Kazakhstan looks for resolution of oil industry problems

Kazaxstan_oilThe Central Asian country of Kazakhstan has great hydrocarbon reserves, but its oil industry experiences difficult times and seeks ways to resolve the situation.

Kazakhstan is among the main world oil producers. Its proven oil reserves are estimated at 30 billion tonnes, which amounts to 1.8 percent of global proven oil reserves as of the end of 2012, according to BP Statistical Review of World Energy. Kazakhstan’s share in global oil production hit 2 percent in 2012. In 2013, the country produced 81.8 million tonnes of oil and gas condensate, Kazakh Oil and Gas ministry Said.

However Kazakhstan’s oil production has remained stuck at the same level for the last several years and is projected to hardly increase in the near future.

In April 2013, Kazakh Oil and Gas Ministry reduced its oil production forecast for 2013-2015. The revenue forecast of Kazakhstan’s budget was also reduced as a result.

There are several reasons for the problems in the Kazakh oil sector.

The hardest blow to the Kazakh energy industry came from another delay in oil production at its off-shore Kashagan field, one of the largest oil fields in the world. Kazakhstan expected to get huge profit and become one of the top-ten world oil producers from this field.

The Kashagan field has experienced several delays to its initial 2005 launch but was eventually launched on September 11, 2013. It was stopped three weeks later following detection of two gas leaks in the onshore section of the gas pipeline running from D Island to the onshore processing facility Bolashak. Some of the corrupt parts of the pipeline were sent to Cambridge (TWI Laboratories) in England, where the immediate cause of the pipeline failure was traced to sulphide stress cracking. The cause of the leaks is the worst outcome because it means that the pipelines could leak anywhere along their entire length. If the preliminary results of the investigation are confirmed, the entire pipeline system at the field will require replacement and that will take a lot of time and money.

Kashagan is the most expensive energy project in the world, according to the ratings of CNN Money. If project’s cost continues to rise, it may convert into unprofitable, experts say. But even in case of successful scenario, it is clear that Kazakhstan will have to postpone its hopes for Kashagan oil and profit for an uncertain period of time.

Another problem for the Kazakh oil industry comes from the structure of oil fields. The major part of easy recoverable oil has been already extracted. The country still has a lot of oil areas but their development requires high technologies and much more investment. This problem was admitted even by the highest Kazakh officials including the Oil and Gas Minister Uzakbai Karabalin.

Currently the Kazakh economy is based on income from hydrocarbons. Kazakhstan is trying to develop non-oil sectors of the economy and even approved a program on forced industrial development. But the non-oil sector is still not able to keep the country’s economy afloat. Not only does Kazakhstan need additional funds to develop other segments of the economy, it needs to find ways to resolve the situation in oil industry.

As part of the solution, in January 2013, Kazakhstan lifted the moratorium on development of new hydrocarbon fields which has existed since 2008. Moreover the country plans to invite leading international consulting companies to assess new oil-bearing fields and then announce a tender for subsoil use rights on them. The country has facilitated rules in subsoil legislation to attract new investments and even plans to extend terms of contracts with foreign companies for large hydrocarbon fields.