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Kazakhstan meticulously studied the lessons of the 2014/2015 oil slump and has so far survived the last 12 months’ market depression with legislative and executive poise. Though still heavily dependent on oil revenues, the Kazakh authorities have seen the tenge depreciate over the course of 2020, digesting most of the COVID-triggered domestic shocks. Thanks to a traditionally low level of indebtedness (around 19% before COVID hit in, currently around 24% of GDP) and substantial international reserves, Astana still has a lot of leeway to restart economic growth in 2021. Pinning its hopes on the pandemic’s soonest end, Kazakhstan will be seeking to leave the production-curbing period of its OPEC+ participation behind and maximize output from its Kashagan-Tengiz-Karachaganak trio to the highest extent possible. All the while Kazakhstan’s short-to-mid term production prospects look staggering, its long-term ambitions remain mired in doubt and speculation.
Impossible as it is to guarantee the correctness of production data, it seems that Kazakhstan has, by and large, failed to stick to its 1.86mbd production plateau, only doing so in January 2021. At the same time, Kazakhstan might have produced even more and could have ramped up Kashagan much higher than it did. The Kashagan field has reached its “pilot-phase” plateau of 400kbpd, however, due to Kazakhstan’s participation in the OPEC+ production curtailments the supergiant field’s actual output oscillated around 280-300kbpd. According to the Kazakh Energy Ministry, a final decision on Kashagan’s 2nd development phase is expected at some point this year – the government will primarily aim for a 1 BCm per year gas-processing plant next to the field, which would normally boost the field’s maximum production from 0.4 to 0.6mbpd. Absent any agreement with the operating NCOC consortium, there is no guarantee that the 2023 completion deadline stipulated by the Energy Ministry remains tenable.
The Tengiz Expansion Project is assumed to come onstream in 2023, a year later than initially assumed – just as the chronological timeline has shifted, the project’s total cost witnessed an inflation from $37 to $45 billion. With this, the nominal production capacity of Kazakhstan’s largest oilfield will be hiked by 260kbpd to 860kbpd. The other Soviet legacy giant in production for almost 40 years, Karachaganak, has seen the long-standing row over the field’s profit oil allocation resolved (seemingly to everyone’s satisfaction) in December last year, paving the way for the PRK-1A project. It is assumed that PRK-1A, by means of adding further two gas back-injection compressors, will maintain the field’s current plateau level of 200-220kbpd which otherwise would have started to decline in the mid-2020s.
In terms of 2020 production, Kashagan still managed to pull of a year-on-year increase, bringing the annual average of 303kbpd (7% up from 2019). Tengiz dropped 11% year-on-year to 530kbpd and the remaining element of Kazakhstan’s Top 3, the Karachaganak field rose to 243kbpd over the course of 2020 (up by 8%). Beyond the three megaprojects, most of Kazakhstan’s production is focused on smaller assets, therefore it should come as no surprise that the national oil company KazMunayGaz (KMG) has borne the brunt of decreased interest in Kazakh acreage. Its dependence on legacy fields, most of them mature and already well into their stage of terminal decline, resulted KMG’s production falling 6% on an annual basis from 2019, to 160kbpd. Not only is KMG’s production falling, its proven and probable (2P) reserves decreased to 635 million tons of oil equivalent, down 41mtoe from 2019.
According to media reports that transpired in early March, BP has notified KazMunayGaz in late 2020 that it would not purse the exploration joint venture that it had with KMG, focusing on the Kalamkas-More, Zhemchuzhiny and Greater Zhambyl fields. The initial memorandum of understanding between the two companies was signed in May 2019, however the erstwhile traction was quickly ground to a halt by BP’s new strategic commitment not to invest in countries/frontiers in which the British major is not currently active. BP’s termination of its Kazakh commitments is not the first incident of Western majors renouncing on their projects in offshore Kazakhstan in the past couple of years. A part of the blocks BP has now relinquished were previously assessed by Shell and NCOC.
Shell quit the Khazar (also known as Zhemchuzhiny) project in October 2019, having invested some $900 million into appraisal and exploration works and surveying. Shell’s quitting of Kalamkas-More (before any net-zero ambitions) conveys a much more complex story as the main narrative at the time revolved around borderline-profitable project economics. Concurrently in October 2019, NCOC, the entity developing the Kashagan field, had given up on the Kalamkas-more block which at that point was part of the Kashagan license area. Thus, rights to both blocks were returned to the Kazakh authorities and Astana wasted little time to reallocate it to BP. First rejected by Shell/NCOC, now relinquished by BP, the same acreage in and around Kashagan is now bound to find a new owner.
It seems that there is already an interested party in getting into the blocks relinquished by BP, Russia’s leading private oil producer LUKOIL. Since the reasons for terminating the BP-KMG joint venture do not immediately reflect the reserve base of the blocks involved, the Russian firm might actually capitalize on others’ carbon emissions goals. In addition to the above, LUKOIL is also seeking to clinch the offshore Al-Farabi block (formerly known as I-R-2, now renamed after a 10th century philosopher). The contract has been under negotiation for some time already, LUKOIL and KMG have signed a heads-of agreement back in June 2019 and then a rights and obligations-stipulating agreement in October 2020. Al-Farabi, in water depths of some 150 meters, abuts LUKOIL’s Tsentralnoye prospect, already within Russia’s territorial waters.
