Kazakh oil production increase demonstrates confidence

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07.10.2010 22:31

WASHINGTON, DC - Thursday, October 07, 2010 - The announcement this week that Kazakhstan plans to dramatically increase oil production over the next decade reflects the Kazakh government’s confidence in the enormous size of its oil and gas reserves and their ability to be extracted for at least the entire first half of the 21st century and probably longer. It also reflects a bullish confidence that global demand for oil, which has been soaring again in recent weeks, will remain robust for decades to come.

On Tuesday, Kazakhstan’s Oil and Gas Minister Sauat Mynbayev announced that his country planned to increase annual production of crude oil and gas condensate to a remarkable 143 tons by 2020. That would mean a whopping 60 percent increase on current output. Kazakhstan produced an already impressive 84.2 million tons of crude oil and gas condensate in 2009 and that figure was already a growth of 8.3 percent compared with 2008. The government is confident that it will increase that total combined production to 89.2 million tons in 2011 and to 91.4 million tons in 2012. The country already accounts for 3 percent of the world’s recoverable oil reserves. Government confidence is based on reports from the state-owned energy corporation KazMunaiGas (KMG) over the past two months that the country’s oil industry was already on track to go well above its target production goal of 88.1 million tons of crude oil and condensate gas this year. Much of that confidence comes from the success of expanded operations from the TengizChevroil joint venture that is led by the U.S. oil major Chevron. Senior Kazakh government officials and top oil executives have exuded confidence at the 5th KAZENERGYEurasian Forum in Astana this week about future prospects for growth. They have also been at pains to try and reassure nervous Western oil executives that their investments and production agreements with Astana will remain secure.
These fears have grown over the summer following Kazakhstan’s efforts to pressure the oil majors participating in the Karachaganak Petroleum Operating consortium (KPO) to cede a direct 10 percent share to KMG.  At the Astana KAZENERGY forum, Oil and Gas Minister Mynbayev told Petroleum Economist that his government is not trying to extort the KPO consortium. "The parties are discussing how to improve the project,”  Mynbayev told Petroleum Economist.   Kazakhstan Prime Minister Karim Massimov, who has been a driving force in attracting hundreds of billions of dollars of foreign direct investment (FDI) to Kazakhstan, sought to reassure participants at the energy forum this week that he wanted to restore their confidence in the safety of investing in his country. Also, as has been reported, Kazakhstan has imposed a $20 per 1.1 ton export tax on its oil since joining a new Customs Union with Russia and Belarus in mid-July.

Currently, the 900-mile Caspian Oil Consortium (CPC) pipeline is Kazakhstan’s largest export route for its oil to the West, but the carrying capacity of the CPC pipeline has become inadequate to handle the rapidly growing volume of Kazakh oil exports. Kazakhstan is therefore looking not for replacement routes, but for additional, or complimentary, ones to pump more oil and natural gas out to China and Western Europe every year.
Kazakhstan’s ambitions to export more oil make sense in terms of soaring global demand, especially from China. It makes sense to maximize income from oil exports when the price is high. Unforeseen circumstances from economic depression to the discovery of new energy sources or large new finds, especially in the Arctic Ocean, could reduce global prices in decades to come. The Kazakhs are also motivated by the desire to maximize income for their long-term industrialization and sustainable high-tech and agricultural development, to maintain their country’s prosperity in decades and even centuries to come after the oil and gas reserves finally run out. But to achieve these ambitious and, indeed, admirable goals, Kazakhstan still needs to maintain the confidence and partnership of the major Western oil majors and of the international community. Prime Minister Massimov and Oil and Gas Minister Mynbayev showed they understood this necessity at the KAZENERGYforum in Astana this week.


Martin Sieff

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