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The oil and gas industry is the leading sector of Kazakhstan‘s economy. It is responsible for the preponderance of exports and fiscal revenue, and is the target for the overwhelming majority of direct international investments. In a 2012 BP Statistical Review, Kazakhstan ranked 12th globally in the amount of proven oil reserves and ranked 16th in production worldwide.
Energy exports have been a major driver of Kazakhstan’s economic growth over the last decade, as oil production rose significantly and global oil prices were high. However, such growth has made Kazakhstan dependent on oil exports and vulnerable to fluctuations in oil prices.
In the past several years, the government of Kazakhstan has moved to rectify these vulnerabilities in the hydrocarbons sector and has become more assertive towards foreign consortia and smaller industry players. The government hiked taxes on oil production and exports, tightened regulations, particularly environmental, local content requirements and transfer pricing, expanded the role of KazMunaiGas NC, the state-owned oil company, by introducing a first buyer right for the sales of subsoil rights. All these as well as other fiscal tools have allowed the government to increase its stake in Kazakhstan’s two giant projects, Kashagan, oil reserves off the Caspian Sea and Karachaganak, a gas condensate field in the northwest. Labeled ‘resource nationalism’ worldwide, in Kazakhstan this policy shift reflects several trends at once.
While Kazakhstan’s investment climate is considered to be one of the most stable in the CIS, we believe that asserting more power in the sector is a clear risk.
In this report we provide an overview of the regulatory and fiscal regime; explore the investment climate and risks; and analyze the effects of resource nationalism. The analysis includes a description of all three Kazakhstan’s key oil and gas projects and smaller industry players, including a profile of fuel transportation and refining sectors.