Thursday, February 16, 2012

Kazakhstan on Crude Expansion Trajectory

With a 50-percent stake in a Tengizchevroil joint venture to produce crude in Kazakhstan’s Tengiz oil field, Chevron announced this week that it planned to enter a front-end engineering design (FEED) phase to increase production in the country from 250,000 to 300,000 barrels per day (bpd).  However, Chevron’s numbers were higher than those provided by Tengiz, Kazakhstan’s major crude producer, which estimated the expansion to reach 260,000 bpd by 2017.  The Tengiz oil field, situated along the shore of the northern Caspian Sea, is the deepest producing major oil field in the world.  Under a new $25 billion investment plan, Chevron and other stakeholders in Tengiz will also “build a new crude-processing plant, a separate pressurizing unit that will make the new and existing plants work more efficiently, and drilling about 20 new wells.”  The plan, which is contingent upon the Kazakh government’s approval, will be a boost to the country’s annual oil output.
Despite the unprecedented political unrest in Kazakhstan’s oil town of Zhanaozen in December 2011, which resulted in the deaths of 15 oil workers from clashes with security forces over poor living conditions, the threat to oil production in the country was minimal, if any.  Allaying the concerns of some energy analysts that a halt to crude output in this Central Asian country would have an analogous effect on global oil prices as the violence in Libya, Kazakhstan’s central bank issued a statement on February 7, 2012, that “commodity exports grew by 46.1 percent [in 2011] compared to 2010.” 
The country’s leadership appears to be confident that the production level would not only be maintained, but it will increase.  According to the Kazakh State Statistical Agency, the country’s oil production increased by 2.6 mm in January.  The U.S. Energy Information Agency estimates that crude output is set to rise in Kazakhstan as its vast Kashagan oil field comes online in 2013 and add an average of 125,000 bpd each year.  With parliamentary elections behind, which re-asserted the victory of the current government in January 2012, Kazakhstan expects to reach a deal with international companies on expanding the production in the Kashagan oil field. 
Meanwhile Nursultan Nazarbaev’s long-standing regime has squashed the unrest in Zhanaozen, it is unclear whether this is an end to it.  Imprisoned then freed opposition leaders of a recent rally in Almaty planned to hold another peaceful protest on February 25.  The Kazakh leadership sees a solution to dissent in providing economic and social stability, which may not be enough for a politically suppressed society.  While implications of the tragedy in Zhanaozen on the near to long term stability of Nazarbaev’s regime are uncertain, it appears that the current leadership of twenty years has tightened its control on the country and will predictably rely on increasing exports of hydrocarbons to maintain economic strength.

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