The Times of Central Asia
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FORUM: Kazakhstan to use income from its oil boom to prepare for the post-oil age
ASTANA — Optimizing productivity, meeting pressures on costs and limiting dangers to the environment have been the three themes around which speakers at the Kazenergy Forum built their statements this week. A cheerful moderator in the person of talk show veteran Larry King could not hide general concerns over a lasting economic setback putting restraints on sources of income Kazakhstan, watching cautiously recent developments in the Middle East, needs more than ever to keep the population happy.
BY CHARLES VAN DER LEEUW
SPECIAL TO TCA
Kazakhstan is preparing for a decade-or-two during which its oil production will reach and maintain its peak. At the Kazenergy Eurasian Forum opened in Astana on Tuesday and held under the slogan “20 years of sustain able growth, new horizons for investment and cooperation”, oil and gas minister Sauat Mynbayev presented the government’s latest update on “planned” oil and gas output through the current decade. Whereas forecasts for growth in oil production are in the order of 80.4 million tonnes for this year to 132.1 million tonnes in 2020.
New processing technology
But there is no reason to sit still in the process. Of the gas output, only 26 billion cubic metres this year and not more than 29.6 billion cubic metres in 2020 will be “marketable”, with the remainder being used for well reinjection or flared. Despite a ban on flaring, several companies working in Kazakhstan still continue to do it. New processing technology needs to be developed and applied to bring flaring down to zero and increase the proportion in utility gas in the country, Myn- bayev pointed out.
In 2010, 1.4 billion cubic metres of associated gas was flared throughout Kazakhstan, down from 3.1 billion back in 2006. As of 2015, a zero rate should be reached, Mynbayev said. In a parallel development, the north-east of Kazakhstan needs the infrastructure to get access to natural gas. The area covers around one-third of Kazakhstan’s territory, and is home to most of the country’s metal and other energy-devouring heavy industry. Most of its electricity is still generated from coal, and conversion of turbines to gas is also on the agenda.
The post-oil age
The year 2020 is also meant to be the turning point for Kazakhstan’s midstream oil industry. Its three refineries in Pav- lodar in the northeast, Atyrau in the northwest and Shymkent in the central south produce less than 10 million tonnes of various oil products per annum. Through the current decade, each of them should be able to produce in the order of 6 million tonnes, thereby coming close to meeting Kazakhstan’s current demand of 18.5 million tonnes.
Kazakhstan sticks to its aspiration to use the income from its oil boom, expected to start declining as of2040, to build up resources to maintain and further improve its prosperity level in the post-oil age. But as PM Karim Masimov stressed in his opening speech, it will never be able to do so on its own. “The energy industry has played, and will continue to play a pivotal role in Kazakhstan’s economy,” Masimov told his audience. “Much more work needs to be done, though. The gap between risk and opportunity in the industry has widened. Energy markets have been shaken by the economic setbacks in the world, and there is renewed concern over the possibility of recession.”
In order to secure cooperation with foreign operators and a share in their technological work with the aim to spare Kazakhstan’s vulnerable ecosystems and at the same time optimize productivity, the government needs to, and indeed will, keep trying to make its investment climate as friendly as possible, Masimov opined. Frictions with major partners in the oil business persist - including disputes over delays in the development of the Kashagan project, one of the few “last giants” in the world and Kazakhstan’s first post-Soviet offshore project, holding an estimated 9 billion Barrels of recoverable oil. Disputes concentrate around the proportion of so-called profit oil as compared with the oil sold to earn the net lump sum invested in the project back.
Whereas the former is to be taxed, the latter share is tax- exempt. Similar disputes have yet to be solved over the northwestern field of Karachaganak, which contains mostly gas along with one of the world’s largest gas condensate deposit. Speakers from both sides in the struggle assured the forum that everyone is confident that an eventual solution will be reached before the end of the winter.
A precarious balance
Optimizing the income side of the business for Kazakhstan is more than just a luxury. Thus, on Friday last week the country’s minister of labour and social security Gulshara Abdykalikova told a conference on social protection that her government plans to maintain wages’ and welfare allocations’ purchasing power in spite of current and eventual economic setbacks.
The entire state budget for the current year amounts to 1 trillion Kazakh tenge (close to 5 billion euro according to present-day exchange rates). More than half of that money is spent on social welfare and employment development. For the upcoming year, the budget has to increase by another 30 per cent in order for the state to live up to its commitments.
This could well mean that tax burdens, including those for foreign oil, gas and other subsoil operators, is set to increase. This, in turn, means that a search for a precarious balance between national income needs and investment profitability is on top of everybody’s agenda - including the Kazenergy Forum, during which productivity increase and cost control was on many a speaker’s lips.