Kazakhstan’s Asia Shift

Via The Silk Road Intelligencer, a report that Kazakhstan is leaning further towards Asia in economic matters:

The key question at Kazakhstan’s annual oil and gas conferences in October – Kazenergy and Kioge – concerned the Karachaganak oilfield. Agreement between the Kazakh government and the Karachaganak Petroleum Operating (KPO) consortium is not expected before the end of this year, at the earliest. With for the second phase development of the Kashagan oilfield still undecided, operations across west Kazakhstan are stalling. Exceptions include Sino-Kazakh projects, in particular the expansion of the Kazakhstan-China oil pipeline.

Top Kazakhstani government officials have indicated that a resolution of the long-standing dispute over Kazakhstan’s Karachaganak oilfield could be reached by the end of this year. Speaking at the Kazenergy conference in Astana on October 5, the chairman of Kazakhstan’s state holding company Samruk-Kazyna, Timur Kulibayev, said the government would be willing to pay between $700m and $1.1bn for a share in Karachaganak – the most concrete figure yet disclosed.

The following day, at a press conference at the Kioge conference in Almaty, Oil and Gas Minister Sauat Mynbayev was less forthcoming. Mynbayev told journalists there were not yet any specific parameters for a transaction between the government and KPO. He added that Kazakhstan did not plan to write off the consortium’s tax debts in exchange for a stake in the project. There is speculation that the consortium may give the Kazakh government a 5% stake in the project and sell an additional 5% at market value.

Getting greedy

Karachaganak is one of the world’s largest oil and gas fields, with reserves of 1.2bn tonnes of oil and condensate, and over 1.35 trillion cubic meters of gas. A 40-year production sharing agreement was signed in 1997 with BG Group, Eni, Chevron and Lukoil.

The Kazakh government first expressed an interest in taking a stake in the project in 2009. A series of disputes over taxes, export duties and environmental violations have followed. In 2009, the consortium was slapped with a $1.2bn bill for unpaid taxes, as well as hefty environmental fines.

In the early years of independence, Kazakhstan’s new government was keen to attract western oil firms, who contributed both money and technical expertise. More recently, however, the government’s ambitions to take a greater share in the largest oil and gas projects has put Astana at odds with investors.

The first inklings of trouble came with the negotiations over financing for the second phase expansion of the Tengiz oilfield. “This was resolved, but there was a lasting ill effect. It was the start of a solid shift away from the west – or at least a divergence between the strategies of western investors and the Kazakh government,” says Andrew Neff, senior energy analyst at IHS Energy.

The government then put pressure on the consortium developing the Kashagan oilfield. This resulted in state oil and gas company KazMunaiGas taking a stake in 2007. With commercial production now due to start in 2013, there are further concerns over the timing and technical viability of the second phase.

Akiakpar Matishev, executive director of the Kazakhstan Association of Oil-Gas and Energy Sector Organisations (Kazenergy), says there is now a new model for relations between Kazakhstan and foreign investors. “We are trying to lead the situation rather than being led. Kazakhstan is strengthening its presence on Caspian shelf projects in line with the national interest,” he told Kioge delegates. “We also understand that our international partners are looking for a financial payback on their investments, and we need to maintain investment attractiveness.”

Kazakh officials point out that both Kazakhstan and the global oil market have changed substantially in the last two decades, while investors argue that recent actions go against Kazakhstan’s reputation as safe and stable destination. “Recent actions undermine Kazakhstan’s long term commitments to sanctity of contracts,” said Daniel Stein, senior adviser to the special envoy for Eurasian energy at the US State Department. “We understand that sometimes governments need to make changes for economic reasons, but this should be done through good faith negotiations between the partners.”

Asia shift

At the same time, there has been a growing shift towards China in Kazakhstan’s energy policy. In the early independence years, the focus was on the west – Russia, the US and Europe. Now, not only has China made inroads into the oil and gas sector, investment from India, Japan and Korea is also growing.

“There was tangible progress with the Kazakhstan-China pipeline while relations with Russia and western investors stalled,” says Neff. He points out that western companies were debating over Karachaganak and Kashagan, China speedily built a 3,000-kilometre long pipeline across Central Asia in just two and a half years.

“In the early years, Kazakhstan performed a geo-political balancing act with the US, Russia and the EU, while Asian companies were relatively absent. Over time, there has been a shift in power towards Asia, in particular China,” Neff added. “Kazakhstan is no longer trying to balance geo-political interests, it is pursuing its own interests, which happen to align more with China’s than with Russia or the West.”

This entry was posted on Tuesday, October 18th, 2011 at 5:59 am and is filed under China, Kazakhstan.  You can follow any responses to this entry through the RSS 2.0 feed.  Both comments and pings are currently closed. 

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