Energy Information Administration
Kazakhstan is important to world energy markets because it
contains significant oil and gas reserves. In particular, the
Tengiz oil field in northwestern Kazakhstan is estimated to contain
between 6 and 9 billion barrels of proven oil reserves. Among
former Soviet republics, Kazakhstan ranks third in energy production
and fourth in energy consumption.
BACKGROUND
Kazakhstan declared its sovereignty from the Soviet Union on October
25, 1990, and became an independent country on December 16, 1991.
Kazakhstan is a constitutional republic with a strong presidency,
and President Nazarbayev is the country's central political figure.
Throughout 1995, Kazakhstan had no legislature, and the country
was governed by decree by President Nazarbayev and the Cabinet
of Ministers. In 1995, President Nazarbayev's term was extended
by referendum to the year 2000, and a new constitution was adopted
that concentrates power in the presidency.
Kazakh independence has brought into the open long-suppressed ethnic and religious grievances between non-Muslim Russians - many a legacy of Stalin's resettlement policies - and mainly Muslim Kazakhs. Today, ethnic Kazakhs constitute a slight plurality of the population, with ethnic Russians close behind. Kazakhstan's 6 million Russians were the favored class during the Soviet era. Now, however, the Kazakh government has been building a national identity around Islam and its nomadic ancestry, and plans to require that everyone learn the Kazakh language.
In recognition of its ethnic minorities, Kazakhstan began moving its capital in November 1997 from Almaty in the southeast to Akmola in the north. Kazakh officials have also noted that "Akmola is our security insurance" against Russian nationalists on both sides of the Russian-Kazakh border who have suggested redrawing the northern border so that Kazakh Russians live in Russia.
Kazakhstan's foreign affairs are strongly influenced by its location
between two powers, Russia and China. Political decisions in Kazakhstan
are made in consideration of the reactions of both of these countries,
and oil and gas companies from both countries have been awarded
contracts to develop Kazakhstan's energy potential.
ECONOMY
Kazakhstan's economic situation deteriorated sharply since independence,
with GDP falling to 55 percent of 1991 levels by 1995, before
stabilizing and growing slightly in 1996 and 1997. Economic growth
is expected to average 3 - 4 percent in 1998, and rise thereafter.
The turning point for the economy was 1994, when Kazakhstan implemented
a fiscal and monetary policy approved by the International Monetary
Fund (IMF). The tight fiscal deficits and interest rates of that
policy reduced inflation rates from over 2,000 percent in 1994
to 29 percent in 1996, and stabilized the economy.
Kazakhstan's economy has been hurt by several factors, including droughts in the agricultural sector, a traditional center of the Kazakh economy. Another factor is the high level of debt between businesses, currently estimated at $10 billion. The debt has hurt the banking sector, as have non-performing loans. Reforms have been introduced to reduce the number of under-capitalized banks, and the number of banks has fallen from over 200 in 1993 to under 70. Public confidence in banks has fallen, and the banking crisis, in turn, has resulted in a shortage of credit for investment.
The government of Kazakhstan, especially the President's office,
has taken a leading role in directing economic development as
Kazakhstan completes its initial transition towards a free market
economy. The government has signed into law numerous decrees on
banking, bankruptcy, customs, taxes, stock exchanges, insurance,
land, accounting, and natural resources. As part of its economic
reforms, Kazakhstan began a mass privatization program in 1993
that was scheduled to be completed by the end of 1997. The privatization
program has brought in a number of foreign investors in the largest
industrial complexes and energy concerns. Although the government
remains an equal partner in many companies, state-held shares
have been reduced or eliminated in hundreds of enterprises. However,
legacies of the former Soviet system, such as stifling bureaucracies,
continue to hinder investment. Corruption is also a problem, and
Kazakhstan has a poorly developed judicial system. Legal reform
efforts to improve commercial law are expected to continue.
OIL
Kazakhstan produced 520,000 barrels/day of oil in 1996, and is
the second largest oil producer among former Soviet republics
after Russia .
Kazakhoil, the state oil and gas company, is a partner in almost
three-fourths of this production. Kazakhstan has undertaken a
number of reforms in its oil and gas sectors in order to further
develop its potential. On June 28, 1995, Kazakhstan adopted a
new oil and gas law which is widely recognized as a critical step
in attracting foreign investment. Among other measures, the law
contains a broad provision for competitive bidding on energy projects.
Under the law, the Kazakh government may grant exploration rights
by competitive tender or through independent, direct negotiations.
