Kazakhstan’s Oil and Gas Sector in 2002
The role of the oil and gas sector in Kazakhstan’s economy cannot be overstated. It is the only sector in the country that is developing rapidly. Its share of GDP rocketed from 3.4% in 1998 to 10.2% in 2002. The sector also consolidated its position in total industrial output, rising from 16.3% to 39%. This is explained not only by a growth in oil and gas production, but also by a reduction in the share of processing industries (Table 1). Steady investment in the oil and gas sector has fostered the commissioning of new oil and gas fields. The number of producing companies has increased from 164 to 267 over the past five years; however the oil companies cut their staff from 44,100 to 40,000.
Kazakhstan is rich in hydrocarbons. Proven reserves amount to 27.5 billion barrels of oil, 3.8 billion tonnes of gas condensate and 1.8 trillion cubic metres of gas. About 250 fields have been explored for hydrocarbons, and 14 of them contain commercial reserves. Two thirds of the recoverable reserves are produced by OKIOC and Tengizchevroil. Each of other companies accounts for a mere 5%.
Oil and gas production in Kazakhstan has shown a steady upward trend since 1997 (according to the Agency on Statistics). In 2002, more than 42,037,000 tonnes of oil and 13,137,000,000 cubic meters of gas were produced. Gas condensate production is somewhat lower (a slight decrease was reported in 2001).
Over the past three years, Tengizchevroil has retained its leadership, having produced one third of the total oil output. Another third was produced by Ozenmunaigaz, Mangistaumunaigaz and Hurricane Kumkol Munai (Table 2). This demonstrates the high concentration of the oil business in a few large oil companies. Another successful producer, which has almost doubled its market share, is Embamunaigaz, closely followed by KazGerMunay.
In terms of the regional split, oil production is highly developed in the Atyrau region (39% of the total oil production in the country), due mostly to Tengizchevroil. Following a slight decline in 1999, the Mangistau region is showing a steady increase in oil production as a result of the expansion of Ozenmunaigaz and Mangistaumunaigaz. Today, the region accounts for 29.8% (Table 3).
The share of mineral resources (including oil, natural gas, gas condensate, etc.) in Kazakhstan’s exports for 2002 rose from 58.2% to 61.3%. As a result of increased natural gas production in Karachaganak, gas supplies grew by 1.9 times from the previous year. Oil and gas condensate exports to Russian refineries rose by 19% due to the increasing share sent to Orenburg refinery.
More than 80% of the oil produced is exported, which leads to a low workload for Kazakhstan’s refineries—a matter of deep concern to the Kazakhstan government. Another problem is the need to diversify exports from Kazakhstan, which comprised 51.9% of the oil in 2002.
On the whole, the past year created favourable conditions for development of the sector—exports of crude (both in quantitative and money terms) increased by 18%, whilst more than 90% of the exported oil was delivered to non-FSU countries.
The Ministry of Energy and Mineral Resources has made the following forecasts for 2003: 16,500 tonnes of oil will be transported through the Atyrau-Samara pipeline, 16,600 tonnes through the CPC, 5,100 tonnes by sea and 2,200 tonnes by rail.
During 2002, the crude oil price was 2% higher than in the second half of 2001, when hydrocarbons prices decreased in international markets (Table 4). The average producer’s price dropped slightly last year, mostly due to lower prices for oil delivered to Russia under a swap scheme compared to 2001. The average contract price for crude exported to CIS countries was 19.4% lower than that for non-FSU countries.
The oil and gas sector has become more attractive to foreign investors since 1998. Over that period (from 1998 to 2002), foreign direct investment (FDI) in the sector increased by four times. In 2001, FDI rose to US$3.057bn thanks to the proceeds from the sale of a 5% state-owned share in Tengizchevroil and a 30% state share holding in Mangistaumunaigaz. FDI made up US$2.064bn in 2002. The National Bank of Kazakhstan reports that gross FDI in the oil and gas sector exceeded US$11.425bn from 1993 to 2002 (54% of the total gross FDI).
On the whole, investment in the sector from all sources of financing reached US$17.879bn in 1996-2002 (according to the Ministry of Energy and Mineral Resources). This proves that the sector is attractive to both domestic and foreign investors. The percentage of foreign investment remains quite high at about 84% of total gross investment over the past two years.
In 2002, more than a third of all investment was directed to KIO for development of the Karachaganak field. At present, more than half of all investment in the oil and gas sector comes from KIO and Tengizchevroil (Diagram 1).
Only a third of gross investment goes into construction, reconstruction and infrastructure development at hydrocarbons fields. For instance, only 8.4% of all investment is spent for the purchase of plant and equipment for hydrocarbons production and 4.4% for environmental programmes.
The government is also concerned with the low level of investment in geological surveying, which made up 17% of the overall investment in the oil and gas sector in 2002.
Taxes and Payments to the Budget
In 2002, taxes and other contributions to the budget by oil and gas companies accounted for 24.5% of total tax revenues (in 1998 the figure was 8%).
Despite unstable prices for crude on international markets in 1998-2002, tax revenue increased by almost 5 times over that period, although oil production rose by only 1.8 times. Tax revenue reached a peak in 2001 due to an increase in the amount of income tax paid by legal entities. The tax base increased during that time without any amendments to the tax laws, mainly due to a decrease in depreciation payments by oil companies. Most of the tax revenue is received from Tengizchevroil (42.9%), Hurricane Kumkol Munai (11.3%) and Mangistaumunaigaz (10%) (Table 5).
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