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Global Energy Advisory – 31st July 2015

Politics, Geopolitics & Conflict

Kazakh Oil and the Long Road to the WTO

This week, as Kazakhstan—after 19 years of trying—has finally had its membership in the WTO formally approved, we will take a brief look at Kazakhstan’s oil scene and what’s out there for foreign investors.

First things first, Kazakhstan’s WTO process was a painfully long one because of slow progress in enacting energy reforms, among other key reforms and tariff regimes. At the same time that the WTO has approved Kazakhstan’s membership in the club, the Kazakh government has announced plans to build a fourth oil refinery in Mangistau and that the construction of this refinery would likely be done in cooperation with Iran. Talks to this end have already been launched with the Iranian Oil Ministry. Oil from Mangistau will be sent to northern Iranian ports, while Iranian oil from the south will feed Mangistau and beyond. The refinery project is estimated to cost around $6 billion and the two sides are hoping to sign a construction deal by the end of this year. Kazakhstan needs the refinery as its other three cannot meet the local demand for petroleum products and fall short by about 1.5 million tons (30% of the total market demand, which is largely now covered by imports from Russia).

Overall, however, this is what potential foreign investors should be looking at: Kazakhstan is the largest landlocked country in the world and it sits right between Russia and China, rendering it an incredibly strategic geopolitical venue for oil—in which it is rich. It is a gateway both to the Caspian Sea and to Europe, but it needs more infrastructure and regional trade. Right now, Kazakhstan is wary of both Russia and China, but perhaps more so of the latter and this will make it a vital part of the new great game that will unfold around Asia.

For big oil, it’s all about the Kashagan Oil Field, and here we’re closely watching Italian Eni’s maneuvers. In late June, Eni took on a larger stake in the Isatay oil reserve area in the Caspian Sea. The Italian giant acquired 50% of the subsoil use rights in the field from its partner and the operator, KazMunayGas (state-owned). This block will be operated by a joint venture established by KMG and Eni on 50-50 basis. Eni is a partner in Kashagan, offshore in the Caspian Sea, which has an estimated 16 billion barrels of oil reserves.

Things haven’t gone smoothly,…




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