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Kazakhstan Oil and Gas Report Q2 2011

Kazakhstan Oil and Gas Report Q2 2011

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Price	$530.00
Publisher	Business Monitor International
Date of Report	Apr 8, 2011

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Quick Overview

The latest Kazakhstan Oil & Gas Report from BMI forecasts that the country will account for 4.18% of Central and Eastern European (CEE) regional oil demand by 2015, while providing 15.25% of supply. CEE regional oil use of 5.42mn barrels per day (b/d) in 2001 rose to an estimated 6.09mn b/d in 2010. It should increase to around 6.93mn b/d by 2015. Regional oil production was 8.89mn b/d in 2001 and in 2010 averaged an estimated 13.78mn b/d. It is set to rise to 15.08mn b/d by 2015. Oil exports are growing steadily, because demand growth is lagging the pace of supply expansion. In 2001, the region was exporting an average of 3.47mn b/d. This total rose to an estimated 7.69mn b/d in 2010 and is forecast to reach 8.15mn b/d by 2015. Azerbaijan and Kazakhstan have the greatest production growth potential, although Russia will remain the most important exporter.
In terms of natural gas, the region in 2010 consumed an estimated 636.3bn cubic metres (bcm), with demand of 736.3bcm targeted for 2015, representing 15.7% growth. Production of an estimated 787.9bcm in 2010 should reach 954.2bcm in 2015, which implies net exports rising from an estimated 151.6bcm in 2010 to 217.9bcm by the end of the period. Kazakhstan’s share of gas consumption in 2010 was an estimated 3.30%, while its share of production is put at 5.08%. By 2015, its share of demand is forecast to be 4.09%, with the country accounting for 6.92% of supply.
The 2010 full-year outturn was US$77.45/bbl for OPEC crude, which delivered an average for North Sea Brent of US$80.34/bbl and for West Texas Intermediate (WTI) of US$79.61/bbl. The BMI price target of US$77 was reached thanks to the early onset of particularly cold weather, which drove up demand for and the price of heating oil during the closing weeks of the year.
We set our 2011 supply, demand and price forecasts in early January, targeting global oil demand growth of 1.53% and supply growth of 1.91%. With OECD inventories at the top of their five-year average range, we set a price forecast of US$80/bbl average for the OPEC basket in 2011. The unprecedented wave of popular uprisings in the Middle East and North Africa (MENA) that followed the removal of Tunisian President Ben Ali on January 14 has obviously fundamentally altered our outlook, particularly since the unrest spread to Libya in mid-February.
Taking into account the risk premium that has been added to crude prices in response to actual and perceived threats to supply, we have now raised our benchmark OPEC basket price forecast from US$80 to US$90/bbl for 2011 and from US$85 to US$95/bbl for 2012. Based on our expectations for differentials, this gives a forecast for Brent at US$94/bbl in 2011 and US$99/bbl in 2012. We have kept our long-term price assumption of US$90/bbl (OPEC basket) in place for the time being while we wait to see what path events in the MENA region take. We have also retained our existing supply and demand forecasts until the scheduled quarterly revision at the start of April.
BMI assumes that Kazakhstan’s real GDP rose by 6.0% in 2010, and we are forecasting an average annual increase of 7.2% in 2011-2015. Consumption growth should keep pace with the growing economy, but is unlikely to have much negative impact on export potential. We are forecasting that domestic oil demand will reach 289,000b/d by 2015. State-owned KazMunaiGaz (KMG) accounts for more than 10% of oil production and participates in joint venture (JV) projects with international oil companies (IOCs), which should deliver rapid volume growth after the Karachaganak field builds up to full output in excess of 200,000b/d. Expansion of the Tengiz field and activation of the offshore Kashagan project should push Kazakh production towards 2.30mn b/d by 2015. This implies that oil exports should rise from an estimated 1.50mn b/d in 2010 to 2.01mn b/d by the end of the forecast period.
Between 2010 and 2020, we are forecasting an increase in Kazakh oil and gas liquids production of 30.3%, with volumes reaching a peak of 2.40mn b/d in 2017/2018, before falling to 2.30mn b/d by the end of the 10-year forecast period. Oil consumption between 2010 and 2020 is set to increase by 39.3%, with growth slowing to an assumed 5% per annum towards the end of the period and the country using 369,000b/d by 2020. Gas production should rise from estimated 2010 level of 40bcm to 80bcm by 2020. Gas demand rising 82.9% provides export potential increasing to 42bcm. Details of BMI’s 10-year forecasts can be found in the appendix to this report.
Kazakhstan holds first place, above Azerbaijan, in BMI’s composite Business Environment (BE) ratings table, which combines upstream and downstream scores. It still occupies first place in BMI’s updated upstream Business Environment rating, now four points ahead of neighbour Azerbaijan. Its oil and gas production growth outlook, asset immaturity, high reserves to production ratios (RPR) and competitive landscape work in the country’s favour, but are undermined by a relatively unappealing risk environment. Kazakhstan is below the mid-point of the league table in BMI’s updated downstream Business Environment rating, holding ninth place above Turkmenistan. There are few particularly high scores, so progress further up the rankings seems unlikely. The low level of retail-site intensity represents a strong suit, along with region-leading oil demand growth prospects.

