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Low Oil Prices Take Dramatic Toll On Kazakh Economy

Oil production is entering a new year of decline this year in Kazakhstan — a dismal omen for a country so heavily reliant on energy exports.

Energy Minister Vladimir Shkolnik said on January 15 in remarks quoted by the Novosti-Kazakhstan news agency that Kazakhstan expects to pump 77 million tons of oil in 2016, 3.1 percent down on the 79.5 million tons produced last year.

The fall is down to the gradual depletion of the country’s oil fields, most of which have been under development for decades. As the fields dry up, recovering the remaining crude becomes more expensive, and with oil prices now hovering obstinately at $30, drawing Kazakhstan’s deposits is becoming costly.

And this latest government forecast may be too optimistic.

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Shkolnik said in September that Kazakhstan would slash its oil output forecast for 2016 to 73 million tons if the oil price hit $30, as it has done this week. He said 77 million tons would be the target if oil stood at $40 per barrel.

The decline has been in train for several years already.

Oil output dropped 1.2 per cent in 2014, to 80.8 million tons, and 1.6 percent last year, to 79.5 million tons.

But it is the disastrously low prices that are taking the toll on the economy. The government announced on January 15 that gross domestic product grew by 1.2 percent last year – a significant slowdown on the previous year’s 4.3 percent.

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The government is to meet on January 19 to discuss cuts to this year’s budget in the face of the economic slump.

Kazakhstan is also contending with a cataclysmic currency collapse that has seen the tenge plunge to record lows against the dollar. Now worth 359 to the dollar, the tenge has lost 50 percent of its value since the central bank stopped propping it up in mid-August.

The authorities are now pinning many of their hopes on one project — the giant offshore Kashagan oil field. Kashagan, which is more than a decade behind schedule, is scheduled to come back onstream at the end of this year – although Shkolnik’s superstitious wording suggested less than full confidence.

Related:Oil Sinks Below $30 As Traders Fear Tidal Wave Of Iranian Oil

“Fingers crossed, we will launch the Kashagan project this year, and it will from next year start making its contribution to the overall extraction plan,” he said optimistically.

Kashagan was briefly launched in fall 2013, but halted production after two weeks when a pipeline leak was discovered, necessitating a major redesign taking more than three years.

By Joanna Lillis via Eurasianet

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