Contracts may be in the form of joint ventures ,
service agreements, or production-sharing arrangements. As of
July 1997, $2 billion had already been invested in Kazakhstan's
oil and gas sector. Kazakhstan's reform process has included privatizing
a number of existing energy concerns. In November 1996, Hurricane
Hydrocarbons (Canada) bought 89.5% of Yuzneftegaz, an oil company
with many peripheral businesses that accounts for 80% of the economic
activity in the Aral Sea region, and began restructuring the company
to focus on its core oil and gas business. In April 1997, Kazakhstan
sold a 60% stake in its largest oil producer, Mangistaumunaigaz,
to Central Asia Petroleum (Indonesia) for $248 million.
Almost half of Kazakh production comes from three large onshore
fields - Tengiz, Uzen, and Karachaganak. By far the largest of
these is the Tengiz field, estimated to contain up to 6-9 billion
barrels of oil. In April 1993, Chevron (United States) concluded
a $20 billion joint venture (Tengizchevroil) to develop the Tengiz
oil field, located in the North Caspian Basin. In April 1996,
Mobil (United States) announced that it had purchased a 25% share
in Tengizchevroil, with Chevron (45%), Kazakhoil (25%), and LukArco
(5%, United States/Russia joint venture between Arco and Lukoil)
owning the remainder. Production had been constrained by lack
of an export outlet, as well as by Russian complaints over the
presence of mercaptans - corrosive, foul-smelling compounds of
carbon, hydrogen, and sulfur - in the oil. Tengizchevroil exports
about 160,000 barrels/day of crude oil through the Russian pipeline
system, by barge and rail to the Baltic, and by barge and rail
to the Black Sea. Given adequate export outlets, Chevron believes
it can reach peak production of 750,000 b/d from the field by
2010. Tengiz oil will be exported by the Caspian Pipeline Consortium
(CPC) to world markets via a 900-mile, $2.2 billion oil export
pipeline connecting to the Russian Black Sea port of Novorosiisk.
The pipeline is expected to be commissioned in 1999, but it will
not reach full capacity of 1.34 million barrels/day until sometime
after 2000. CPC members include Russia (24%), Kazakhstan (19%),
Chevron (15%), LukArco (12.5%, Russia/United States) , Mobil (7.5%),
Rosneft-Shell (7.5%, Russia-U.K./Netherlands), Oman (7%), BG (2%,
U.K.), Agip (2%, Italy), Kazakh Munaigaz (1.75%, Kazakhstan),
and Oryx (1.75%, United States).
Other export options are also being explored. In November 1997,
the governments of Kazakhstan and Iran agreed to resume oil swaps
between the two countries. Under this swap arrangement, up to
40,000 barrels/day of Kazakh oil would be delivered by tanker
via the Caspian Sea to refineries in northern Iran in exchange
for the delivery by Iran of a similar value of crude to Kazakh
clients. The Chinese market is another possibility, and Tengizchevroil
has made test deliveries to China by rail. Kazakhstan has been
building ties with China, and in June 1997, the China National
Petroleum Corporation signed an agreement under which China will
invest $3.5 billion to build an 1,800-mile pipeline to China and
develop 3 fields in Kazakhstan's Aktyubinsk region in exchange
for a 60% interest in the Kazakh company developing the fields
(Aktyubinskmunaigaz). The 3 fields have total oil resources (proved
plus possible reserves) that are estimated to be as much as 1
billion barrels.
Development of the offshore potential of Kazakhstan in the Caspian
Sea has been slowed by a dispute over ownership rights. This disagreement
ties in with a broader debate between Russia and other Caspian Sea Region states
over how the Caspian Sea should be treated under international
law. Russia cites a 1940 treaty between the Soviet Union and Iran,
which says that the Caspian is not a sea, and therefore should
be developed in common by all five coastal states. Kazakhstan
disputes this view, and counters that each state should have rights
to oil and gas resources developed in their own offshore areas.
Offshore development in the Caspian Sea began in December 1993
with the formation of the international consortium KazakhstanCaspiShelf
(KCS). Exploration began in September 1994, and in May 1997 KCS
announced that its had completed its $218 million seismic profile
of the Kazakh zone of the Caspian seabed. The survey estimated
that the offshore areas could contain as much as 60 billion barrels
of possible reserves and cost as much as $150 billion to develop.
All KCS members - Agip (Italy), British Gas (U.K.), BP/Statoil
(U.K./Norway), Mobil (United States), Shell (U.K./Netherlands),
Total (France), and Kazakhoil - will have an equal share of just
under 14.29%.
Refining
Kazakhstan has three oil refineries supplying the northern (at
Pavlodar), western (at Atyrau), and southern (at Chimkent) areas
of the country. Because Kazakhstan has two separate pipeline networks,
Pavlodar and Chimkent are supplied mainly by a crude oil pipeline
from Western Siberia, while Atyrau runs solely on domestic crude
from northwest Kazakhstan. Two of the refineries have been privatized.
