• 7 hours OPEC, Russia Said To Announce Oil Pact Extension On Nov 30
  • 10 hours Wintershall And LetterOne In Talks For $12B Oil, Gas Merger
  • 12 hours India Exempts State Oil Firms Mergers From Competition Approval
  • 14 hours Turkey Targets $5B Investment In Wind Energy By End-2017
  • 16 hours Weatherford Looks To Sell Assets To Ease Some Of $8B Debt
  • 17 hours OPEC Set To Move Fast On Cut Extension Decision
  • 20 hours Nigeria Makes First Step Away From Oil
  • 1 day Russia Approves Profit-Based Oil Tax For 2019
  • 1 day French Strike Disrupts Exxon And Total’s Oil Product Shipments
  • 2 days Kurdistan’s Oil Exports Still Below Pre-Conflict Levels
  • 2 days Oil Production Cuts Taking A Toll On Russia’s Economy
  • 2 days Aramco In Talks With Chinese Petrochemical Producers
  • 2 days Federal Judge Grants Go-Ahead On Keystone XL Lawsuit
  • 2 days Maduro Names Chavez’ Cousin As Citgo Boss
  • 2 days Bidding Action Heats Up In UK’s Continental Shelf
  • 2 days Keystone Pipeline Restart Still Unknown
  • 2 days UK Offers North Sea Oil Producers Tax Relief To Boost Investment
  • 3 days Iraq Wants To Build Gas Pipeline To Kuwait In Blow To Shell
  • 3 days Trader Trafigura Raises Share Of Oil Purchases From State Firms
  • 3 days German Energy Group Uniper Rejects $9B Finnish Takeover Bid
  • 3 days Total Could Lose Big If It Pulls Out Of South Pars Deal
  • 3 days Dakota Watchdog Warns It Could Revoke Keystone XL Approval
  • 4 days Oil Prices Rise After API Reports Major Crude Draw
  • 4 days Citgo President And 5 VPs Arrested On Embezzlement Charges
  • 4 days Gazprom Speaks Out Against OPEC Production Cut Extension
  • 4 days Statoil Looks To Lighter Oil To Boost Profitability
  • 4 days Oil Billionaire Becomes Wind Energy’s Top Influencer
  • 4 days Transneft Warns Urals Oil Quality Reaching Critical Levels
  • 4 days Whitefish Energy Suspends Work In Puerto Rico
  • 4 days U.S. Authorities Arrest Two On Major Energy Corruption Scheme
  • 4 days Thanksgiving Gas Prices At 3-Year High
  • 4 days Iraq’s Giant Majnoon Oilfield Attracts Attention Of Supermajors
  • 5 days South Iraq Oil Exports Close To Record High To Offset Kirkuk Drop
  • 5 days Iraqi Forces Find Mass Graves In Oil Wells Near Kirkuk
  • 5 days Chevron Joint Venture Signs $1.7B Oil, Gas Deal In Nigeria
  • 5 days Iraq Steps In To Offset Falling Venezuela Oil Production
  • 5 days ConocoPhillips Sets Price Ceiling For New Projects
  • 7 days Shell Oil Trading Head Steps Down After 29 Years
  • 7 days Higher Oil Prices Reduce North American Oil Bankruptcies
  • 8 days Statoil To Boost Exploration Drilling Offshore Norway In 2018
Alt Text

Can Oil Majors Continue To Beat Estimates?

As oil prices claw their…

Alt Text

Keystone XL Pipeline Gains Approval After A 9-Year Battle

Nebraskan regulators have approved the…

Alt Text

The Wireless Power Grid: More Than A 100 Years In The Making

In fulfilling Nikola Tesla’s dreams,…

The Jamestown Foundation

The Jamestown Foundation

Founded in 1984, The Jamestown Foundation is an independent, non-partisan research institution dedicated to providing timely information concerning critical political and strategic developments in China,…

More Info

The Oil Crash Nightmare For Kazakhstan

Oil Rigs

The latest meeting of the Organization of Petroleum Exporting Countries (OPEC) in Algeria, on September 28, brought some relief to producers, with the price of oil finally trading above $50 per barrel for the first time in months. News of a preliminary deal, whose implementation is scheduled for November, was met with optimism in Kazakhstan, a major oil producer and exporter in the former Soviet space, second only to Russia. Yet, the deal’s success hinges on a variety of factors beyond Kazakhstan’s reach. First, the OPEC members need to agree among themselves on the rules of play to avoid cheating. Second, Saudi Arabia and Iran need to put their rivalry aside to reach a durable compromise, while Tehran still insists that it will not agree to any production cuts until domestic output reaches certain pre-sanctions levels. Third, there is a non-OPEC country, Russia, with its own ambitions and an ability to disrupt the stabilization of oil prices if it decides to try to win more market share at the expense of the
oil cartel (RBC, Inform.kz, Rosbalt.ru, September 28).

