycle of persistently high oil prices;
- Limited global hydrocarbon reserves at depletion and increased complexity of production at old deposits;
- Slowing down the expansion of the renewable energy sources share;
- High demand for energy resources from China, India and the EU (energy crisis);
- The geopolitical difficulties of using and obtaining gas for European countries strengthen the demand for a substitute in the form of oil and its refined products;
- Changing the structure of global demand for crude oil from mainly the fuel and energy industry to the needs of construction, agriculture and the production utility goods;
- Cost reduction and improvement of technologies for the production of various polymers will ensure constant demand, which will significantly reduce the volatility of oil prices;
- Increased demand for petrochemical products. According to our Scoring, the petrochemical industry has one of the best development potentials in Kazakhstan.