With the lion’s share of Kazakhstan’s budget formed from the crude oil sales, the current plunge of crude oil prices may result in a shortage of petroleum products, experts say. They also predict a general decrease of production over the year and the bankruptcy of smaller oil producing companies.
The US Energy Information Administration (EIA) has released an energy outlook where it forecasts that Brent crude oil prices will average $58 in 2015. This means that the oil producing Kazakhstan will have to live a whole year with an oil price that is almost at the level of the minimal 2014 price.
The lowest price for 2014 was $55 per barrel, while the average price for last year was almost $99. It seems like it will be awhile before Kazakhstan sees the $99 price again. EIA’s forecast for Brent crude oil prices in 2016 is $75. Over the past 30 years, the Brent spot price of $75 was most frequently seen during the period from 2006 to 2010.
Kazakhstan’s oil industry is often referred to as the “locomotive” of the national economy. Over half of the treasury’s revenues come from the exports of oil and gas.
In spite of the brave assurances of Kazakhstan’s government that their economy is capable of withstanding such a decrease of the oil price, the citizens of this oil producing country are concerned about the near future and want to know how exactly their lives might be affected by the situation.
“With respect to the interests of the rank-and-file Kazakhstan consumers, the current situation with the oil prices is fraught with a next fuel deficit. We should be prepared for our refineries working under capacity, as the oil producers will look for any reason not to send crude to the domestic market in order to somehow compensate for the lower revenues. Each exported barrel of oil will bring them more income than a barrel of oil staying at home,” an energy analyst for Kazakhstan, Sergey Smirnov, told New Europe.
The expert forecasts that there may be a cut of production this year. At this point, there is no final data available for the volumes of production in 2014, but even now the specialists say there would hardly be any production growth to speak of. Most likely, it will stay within 81 million tonnes. In 2013, Kazakhstan produced 81.731 million tonnes of oil, including gas condensate.
According to Smirnov, the world’s low oil prices will force many oil producers in Kazakhstan to revise their production and investment plans.
“Earlier, the First Vice-Minister of Energy Uzakbai Karabalin said that the average cost of oil production in the republic was $50 per barrel. At the same time, according to other sources, the cost of production at Mangyshlak, with its many ‘old’ fields by the industry standards, is almost $80. As you can see, with the current prices, the profits of all oil producing companies operating in Kazakhstan will be minimal, and some will be even ‘in the red’. It will be logical for the oilers to begin revising their budgets and adjusting them towards reduction,” Smirnov said.
The investment programmes will be the first to see the cuts, including the supplementary exploration and production process upgrade budgets of KazMunaiGas Exploration Production, a subsidiary of National Company KazMunayGas JSC.
The large companies operating the flowing wells will be no exception. For example, the cost of production at such a young field as Tengiz is approximately $45 per barrel, but adding to that are the de-sulphuring and transport costs.
The math clearly shows that all oil producers will need to tighten their belts even further.
Smirnov said he believes that the oil producers working on the old wells will face the question of how to keep the operating wells going. Shutting them down until the better times and re-opening them later could prove to be an even more costly option.
He opined that the falling oil prices may bankrupt and shut down smaller oil producers.
Russian oil and gas analyst for Central Asia Igor Ivahnenko agreed. “I believe the weakest companies may stop the production. But the most likely scenario for the producers would be to suspend or curtail exploitation drilling and to impose hiring, salary and social spending freezes. Having said that, Kazakhstan’s leaders always remember about Zhanaozen, so they will act with extreme caution there,” Ivahnenko told New Europe.
Some employees of the national company KazMunayGas have admitted privately that they would not be surprised to see exploration budget cuts for the small projects in Kazakhstan’s sector of the Caspian shelf. As New Europe reported earlier, following the devaluation of the national currency last February, many drilling plans for small projects were re-scheduled for 2015.
“Most importantly, the hopes of the country’s government for Kashagan may not come through again. If the oil prices remain low till 2016-2017, which is the timeline for completion of the consortium’s new pipelines, commercial production of oil at that field will not be economic,” Smirnov said.
According to the EIA outlook, the oil prices will not reach the level of 2014 in the nearest two years. Also, the Saudi Arabian Oil Minister Ali al-Naimi has said that the world may never see the $100 per barrel price again.
http://www.neurope.eu/article/oil-price-drop-takes-its-toll-kazakhstan