The American company CCL won rights to a 3-year concession to
the Pavlodar refinery in 1996. Vitol (Switzerland) now operates
the Chimkent refinery; however, Kazakhstan has threatened to oust
Vitol following accusations of impropriety. The Atyrau refinery
is still on the privatization block.
Fields other than Karachaganak do not have access to export pipelines
at all. Kazakhstan's other significant producing areas are the
Tengiz and Zhanazhol fields, with the Uritau field expected to
eventually become the third largest producing field. The undeveloped
offshore areas are also believed to hold large amounts of gas.
While these fields are near the Russian gas pipeline system, they
are not currently linked to it, and in the longer term capacity
in the Russian pipeline system may be insufficient. Either the
existing Russian gas pipeline system must be expanded, or Kazakhstan
will need to develop new routes, such as the proposed $12 billion,
3,800 mile pipeline that would bring Central Asian gas to China.
In addition, the mostly sour Kazakh gas will require that additional
gas processing equipment be built.
In general, the Kazakh gas sector faces a lack of infrastructure,
especially pipelines. Gas producing areas in the west of the country
are not connected to consuming areas such as the populous southeast
and industrial north and, as a result, Kazakhstan has two separate
gas pipeline networks. Kazakhstan exported its gas production
from the west to Russia, and imported three-fourths of its natural
gas consumption needs in 1996 from Turkmenistan ,
Russia, and Uzbekistan .
Kazakgaz was responsible for distribution in the west, while Alaugaz
had been responsible for distribution in the southeast.
In June 1997, Kazkahstan awarded Tractabel (Belgium) a 15-year
contract to manage its natural gas network. Tractabel has pledged
to spend $600 million on investment, repair, construction, and
planning costs, as well as $100 million to build a gas line in
southern Kazakhstan to bypass Kyrgyzstan .
Other investment needs include capturing previously flared gas,
field processing of natural gas, developing projects that support
swap agreements with neighboring states, appraisal work for gas
fields located near consuming areas, meter installation at cross-border
locations, and environmental rehabilitation and protection.
Kazakh coal production has declined from 130 million metric tons in 1991 to 77 million metric tons in 1996 due to shrinking markets for coal in its traditional market - the former Soviet Union. Although the Ukrainian steel industry had once been a major importer of coking coal from Kazakhstan, Kazakh exports to Ukraine ceased in 1996. This decline in markets resulted in the halving of both coal production and the number of mines in Karaganda from 1991 to1996. Russian power stations also imported less coal from the Ekibastuz basin.
Despite the drop in exports to Russia, Russia remains the largest
recipient of Kazakh coal, importing 19 of the 25 million metric
tons of coal exported by Kazakhstan. The major consumer of coal
from the Ekibastuz basin is still the Russian utility Sverdlovskenergo.
Sverdlovskenergo should continue to receive coal from Kazakhstan,
as it acquired two mines as payment for unpaid debts for power
supplied to Kazakhstan.
Kazakhstan's power sector has many obsolete power generation plants,
and incurs large energy losses during transmission and distribution.
In 1996, these losses reached over 10 billion kilowatt-hours,
or over 15 percent of power produced. Its generating equipment
is mostly old, inefficient, and lacking in modern pollution controls.
Eighty percent of its electricity is generated by coal-fired plants
burning a dirty high-ash coal that visibly blankets the largest
city, the former capital of Almaty. Kazakhstan has not taken full
advantage of cleaner sources of power such as hydroelectricity,
and only 10 percent of the country's hydroelectric potential of
60 terawatt-hours has been developed. In addition, 94 percent
of gas turbines, 57 percent of steam turbines, and 33 percent
of steam boilers have been in place for 20 years or more.
In an effort to resolve its problems, the electrical sector is
undergoing major reforms, including a big push to privatize the
entire system from generation to distribution. The government
hopes to privatize all major power generating stations within
a year. Bidders are required to cover all debts and make investments
in return for the option to buy up to 60 percent of the companies.
Kazakhstan's largest generating plant, the coal-fired 4,000 megawatt
Ekibastuz No.1 plant, was purchased by AES in 1996, and AES has
talked with the government about purchasing at least two distribution
companies. Other big deals include the purchase of the 650-megawatt
coal-fired Karaganda 2 plant by Kazakh Power Partners Ltd., a
consortium comprising Independent Power (U.K.), Public Service
Colorado (U.S.), and Samsung (South Korea); and the awarding of
management rights for Almaty Power to Tractabel (Belgium). In
addition, a subsidiary of ABB Brown Boveri (Sweden/Switzerland)
was given a 25-year contact in 1997 to manage the national power
grid.
