Recent developments in the Kazakh oil and gas industry

The oil and gas sector in Kazakhstan is developing rapidly.  Aside from a number of exciting oil & gas projects already underway, the Government of Kazakhstan is also eager to develop new fields. Today almost all major oil & gas exploration and production companies have representations in Kazakhstan.

Kazakhstan has significant petroleum reserves. Current proven oil reserves total 30 bln barrels, whilst onshore and offshore possible hydrocarbon reserves dwarf proven reserves, with an estimated 60 - 100 billion barrels left to uncover, mostly in the Kazakh part of the Caspian Sea. Some estimate that the offshore Kashagan field alone may contain up to 50 billion barrels of oil. Kazakhstan’s vast natural resources are projected to provide 2-3% of predicted global oil demand in the next decade.

Following its independence in 1991, Kazakhstan has opened up its oil sector to investment and development opportunities from foreign energy companies. International projects have taken the form of joint ventures with the national oil company, Kazakhoil (now KazMunaiGas), as well as production-sharing agreements (PSAs) and exploration/field concessions. Although Kazakhstan's oil production dropped to just 415,000 bbl/d in the first few years after the collapse of the Soviet Union, the massive level of foreign investment by almost all global oil majors (Chevron-Texaco, Exxon Mobil, Shell, TotalFinaElf, British Gas, Statoil, Eni-Agip, Philips Petroleum etc) in recent years has helped Kazakhstan boost its oil production from 530,000 bbl/d in 1992 to more than 1 mln bbl/d in 2005.

In addition to a number of major oil fields recently coming on-stream, including North Buzachi, Sazankurak, Saztobe, Chinarevskoye and Airankol, fields such as Alibekmola, Urikhtau, and Kozhasai are set to begin production shortly. In the next decade, Kazakhstan will increase its oil production significantly - production is expected to reach 2 mln. bbl/d by 2010, and as much as 3 million bbl/d by 2015. Most of this growth will come from three enormous fields: Tengiz, Karachaganak and Kashagan.

Kazakhstan has significant natural gas potential too. Its proven gas reserves stand at 3 trillion cubic meters and projected reserves at 5 trln. cubic meters. The country is also expecting a lot of oil-associated gas; it is believed that every new ton of oil will bring 1000 cubic meters of gas (100 mln. tons of new oil will lead to 100 bln. cubic meters of gas). Hence the task of rational utilisation of gas is important not only through re-injection but also through exports and internal use (liquification and development of internal gas pipeline infrastructure).

The main focus for the future development of hydrocarbon production in Kazakhstan is on the Caspian Sea, which has enormous potential. In addition to the huge off-shore Kashagan field (largest oil discovery in the world in the past 30 years) there are up to 100 more potentially-lucrative offshore fields in Kazakhstan’s territory.

The Kazakhstan government gives great importance to the development of the country’s oil and gas industry, and has secured a stable legal environment for investors. In 1999 and 2002, Kazakhstan signed a complete set of agreements with Russia, its biggest Caspian neighbour, on the delimitation of the seabed between the two countries. This agreement clearly spells out property rights on seabed resources and fully protects the interests of investors in Kazakhstan’s oil and gas sector. A similar agreement was signed with Azerbaijan in 2002 and an agreement with Turkmenistan is pending (these countries are also Kazakhstan’s sea-bed neighbours). Finally, Kazakhstan has stepped up efforts with Russia and Azerbaijan to secure a comprehensive Caspian Sea Legal Convention between all five littoral states (Kazakhstan, Russia, Azerbaijan, Iran, and Turkmenistan), which will address important issues such as Caspian environment and biodiversity protection.