Kazakhstan becomes a major energy destination for China and the West, given the increased demand for oil and gas in the near future.
At the recent high-level bilateral meeting between Kazakhstan's Prime Minister Askar Mamin and his Russian counterpart Mikhail Mishustin, the two countries signed a Memorandum of Understanding meant to continue the construction of energy corridors to China and Europe and establish the production infrastructure to facilitate the sale of compressed natural gas (CNG).
The two countries also pursue together the prospects of building motorways, as new development vectors, to bring technological innovation and economic development in the regions linking Europe to China. Analysts believe that this transport route will facilitate the increase in export flows and will bring a huge contribution to the development of economies of the participating countries.
The Europe-Western China-Russian-Kazakhstan transport corridor will link the ports of Finland through the Baltic States, via Kazan and Orenburg (in Russia) and Kazakhstan, to Western China.
Kazakhstan, an unrecognized energy power in an uncertain geopolitical environment
Due to the importance of its oil, coal and uranium reserves, Kazakhstan – the ninth country in the world in terms of surface – plays a significant role in the market of these raw materials. Since it obtained its independence in 1991, its development has been intrinsically linked to the capacity to attract foreign investors, especially American, to exploit its hydrocarbon fields, whose complex technical characteristics required the intervention and expertise of Western companies.
In Kazakhstan, oil accounts for over 80% of the production of "exploitation and extraction" category.
Being the main source of revenue from export, foreign currency reserves, fiscal revenue, and foreign direct investments (FID), the oil and gas sector has a strategic importance for the Kazakh economy. Exports of mineral products accounted on average for 75% of Kazakhstan's total exports between 2013 and 2020.
Created in 2012 to represent the interests of the state in the oil and gas sector, the national company JSC NC KazMunayGas (KazMunayGas) has several subsidiaries, including KMG Exploration and Production (upstream operator), KazMunaiTeniz (oil and gas fields exploitation company) KazTransOil (pipeline operator) and KazTransGas (gas pipeline operator). KazMunayGas owns stakes in Kashagan (16.8%) and Tengiz (20%) fields, interests between 15% and 100% in several onshore projects.
The increase in oil production was the result of an influx of foreign investment in Kazakhstan's oil sector since 1991. International investment took place in the form of joint ventures.
Kazakhstan: A strategy at the mercy of its major neighbours?
Kazakhstan, which rightly takes pride in the presence in the ground of 99 of the 100 items in Mendeleev's Table, is therefore naturally positioning itself as an exporter of these raw materials. However, it suffers from the isolation between the two very strong neighbours in the north and the east, Russia, and China, and those in Central Asia, in Kyrgyzstan, Uzbekistan and Turkmenistan.
Moreover, its area is almost 3 million square kilometres, at a population of only 18 million inhabitants scattered around its periphery. Inheriting the infrastructure built during the Soviet period, the country must bear colossal costs both to modernize it and to integrate it into its vast territory. It is therefore imperative to reconcile with its neighbours to export its raw materials, which are subject to significant transport costs.
Natural gas, fuel on the international transport route Europe – Western China
The ministries of Energy in Russia and Kazakhstan aim to promote the market of fuels for vehicles using natural gas and create a gas supply infrastructure network on the international routes in the following years.
Therefore, Russia's energy minister Nikolay Shulginov and his Kazakh counterpart, Magzum Mirzagaliyev, have signed a Memorandum of Understanding in the field of infrastructure development for the use of natural gas as fuel on the international transport route Europe – Western China.
Joint action plan
A joint action plan was signed to develop the road infrastructure of the Europe-Western China route and the Meridian highway as well. The Europe-Western China transport corridor will allow locations along the route to be linked to transcontinental transportation and earn revenues from the transit traffic passing through their communication arteries. Transport will become a priority for the economy, as the share of transport services in the gross domestic product, may attract revenues and investments in the development of other economic sectors too.
Currently, in Kazakhstan, many hopes rely on building the Europe-Western China route to bring energy on international markets. According to Talgat Arystanbaev, chairman of the Natural Gas Vehicles Association Kazakhstan, the measure will lead to building 100 CNG (compressed natural gas) and LNG (liquefied natural gas) stations across the country.
Currently, China owns a 24% stake in oil production and 13% in gas production in Kazakhstan. Observers believe that Kazakhstan, together with Turkmenistan, will remain important partners for energy exports to China in the future. Moreover, China has quickly built five dams in the Almaty region to produce 480 MW of electricity. It will be the largest Chinese hydropower project in Central Asia. The Kazakh authorities are also holding discussions with the Russian energy company Rosatom for the potential construction of a nuclear power plant.
Optimism in Kazakhstan
Officials believe that this transition stage is necessary due to commitments to reduce carbon emissions not only by giving up coal, but also by switching to a new economic model for electricity production.
Kazakh officials say that their optimism comes from the "favourable price conditions" on the global markets, which they believe that will help increase revenues from export of metals and metal products. The Organization of Petroleum Exporting Countries (OPEC) has set a quota of 1.5 million barrels of oil production per day for Kazakhstan in December 2021, an increase of 16,000 barrels. The Eurasian Development Bank (EDB) analysts expect oil production at the Tengiz field to increase in 2023, which will help Kazakhstan's gross domestic product (GDP) to grow up to 5% in 2023.
Latest news: Kazakhstan government resigns following fuel price protests
Kazakhstan's President Kassym-Jomart Tokayev has sacked his cabinet and imposed states of emergency in the country's largest city and an oil-rich western region following mass protests triggered by a rise in fuel prices, foreign media inform.
Tokayev announced he had accepted the resignation of the cabinet led by Prime Minister Askar Mamin and ordered the acting cabinet to reinstate price controls on Liquified Petroleum Gas (LPG). He also ordered the acting cabinet to broaden price controls to petrol, diesel and other 'socially important' consumer goods.
The protests broke out in the town of Zhanazoen in the western Mangistau region on January 2, a day after the government lifted caps on prices for Liquified Petroleum Gas (LPG). Mangistau depends on the comparatively cheap LPG as the main fuel for automobiles and the AFP news agency said any jump in prices would have affected the price of food, which has seen steep increases since the beginning of the coronavirus pandemic.
The protests quickly spread to other parts of Mangistau and western Kazakhstan, including the provincial centre, Aktau, and on to Almaty and the national capital, Nur-Sultan.