The recent change of prime minister in Kazakhstan (see EDM, September 19), with Bakytzhan Sagintayev succeeding his boss, Karim Massimov, who moved to chair the National Security Committee (KNB), is above all else a reflection of President Nursultan Nazarbayev’s economic concerns. The Kazakhstani economy will not grow by more than 0.1 percent this year, after 1.2 percent growth in 2015 and 4.3 percent in 2014. This is far below the 6–7 percent expansion achieved when the price of Brent crude oil consistently exceeded $100 a barrel. Next year’s GDP growth is expected to reach approximately 1 percent, according to the International Monetary Fund (IMF) and the World Bank; but it will depend on the government’s ability to implement structural reforms. It is clear, nonetheless, that no government, however creative and hardworking, is able to consistently do what should normally be done over several decades. Kazakhstan still depends on oil exports for over 60 percent of total government revenues and a quarter of its GDP (Kapital.kz, September 9; Kursiv.kz, July 17; Matritsa.kz, April 28).

One of the Kazakhstani government’s biggest fears is the repetition of social unrest like what happened in the western city of Zhanaozen, in Mangistau Oblast on the Caspian Sea, on December 16, 2011 (Independence Day). That year, hundreds of oil workers took to the streets to protest low salaries and unhealthy working conditions at two local energy companies, Karazhanbasmunay and Ozenmunaygas. The former is co-owned by the national oil company KazMunayGas (via its main production subsidiary, KMG E&P) and China’s CITIC Group. The latter belongs to KMG E&P, whose second-largest shareholder, after KMG (58 percent), is China Investment Corporation (11 percent). The protests lasted for more than eight months and ended in bloodshed. Clashes between protesters and the riot police resulted in 16 dead and over 100 wounded as Kazakhstan experienced the highest bout of instability since independence (Inform.kz, December 17, 2011; RIA Novosti, December 16, 2011; Tengrinews.kz, June 6, 2011).

The specter of Zhanaozen hovered again over the city this past September, when employees of a drilling company called Burgylau took to the streets to demand higher pay. They complained about poor sanitation, having to purchase spare parts with their own money, and “unfair” remuneration. It took local authorities several weeks to formulate a response, although there had earlier been a short-lived strike at Burgylau’s main production facility at the end of July 2016. The regional governor of Mangistau, Alik Aydarbayev, visited the site in person to reassure the striking workers by promising them additional contracts from the shareholder, KMG, for at least 34 new wells by the end of the year. He also said that wages would soon be realigned with KMG’s unified salary grid, even though Burgylau’s statutes do not provide for such a harmonization (Forbes.kz, October 6; Radio Azattyk, October 6, August 1; Lada.kz, September 29). Related: Can We Trust The Saudis To Stick To The OPEC Deal?

The problem in the wider Mangistau region is bigger than it actually seems. While Kazakhstan prepares to relaunch production at the giant Kashagan oilfield in neighboring Atyrau Oblast, the majority of Mangistau deposits are almost entirely depleted. Oil from Kashagan was stopped for three years in 2013, but will certainly require more spare hands in the next few months and years. The North Caspian Operating Company (NCOC) consortium, whose shareholders include both KMG and China National Petroleum Corporation (CNPC), looks keen to pump at any price in order to recover its initial investments. However, the increased employment opportunities are unlikely to be a boon for the Mangistau workforce because it is comprised mostly of low-skilled workers, not high-qualified engineers. Thus, it will be much easier and more convenient for NCOC to hire among the local population of Atyrau rather than to relocate workers from the south (Kursiv.kz, October 5; Inform.kz, September 24; Vlast.kz, September 15).

The Zhanaozen predicament clearly speaks to the need to diversify the Kazakhstani economy away from hydrocarbons—and doing so as quickly as possible in spite of the resistance of vested interests, entrenched bureaucrats and big business. According to most forecasts, the price of oil will stay below $50–55 per barrel in 2017, amid global oversupply and weaker-than-usual demand from China, India and other important consumers. With the 76-year-old Nursultan Nazarbayev still in power, Central Asia’s largest economy would obviously be significantly better off if it embarked on reforms before the inevitable presidential succession. The current oil crisis and the economic stagnation it has spawned are both a risk and an opportunity for the country. Political stability is a key element of the ideal recipe for Kazakhstan, which saw a new wave of terrorist incidents in June–July 2016. The country needs strong leadership to weather the ongoing downturn (Forbes.kz, July 18; Kapital.kz, June 6).

By George Voloshin via Jamestown.org

More Top Reads From Oilprice.com:

Back to homepage

Leave a comment

Leave a comment

Oilprice - The No. 1 Source for Oil & Energy News