Astana 'must allay players' fears'

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07.10.2010 22:11 Kazakhstan's plans to boost oil output by 60% over the next decade may hinge on the state's ability to reassure foreign players that their billion-dollar investments will be protected by law, industry officials said today.

Foreign oil executives say privately they are concerned about growing state influence in Kazakhstan's lucrative energy sector and changes to the tax regime in a country with slightly over 3% of the world's recoverable oil reserves.

"The laws are relatively simple, but they leave too much to the discretion of the government," a lawyer active in the energy sector told Reuters.

Kazakhstanaims to increase crude output to 100 million tonnes by 2015 and 130 million by 2020, from 81 million forecast for this year, the Oil & Gas Ministry said.

Crude oil exports are forecast to rise to 88 million tonnes by 2015 from 73.8 million in 2010, while a $4 billion revamp will allow the country's three refineries to process 17.5 million tonnes of crude by 2015, up from 12.7 million tonnes this year, including some supplies of Russian crude.

"Kazakhstan represents a significant source of incremental, non-Opec oil supply," Kazakh Prime Minister Karim Masimov told a conference in the capital, Astana, this week.

Officials provided no clarity, however, on the start date for the key second phase of the Kashagan project - the world's biggest oil discovery in more than 40 years and potentially the largest contributor to Kazakhstan's forecast oil boom.

Cost overruns and assertive government policy, which opened the door for state-run producer KazMunaiGaz to join the consortium of foreign investors that runs the field, have repeatedly delayed the project.

Oil & Gas Minister Sauat Mynbayev said Kashagan's first phase was on track to start producing oil as scheduled by 2013. But he said questions remained over the timetable for the larger second phase, pending completion of a field development plan. ExxonMobil is among the partners in the Kashagan consortium. Asked about the state's role in the energy sector, the company's senior vice-president, Mark Albers, told Reuters: "When agreements are changed along the way, that increases the risk." He added: "Where there have been disagreements, we have been able to come to a resolution that has enabled the programmes to go forward." Kazakhstan plans to earn nearly $3 billion next year by doubling its oil export duty to $40 per tonne from 1 January, less than six months after the tax was reintroduced at $20 per tonne. While the duty should swell state coffers, even some Kazakh oil executives said it could have damaged investor sentiment. KazMunaiGaz chief executive Kairgeldy Kabyldin estimated the state had effectively lost close to $1 billion after the market value of its London-traded unit, KazMunaiGaz Exploration & Production, fell in response to the export duty. "The market showed that investors reacted negatively to the additional export duty," he told a news conference in Almaty. Kazakhstan's growing confidence that the state can play a significant role was in evidence at two major energy conferences held in the country this week. The prime minister and many senior representatives of international players were absent from the 18th KIOGE event in Almaty, the traditional annual gathering of Kazakhstan's oil and gas industry. Instead, they spent the preceding two days in a futuristic conference centre in the showpiece capital Astana, attending the fifth event organised by the KAZENERGYassociation. Its chairman, Timur Kulibayev, is also the chairman of KazMunaiGaz. Billions of dollars of Chinese investment have helped support energy sector growth in Kazakhstan. Philip Andrews-Speed, professor of energy policy at the University of Dundee in Scotland, said Central Asia would supply about 10% of China's crude oil imports this year and could maintain such a percentage as consumption rises. The long-term challenge to Kazakhstan and other Caspian region states, he said, would be to ensure they are economically viable suppliers to China, which is not short of alternatives. "The international LNG market is often cheaper than gas transported 6000 kilometres by pipeline," Chinese energy specialist Andrews-Speed told the news agency. "The Caspian region has a big challenge ahead to make sure it is seen by China as a favoured source for energy flows and investment.