Table of Contents

Executive Summary ........................................................................................................................................ 7
SWOT Analysis ................................................................................................................................................ 9
Kazakhstan Political SWOT .................................................................................................................................................................................. 9
Kazakhstan Economic SWOT .............................................................................................................................................................................. 10
Kazakhstan Business Environment SWOT .......................................................................................................................................................... 11
Kazakhstan Energy Market Overview .......................................................................................................... 12
Global Oil Market Outlook ............................................................................................................................. 16
Balancing Act .......................................................................................................................................................................................................... 16
Oil Price Forecasts .................................................................................................................................................................................................. 17
Table: Oil Price Forecasts .................................................................................................................................................................................. 18
Short-Term Demand Outlook ................................................................................................................................................................................... 18
Table: Global Oil Consumption (000b/d) ........................................................................................................................................................... 19
Short-Term Supply Outlook ..................................................................................................................................................................................... 20
Table: Global Oil Production (000b/d)............................................................................................................................................................... 21
Longer-Term Supply And Demand ........................................................................................................................................................................... 21
Regional Energy Market Overview ............................................................................................................... 23
Oil Supply And Demand ........................................................................................................................................................................................... 23
Table: Central/Eastern Europe Oil Consumption (000b/d) ................................................................................................................................ 24
Table: Central/Eastern Europe Oil Production (000b/d) .................................................................................................................................... 25
Oil: Downstream ..................................................................................................................................................................................................... 26
Table: Central/Eastern Europe Oil Refining Capacity (000b/d) .......................................................................................................................... 26
Gas Supply And Demand ......................................................................................................................................................................................... 27
Table: Central/Eastern Europe Gas Consumption (bcm) ................................................................................................................................... 27
Table: Central/Eastern Europe Gas Production (bcm) ....................................................................................................................................... 28
Table: Central/Eastern Europe LNG Exports/(Imports) (bcm) ............................................................................................................................ 29
Business Environment Ratings .................................................................................................................... 30
Central/Eastern Europe Region .......................................................................................................................................................................... 30
Composite Scores ..................................................................................................................................................................................................... 31
Table: Regional Composite Business Environment Rating ................................................................................................................................. 31
Upstream Scores ...................................................................................................................................................................................................... 32
Table: Regional Upstream Business Environment Rating................................................................................................................................... 32
Kazakhstan Upstream Rating – Overview ........................................................................................................................................................... 33
Kazakhstan Upstream Rating – Rewards ............................................................................................................................................................ 33
Kazakhstan Upstream Rating – Risks ................................................................................................................................................................. 33
Downstream Scores ................................................................................................................................................................................................. 34
Table: Regional Downstream Business Environment Rating ............................................................................................................................... 34
Kazakhstan Downstream Rating – Overview ...................................................................................................................................................... 35
Kazakhstan Downstream Rating – Rewards ....................................................................................................................................................... 35
Kazakhstan Downstream Rating – Risks ............................................................................................................................................................. 35
Risk Summary ............................................................................................................................................... 36
Political .............................................................................................................................................................................................................. 36
Economic Outlook .............................................................................................................................................................................................. 36
Kazakhstan Oil & Gas Report Q2 2011
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Business Environment ......................................................................................................................................................................................... 36
Industry Forecast Scenario ........................................................................................................................... 37
Oil And Gas Reserves .............................................................................................................................................................................................. 37
Oil Supply And Demand ........................................................................................................................................................................................... 37
Gas Supply And Demand ......................................................................................................................................................................................... 39
Refining And Oil Products Trade ............................................................................................................................................................................. 39
Revenues/Import Costs............................................................................................................................................................................................. 40
Table: Kazakhstan Oil And Gas – Historical Data And Forecasts ...................................................................................................................... 41
Other Energy ........................................................................................................................................................................................................... 42
Table: Kazakhstan Other Energy – Historical Data And Forecasts .................................................................................................................... 43
Key Risks To BMI’s Forecast Scenario .................................................................................................................................................................... 43
Long-Term Oil And Gas Outlook ............................................................................................................................................................................. 43
Oil And Gas Infrastructure ............................................................................................................................ 44
Oil Refineries ........................................................................................................................................................................................................... 44
Table: Major Refineries In Kazakhstan .............................................................................................................................................................. 44
Oil Terminals/Ports ................................................................................................................................................................................................. 45
Oil Pipelines ............................................................................................................................................................................................................ 45
Gas Storage Facilities.............................................................................................................................................................................................. 47
