• 13 hours Oil Prices Rise After API Reports Major Crude Draw
  • 14 hours Citgo President And 5 VPs Arrested On Embezzlement Charges
  • 14 hours Gazprom Speaks Out Against OPEC Production Cut Extension
  • 15 hours Statoil Looks To Lighter Oil To Boost Profitability
  • 16 hours Oil Billionaire Becomes Wind Energy’s Top Influencer
  • 17 hours Transneft Warns Urals Oil Quality Reaching Critical Levels
  • 18 hours Whitefish Energy Suspends Work In Puerto Rico
  • 19 hours U.S. Authorities Arrest Two On Major Energy Corruption Scheme
  • 1 day Thanksgiving Gas Prices At 3-Year High
  • 1 day Iraq’s Giant Majnoon Oilfield Attracts Attention Of Supermajors
  • 2 days South Iraq Oil Exports Close To Record High To Offset Kirkuk Drop
  • 2 days Iraqi Forces Find Mass Graves In Oil Wells Near Kirkuk
  • 2 days Chevron Joint Venture Signs $1.7B Oil, Gas Deal In Nigeria
  • 2 days Iraq Steps In To Offset Falling Venezuela Oil Production
  • 2 days ConocoPhillips Sets Price Ceiling For New Projects
  • 4 days Shell Oil Trading Head Steps Down After 29 Years
  • 4 days Higher Oil Prices Reduce North American Oil Bankruptcies
  • 5 days Statoil To Boost Exploration Drilling Offshore Norway In 2018
  • 5 days $1.6 Billion Canadian-US Hydropower Project Approved
  • 5 days Venezuela Officially In Default
  • 5 days Iran Prepares To Export LNG To Boost Trade Relations
  • 5 days Keystone Pipeline Leaks 5,000 Barrels Into Farmland
  • 5 days Saudi Oil Minister: Markets Will Not Rebalance By March
  • 5 days Obscure Dutch Firm Wins Venezuelan Oil Block As Debt Tensions Mount
  • 5 days Rosneft Announces Completion Of World’s Longest Well
  • 6 days Ecuador Won’t Ask Exemption From OPEC Oil Production Cuts
  • 6 days Norway’s $1 Trillion Wealth Fund Proposes To Ditch Oil Stocks
  • 6 days Ecuador Seeks To Clear Schlumberger Debt By End-November
  • 6 days Santos Admits It Rejected $7.2B Takeover Bid
  • 6 days U.S. Senate Panel Votes To Open Alaskan Refuge To Drilling
  • 6 days Africa’s Richest Woman Fired From Sonangol
  • 7 days Oil And Gas M&A Deal Appetite Highest Since 2013
  • 7 days Russian Hackers Target British Energy Industry
  • 7 days Venezuela Signs $3.15B Debt Restructuring Deal With Russia
  • 7 days DOJ: Protestors Interfering With Pipeline Construction Will Be Prosecuted
  • 7 days Lower Oil Prices Benefit European Refiners
  • 7 days World’s Biggest Private Equity Firm Raises $1 Billion To Invest In Oil
  • 8 days Oil Prices Tank After API Reports Strong Build In Crude Inventories
  • 8 days Iraq Oil Revenue Not Enough For Sustainable Development
  • 8 days Sudan In Talks With Foreign Oil Firms To Boost Crude Production
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

Kazakhstan Facing Serious Challenges From Low Oil Prices

Kazakhstan Facing Serious Challenges From Low Oil Prices

In the current volatile energy market, Italy has again bet big on hydrocarbon-rich Kazakhstan, trying to re-cement its cooperation with the Central Asian republic. The bilateral partnership had been strained over the past two years by delays with the large-scale Kashagan oil field development venture, and the fallout from a diplomatic scandal.

On December 22, 2014, Claudio Descalzi, the chief executive of the Italian state-owned energy producer ENI, met in Astana with Kazakhstan’s Prime Minister Karim Massimov and Minister of Energy Vladimir Shkolnik to take stock of the company’s activities in the Central Asian country. During the talks, Descalzi highlighted the importance of the agreement, concluded just a few days earlier, between the Kazakhstani government and the North Caspian Operating Co. (NCOC)—the production consortium operating Kashagan, in which ENI is a participant. The agreement restarts the project, which was halted in October 2013 because of a string of ecological, financial and operational glitches (ENI.com, December 22, 2014).

Located in the North Caspian Sea, off the coast of Kazakhstan, Kashagan is a giant oil field that harbors proven oil reserves of 16 billion barrels. Its production started in September 2013, but one month later was suspended when gas leaks in the primary pipeline were detected.

Related: Kazakhstan To Use National Fund For Oil Price Damage Limitation

The recent deal provides that all disbursements relative to the replacement of the crippled pipeline network will be at the expense of NCOC, with no losses to the government in Astana. Italy’s sub-sea conduit builder Saipem, which is controlled by ENI, is in talks with Kashagan’s contractors to replace the current pipeline system, whose cost has been preliminarily valued at some $3 billion (Reuters Italia, October 10, 2014).

