The Astana International Forum will take place in the capital of Kazakhstan this June. At this dynamic gathering, energy and climate will be key topics for discussion.
For Kazakhstan, the energy sector development is a highly relevant issue, touching on the country’s economic survival. Kazakhstan is a leading energy producer in the region, with vast oil and gas resources located in the western part of the country. According to the latest BP estimates, Kazakhstan has 30 billion barrels of proven oil reserves. Almost 80 percent of the Kazakh oil output is exported and is currently being supplied to international, mostly European, markets.
Kazakhstan has been an oil producer since 1911. Although the country did not begin extracting significant levels of oil until the 1960s and 1970s, during the Soviet era, it was the second-largest republic in terms of possession of oil reserves and the second-largest oil producer among the Soviet republics. In the Soviet bloc, only Russia had a greater oil share. With the breakup of the Soviet Union, Kazakhstan’s reliance on oil has become vital for the country’s survival as an independent country. In 2003, Kazakhstan exceeded 1 million barrels a day in oil production for the first time. This staggering success was partly due to the country’s ability to attract large foreign direct investment inflows to support the oil industry.
From the early days of the country’s independence, oil and gas industries have helped support Kazakhstan’s development and allowed it to maintain decent living standards for its population. Thirty-one years later, the oil and gas sector is still “responsible” for the country’s stable development, accounting for more than a third of Kazakhstan’s GDP.
The majority of Kazakhstan’s oil wealth comes from three giant oil fields: Tengiz, Karachaganak, and Kashagan. Tengiz, named for the Kazakh word for “sea,” was discovered by Soviet geologists in 1979 in a “remote, windblown steppe on the northeast shore of the Caspian,” as the Washington Post once put it. Today Tengiz is the world’s deepest-producing oilfield. According to Chevron’s official website, Tengiz is also the largest “single-trap producing reservoir.”
On April 6, it will be thirty years since the American company Chevron, then the fifth-largest private oil company in the world, signed a forty-year contract with the Kazakh government to develop the Tengiz field in western Kazakhstan. Today Chevron holds 50 percent of Tengizchevroil, a joint company that was created in 1993 to operate the Tengiz oil field and the nearby Korolev oil field. These two oil fields have a lucrative amount of recoverable crude oil reserves estimated in the range of 890 million to 1.3 billion tons (7.1 to 10.9 billion barrels). In 2016, the company decided to proceed with an expansion project at Tengiz, to bring overall production up to 850,000 barrels a day. According to the latest updates, the expanded production facilities will begin operating in 2024.
Besides Tengizchevroil, Chevron is involved in another large joint venture with Kazakhstan – Karachaganak Petroleum Operating B.V. (KPO). In this venture, the Americans hold an 18 percent equity interest. The Karachaganak oil and gas field is another large energy-producing field in Kazakhstan and one of the world’s largest oil and gas reserves. Production at Karachaganak began during the Soviet era in 1984. According to the latest available data from Economist Intelligence Unit (EIU), this field has produced between 220,000 and 250,000 barrels a day over the past decade.
In addition to the Tengiz area and Karachaganak oil field, Kazakhstan possesses its most precious oil asset – the Kashagan offshore oil field in the northern Caspian Sea. It is the largest oil field discovered in Kazakhstan to date. Production at this field started relatively recently, in 2013. Like Tengiz, the field will undergo an expansion project, with investors and the Kazakh government hoping to increase oil output to 500,000 barrels a day by 2025 and approach the million-barrel-a-day mark by 2042.
These three supergiant oil fields provide nearly two-thirds of Kazakhstan’s oil output. In a sense, their contribution helps to keep the country financially and economically stable. However, Kazakhstan’s dependence on the energy sector is not without significant risks to its sustainable development. As a landlocked and isolated country located far away from international oil markets, Kazakhstan remains highly dependent on Russia for transporting its oil to world markets. More than 90 percent of exported Kazakh oil still flows to the Russian port of Novorossiysk through the Caspian Pipeline Consortium. This same pipeline also carries some oil produced by Russian companies.
This is problematic given the current military conflict in Ukraine. The conflict between Russia and Ukraine has resulted in serious supply chain disruptions and caused many Western nations to impose sanctions against Russia, Kazakhstan’s major trade and economic partner. The export disruptions have put huge pressure on Kazakhstan’s investment profile, and the economy and well-being of the Kazakh people.
With energy prices currently set at a high level, Kazakhstan remains resilient during the regional instability caused by the conflict in Ukraine. However, if the conflict continues to escalate and does not reach any clear-cut resolution, and if oil prices are to go down in the nearest future, as forecasted by many international experts, Kazakhstan will have to deal with increased difficulties such as growing budget constraints, limitations in supporting the government’s expansive social security programs and further pressure on its monetary policies and exchange rate.
According to the latest estimates by the EIU, “Kazakhstan’s trend growth rate will slow from the 4.4 percent recorded over the past decade to an annual average of 3.8 percent in 2024-27.” The EIU experts emphasize that Kazakhstan’s economic growth “will be supported by activity” in the energy sector. According to their most recent report, the contributing factors towards the economic growth of Kazakhstan will all be related to developments in the energy sector. In particular, these factors include the expansion of the Tengiz oil field that, as mentioned above, is planned to come on line next year; KazMunayGas’ joint venture (together with the Russian company Lukoil) to restart the Zhenis offshore exploration project in the Caspian Sea, and new projects that will result from investment cooperation with the European Union and China.
Collaboration with the EU is promising to bring significant benefits to Kazakhstan’s economy as the EU has enforced an almost full embargo on oil imports from Russia. This embargo provides an excellent opportunity for Kazakh oil producers to enter the European market and supply it with Kazakh oil. Partnership with China also promises potential gains for Kazakhstan.
It is timely that the upcoming Astana International Forum will feature energy and climate discussions. The forum will provide an excellent opportunity to bring together government and private sector stakeholders, facilitating helpful dialogue on these key issues.
The author is an analyst with a Master’s Degree in Economics from Georgetown University in Washington, DC, with more than 20 years of experience working for the Kazakh government. She focuses on macroeconomics, commodity, financial markets, and economic and social policies in Kazakhstan and globally.