Gas Pipelines ........................................................................................................................................................................................................... 47
Macroeconomic Outlook ............................................................................................................................... 49
Table: Kazakhstan – Economic Activity .............................................................................................................................................................. 50
Competitive Landscape ................................................................................................................................ 51
Executive Summary .................................................................................................................................................................................................. 51
Table: Key Players – Kazakhstan Oil And Gas Sector ....................................................................................................................................... 52
Overview/State Role ................................................................................................................................................................................................. 53
Licensing And Regulation ................................................................................................................................................................................... 53
Government Policy ............................................................................................................................................................................................. 56
International Energy Relations ........................................................................................................................................................................... 58
Table: Key Upstream Players ............................................................................................................................................................................. 58
Table: Key Downstream Players ........................................................................................................................................................................ 59
Company Monitor .......................................................................................................................................... 60
KazMunaiGaz (KMG) .............................................................................................................................................................................................. 60
Chevron ................................................................................................................................................................................................................... 64
Eni Kazakhstan ........................................................................................................................................................................................................ 67
BG Kazakhstan ........................................................................................................................................................................................................ 69
ExxonMobil Kazakhstan .......................................................................................................................................................................................... 71
Shell Kazakhstan ...................................................................................................................................................................................................... 73
Lukoil Kazakhstan.................................................................................................................................................................................................... 76
PetroKazakhstan ...................................................................................................................................................................................................... 79
CNPC ....................................................................................................................................................................................................................... 82
Korea National Oil Corporation (KNOC) – Summary ........................................................................................................................................ 85
ConocoPhillips – Summary ................................................................................................................................................................................. 85
BP – Summary .................................................................................................................................................................................................... 86
Total – Summary ................................................................................................................................................................................................. 86
Rosneft – Summary ............................................................................................................................................................................................. 87
Tethys Petroleum – Summary ............................................................................................................................................................................. 87
Roxi Petroleum – Summary................................................................................................................................................................................. 88
Kazakhstan Oil & Gas Report Q2 2011
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MangistauMunaiGaz – Summary ........................................................................................................................................................................ 89
Zhaikmunai – Summary ...................................................................................................................................................................................... 90
Oil And Natural Gas Corporation (ONGC) – Summary ..................................................................................................................................... 91
Max Petroleum – Summary ................................................................................................................................................................................. 92
Petrom – Summary ............................................................................................................................................................................................. 92
Others – Summary .............................................................................................................................................................................................. 93
Oil And Gas Outlook: Long-Term Forecasts ............................................................................................... 94
Regional Oil Demand .............................................................................................................................................................................................. 94
Table: CEE Oil Consumption (000b/d) ............................................................................................................................................................... 94
Regional Oil Supply ................................................................................................................................................................................................. 95
Table: CEE Oil Production (000b/d) .................................................................................................................................................................. 95
Regional Refining Capacity ..................................................................................................................................................................................... 96
Table: CEE Oil Refining Capacity (000b/d) ....................................................................................................................................................... 96
Regional Gas Demand ............................................................................................................................................................................................. 97
Table: CEE Gas Consumption (bcm) .................................................................................................................................................................. 97
Regional Gas Supply ................................................................................................................................................................................................ 98
Table: CEE Gas Production (bcm) ..................................................................................................................................................................... 98
Kazakhstan Country Overview ................................................................................................................................................................................. 98
Methodology And Risks To Forecasts ...................................................................................................................................................................... 99
Glossary Of Terms ...................................................................................................................................... 100
BMI Methodology ........................................................................................................................................ 101
How We Generate Our Industry Forecasts ........................................................................................................................................................101
Energy Industry .................................................................................................................................................................................................101
Cross checks ......................................................................................................................................................................................................102
Oil And Gas Ratings Methodology.....................................................................................................................................................................102
Table: Structure Of BMI’s Oil & Gas Business Environment Ratings ................................................................................................................103
Indicators ...........................................................................................................................................................................................................104
Table: BMI’s Upstream Oil & Gas Business Environment Ratings – Methodology ...........................................................................................104
Table: BMI’s Downstream Oil & Gas Business Environment Ratings – Methodology .......................................................................................105
Sources ..............................................................................................................................................................................................................106