2013-02-01 01:53:46 - Fast Market Research recommends "Kazakhstan Oil & Gas Report Q1 2013" from Business Monitor International, now available

BMI View: Our outlook for Kazakhstan remains broadly optimistic, although we underline growing risks related to resource nationalism. KMG's acquisition of a 10% stake in Karachaganak will greatly improve the upstream environment, particularly for the IOCs involved in the project, but other examples of growing state control over the sector are indicative of a worrying trend.

The main trends and developments we highlight for Kazakhstan's oil and gas sector are:

* As of early October 2012 US major ConocoPhillips was rumoured to be seeking an exit from Kazakhstan's giant Kashagan field. Oil and Gas Minister Sauat Mynabayev confirmed that the US firm had 'informed that [it has] the intention of selling' its 8.4% stake in the troubled offshore field in the

Caspian Sea. The reported exit from the giant Kashagan field reiterates the regulatory risks of operating in Kazakhstan. Should Kazakhstan's operating environment grow more hostile, this could lead to a fall in private interest in the country and slow down exploration and development of its huge oil and gas potential.
* Protests and strikes erupted in late-2011 in the oil-rich province of Mangystau, which accounts for about 30% of Kazakhstan's estimated 1.63mn barrels a day (b/d) of production output, have now completely died down and the majority of the oil workers fired by KazMunaiGas (KMG) have been reinstated. The movement had a minimal impact on the country's oil and gas sector: there were no reports of foreign operators being affected and even KMG suffered a fall of just 7% in annual output. The strikes failed to spread to Kazakhstan's pre-Caspian basin where about 60% of the country's resources are located. The reappointment of Prime Minister Karim Massimov and of Oil and Gas Minister Sauat Mynbayev following January 2012 parliamentary elections indicate policy continuity in the hydrocarbons sector.
* KMG's acquisition of a 10% stake in the Karachaganak gas and condensate project for a total pre-tax consideration of US$3bn, including US$1bn in net cash and the settlement of outstanding legal claims against the operating consortium, is a positive move for the foreign companies involved. The deal removes many of the legal uncertainties surrounding their operations in the country and opens the door to the longdelayed third phase of development, which will boost output from the field.
* We forecast that the estimated 2011 gas output of 12.26bn cubic metres (bcm) will rise to 15.79bcm by the end of 2016. Infrastructure bottlenecks and delays to key decisions with regard to associated gas have forced us to moderate our assumptions. However, the country is still set to become a major gas exporter. Our demand forecasts see consumption reaching no more than 12.13bcm in 2016, providing export potential of 3.66bcm.
* State oil and gas group KMG believes the Kashagan field expansion could be completed by 2018-2019 - despite government concerns over spiralling costs.
* Output at Kashagan - with expansion having been repeatedly delayed - will reach about 370,000b/d during first-phase expansion and rise to 450,000b/d by 2015 or 2016, Oil and Gas Minister Sauat Mynbayev said on October 4 2011.
* In October 2012, Mynbayev, announced at the 7th Eurasian Forum, KazEnergy, that the first-phase of the Kashagan field is expected to start production and bring profits 'in the period from January to June 2013' He also said that preparatory work for Phase II of Kashagan was underway.
* According to Mynbayev, oil output hit 80.10mn tonnes per annum (tpa), equivalent to 1.61mn b/d, in 2011. This corresponds to BMI's own estimates which put 2011 liquids output, including gas liquids, at 1.63mn b/d. The government expects production to hit 90.00mn tpa (1.81mn b/d) by 2015, before being able to sustain production levels of 120-130mn tpa (2.41-2.61mn b/d) from 2020 onwards. This is also similar to BMI's forecasts, which show output reaching 2.11mn b/d in 2016, 2.46mn b/d in 2019 and 2.45mn b/d in 2021.
* We forecast domestic oil demand will reach 322,000b/d by 2016. This implies that oil exports should rise from an estimated 1.37mn b/d in 2011 to 1.79mn b/d by 2016. BMI expects the country to fall short of the 2020 export target of 3.00mn b/d set by the government, with our forecasts estimating no more than 2.06mn b/d to be exported that year.
* On June 14 2012, the Kazakh parliament approved a new bill that established 'the priority right of the state to take part in any new trunk pipeline'. Sauat Mynbayev told reporters: 'The state must have at least 51% in any new pipeline.' The bill has now been sent to President Nursultan Nazarbayev who is widely expected to sign it, turning it into law. The new bill points to resource nationalism and it will have a considerable impact on the upstream segment, particularly on Kashagan phase II, where it could be the cause of further delays.
* In October 2012, Sauat Mynbayev was appointed chairman of the board of KazMunaiGas National Company.


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Kazakhstan's dependence on oil prices leads to high volatility in the country's export revenues. Tight supply due to booming demand in emerging markets is clearly an opportunity for the country. As a result, we forecast OPEC basket oil prices to remain elevated and average US$107.05 per barrel (bbl) in 2012, a figure similar to the 2011 average of US$107.52/bbl.

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