ECONOMIC OVERVIEW
Currency: Tenge
Exchange Rate (11/09/97): $1 U.S.=75.71 Tenge
Gross National Product (1996E, at Purchasing Power Parity exchange
rates): $47.4 billion
Real GDP Growth Rate (1996E): 1.1 percent
Exports (1996E): $6.2 billion
Imports (1996E): $4.3 billion
Inflation Rate (Change in Consumer prices, 1996E): 29%
Major Exports: Petroleum; ferrous and nonferrous metals;
chemicals; grain; wool; meat; coal
Major Imports: Machinery and parts; industrial materials
Major Trading Partners: Russia, Ukraine, Uzbekistan, China
ENERGY OVERVIEW
Minister of Energy, Industry, and Trade: Asygat Zhabagin
Minister of Ecology and Natural Resources: Serikbek Daukeyev
Proven Oil Reserves (1996E): 16 billion barrels
Oil Production (1996E): 532,000 barrels per day (b/d)
Oil Consumption (1996E): 278,000 b/d
Crude Oil Refining Capacity (1996E): 427,093 b/d
Net Oil Exports (1996E): 255,000 b/d
Natural Gas Reserves (1996E): 83 trillion cubic feet (Tcf)
Natural Gas Production (1996E): 0.15 Tcf
Natural Gas Consumption (1996E): 0.26 Tcf
Coal Reserves (1996E): 34 billion metric tons (31 billion
metric tons hard coal)
Coal Production (1996E): 77 million short tons (mmst)
Coal Consumption (1996E): 52 mmst
Net Coal Exports (1996E): 25 mmst
Electric Generation Capacity (1996E): 17.8 gigawatts
Electricity Generation (1996E): 58.7 billion kilowatt-hours
Electricity Consumption (1996E): 65 billion kilowatt-hours
ENVIRONMENT OVERVIEW
Total Energy Consumption (1995E): 1.62 quadrillion Btu
Energy Consumption per Capita (1995E): 95 million Btu (vs.
345.9 million Btu in U.S.)
Energy-Related Carbon Emissions (1995E): 27.8 million metric
tons (0.5% of world emissions)
Carbon Emissions per Capita (1995E): 1.6 metric tons (vs.5.4
metric tons in the United States)
Major Environmental Problems: Radioactive or toxic chemical
sites associated with its former defense industries and test ranges
are found throughout the country and pose health risks for humans
and animals. Industrial pollution is severe in some cities. Because
the two main rivers which flowed into the Aral Sea have been diverted
for irrigation, the Aral Sea is drying up and leaving behind a
harmful layer of chemical pesticides and natural salts. These
substances are then picked up by the wind and blown into noxious
dust storms. Other problems include: pollution in the Caspian
Sea; soil pollution from overuse of agricultural chemicals; and
salinization from faulty irrigation practices.
ENERGY INDUSTRY
Organization: Kazakhoil state oil and gas company; Kazakhgaz
national gas distribution company; KazTransOil state-owned joint
stock oil pipeline company; Kazakhstanugol Corporation coal company
Major Oil and Gas Fields: Tengiz (mostly oil), Karachaganak
(mostly gas), Uzen, Korolev, Tenge, Uritau (gas), Zhanazhol
Major Oil Ports: None; small tanker shipments to Baku and
up the Volga River to Volgograd from ports at Atyrau and Aktau
Oil Export Pipelines: Atyrau to Russian cities of Orsk,
Volgograd, and Samara
Major Oil Refineries (crude oil refining capacity): Pavlodar
(162,666 b/d); Atyrau (104,427 b/d); and Chimkent (160,000 b/d)
Major Power Plants (capacity): Ekibastuz No.1 (4,000 megawatts
or MW), Yermak (2,400 MW), Dzhambul (1,230 MW)
Links to other sites:
EIA - Country Information on Kazakhstan
CIA 1997 World Factbook - Kazakhstan
BISNIS - The U.S. Department of Commerce's Business Information Service for the Newly Independent States
U.S. State Department Consular Information Sheet - Kazakhstan
The following links are provided solely as a service to our customers, and therefore should not be construed as advocating or reflecting any position of the Energy Information Administration (EIA) or the United States Government. In addition, EIA does not guarantee the content or accuracy of any information presented in linked sites.
U.S. - Kazakhstan Council
Interactive Central Asia Resource Project - Kazakhstan
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File last modified: December 1997
Contact:
Erik Kreil
ekreil@eia.doe.gov
Phone: (202)586-6573
Fax: (202)586-9753
URL: http://www.eia.doe.gov/emeu/cabs/kazak.htm