ENI’s presence in Kazakhstan dates back to 1992. In addition to Kashagan, ENI co-manages the Karachaganak field in the west of the country. In June 2014, at a ceremony in Astana attended by Italian Prime Minister Matteo Renzi and Kazakhstani President Nursultan Nazarbayev, ENI and Kazakhstan’s national oil and gas producer KazMunaiGaz signed an agreement to jointly develop the Isatay block, an offshore exploration area in the northern Caspian Sea, in western Kazakhstan. The two energy companies also agreed on a plan to co-develop a shipyard in Kuryk, a Kazakhstani Caspian Sea port, where Azerbaijan-bound crude oil from Kashagan should transit in the future (ENI.com, June 12, 2014).

Kazakhstan’s government and NCOC have secured Azerbaijani approval for the project to pump oil from Kashagan to the European market via the Baku-Tbilisi-Ceyhan (BTC) pipeline, in which ENI has a 5-percent share. Crude oil extracted from the Kashagan field will be also pumped to the Russian oil terminal in Novorossiysk, on the Black Sea, where ENI holds a 2-percent stake (ENI.com, June 12, 2014).

Mutual and complementary interests are at the root of the Italian-Kazakhstani economic entente. Signals that “misunderstandings” between the two countries had been cleared up emerged in summer 2014, when the parliament in Astana ratified a deal on the transit through Kazakhstan’s territory of Italian military equipment and personnel that would have to leave Afghanistan after the end of the International Security Assistance Force (ISAF) mission later that year (Ilpost.it, June 13, 2014).

Earlier, Rome and Astana had already weathered and emerged relatively unscathed from a scandal that sparked international attention. In May 2013, the wife and then six-year-old daughter of notorious former Kazakhstani Minister of Energy, Industry, and Trade Mukhtar Ablyazov, now a political opponent of Nazarbayev’s, had been deported from Italy to Kazakhstan (Ansa, July 30, 2014).

Kazakhstan is eager to gather support from European countries to occupy a temporary seat at the United Nations Security Council and join the World Trade Organization (WTO). Whereas, Italy aims to nurture its trade relationship with an attractive Eurasian economy that can boast of huge oil and gas reservoirs and a favorable investment climate.

Italy and Kazakhstan featured combined trade totaling about $5 billion, in 2013, with Italy registering a $3.3 billion deficit. After China, Italy is the second-largest importer of Kazakhstani goods—mostly fossil fuels—and the sixth-biggest exporter to the Central Asia nation, according to the Italian Ministry of Foreign Affairs (Ambastana.esteri.it, accessed January 13, 2015). By way of comparison, the European Union is Kazakhstan’s largest overall commercial partner, with total trade in goods topping $34.3 billion, in 2013. Almost half of the foreign direct investment flows into the country comes from the European bloc, Eurostat reports.

Related: Kazakhstan Stuck Between Falling Exchange Rates And Oil Prices

The launch, on January 1, 2015, of the Eurasian Economic Union (EEU), the regional integrationist grouping formed by Russia, Kazakhstan, Belarus, Armenia and, in the foreseeable future, Kyrgyzstan, may introduce an important variable in the relationship between Astana and its European counterparts. As Zhanargul Kusmangaliyeva, the director of the Institute of Eurasian Integration in Astana, put it, Kazakhstan might turn into Europe’s gateway to a vast single market made up of 170 million people (Geopolitica-rivista.org, December 6, 2014).

It seems that Kazakhstan is striving to strike a balance between its cumbersome Russian neighbor and the EU. Astana is promoting a multi-vectored foreign policy to strengthen its position within the EEU to the Kremlin’s detriment, at a time when Moscow is facing both an economic downturn and the sharp decline of its currency. In light of this, it is no coincidence that Nazarbayev has decided not to join the Kremlin’s commercial countermeasures against the sanctions imposed by the West over Moscow’s interventions in Ukraine.

However, in its drive to play a pivotal role amidst the current power struggle between Russia and Europe, Kazakhstan may face serious challenges. Indeed, if oil and gas prices continue their rapid fall, it will be hard for Astana to keep attracting European energy producers in the mid to long term. Recent estimates by Citigroup bank suggest that declining oil prices will lead to cuts in earnings for major oil companies through 2017, prompting them to postpone more projects. According to the US financial giant, ENI will need an average price of more than $100 a barrel so that its $5 billion investment in Kashagan can become profitable (Milano Finanza, January 5, 2015). For the moment, at least, it is difficult to predict when global oil prices might again reach those levels.

By Emanuele Scimia

Source - http://www.jamestown.org/ 

More Top Reads From Oilprice.com:

Join the discussion | Back to homepage

Leave a comment

Leave a comment

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