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Oil and Gas

Opinion: Tengiz, Karachaganak, and Kashagan: Kazakhstan Asserts Contract Stability Amid Lawsuits Exceeding $170 Billion

Following statements by President Kassym-Jomart Tokayev, the intrigue surrounding the PSA agreements for Kashagan and Karachaganak and the stabilized contract for Tengiz have taken on new dimensions. Previously, in the articles, Breaking Down Kazakhstan’s Claims Against International Oil Consortiums and Is Kazakhstan Preparing to Take on the Oil Consortium “Whales?, TCA examined the ongoing lawsuits filed by the government and the authorized body, PSA LLC, against the North Caspian Operating Company N.V. (NCOC) and Karachaganak Petroleum Operating B.V. (KPO), noting that the Ministry of Energy and KazMunayGas have not raised any claims against the joint venture Tengizchevroil LLP (TCO). While shares in NCOC and KPO are managed by PSA LLC, those in TCO are controlled by the national company, KazMunayGas. What did President Tokayev say? On January 28, President Tokayev held an expanded government meeting addressing the public and political debate surrounding PSA agreements. "Reforms in the subsoil use sector must continue, no matter what," Tokayev stated. "This is a fundamental position that the government should firmly adhere to. The implementation of production-sharing agreements (PSAs) for major oil fields has allowed Kazakhstan to become a reliable supplier of energy resources to the global market. These projects make a significant contribution to the country’s socioeconomic development. However, large investments require a long-term planning horizon. Therefore, the government must intensify negotiations on extending PSA contracts, possibly on updated and more favorable terms for our country." This statement sparked discussions among experts; who exactly was the president referring to? The major PSAs in Kazakhstan are the Karachaganak and Kashagan projects, with contracts expiring in 2038 and 2041, respectively. In contrast, Tengiz does not operate under a PSA but rather a stabilized contract, which is set to expire much sooner, in 2033. I have repeatedly emphasized the need for an audit of Tengiz before the contract expires and have proposed that it should not be extended. Kazakhstan can independently, or with the involvement of foreign oil service companies, develop this highly profitable field under more advantageous conditions. On January 29, Kazakhstan's Minister of Energy, Almassadam Satkaliyev, provided clarification, confirming that the president's directive was specifically about Tengiz. "The directive was given quite openly within the framework of international agreements and international law to conduct consultations with consortium participants. Given the development timelines, the most relevant project for us is Tengizchevroil, which operates the Tengiz field in partnership with Chevron, ExxonMobil, and Lukoil. We plan to start certain preliminary consultations with them, and once we are ready for negotiations, we will proceed with them. The government will first develop an agenda and a list of its demands. One possible demand is an increase in Kazakhstan’s stake in these projects." So, is Tengiz the primary target? Or is Kazakhstan preparing for a broader offensive on all three fronts? “There are Hardliners in the Government” On February 16, the international industry portal Upstream Online published an extensive article titled Kazakhstan Seeks Shake-Up at Crucial Foreign-Led Oil Projects. The article primarily focuses on the production-sharing agreements (PSAs) for Karachaganak...

Oil and Gas

Right Place, Right Time: Central Asia Basks in Russia’s Eastern Energy Pivot

On January 1, with the closure of pipelines through Ukraine, deliveries of Russian gas to Europe came to a virtual standstill. Prices across the continent have ratcheted up in the first six weeks of 2025 and have now hit two-year highs. In Central Asia, the effects of the Russo-European decoupling have also been profound. In 2024, Kyrgyzstan posted a 48% year-on-year increase in Russian gas imports, while Uzbekistan’s inbound gas purchases soared over 142% to $1.68 billion. But while Gazprom’s reorientation has been a boon to Central Asia’s economies, this phenomenon appears to be more than short-term supply dumping due to the war in Ukraine. Rather, it is part of a lasting trend that could define the region’s, and the world’s, energy map. Russia’s Supply Glut In 2018, Russia exported a record 201 billion cubic meters (bcm) of gas to Europe. The closure of the Yamal and Nord Stream pipelines had already brought these supplies down to 49.5 bcm by 2024 and will be further impacted by the cut in supplies via Ukraine. Despite some gas supplied via Turkstream and a steady trade in liquefied natural gas (LNG), Russian gas supplied to Europe is a fraction of what it once was. The Central Asian market offers both short and long-term solutions to this. “Most likely, Gazprom views its expansion into Central Asia as a partial and immediate solution to the challenge of finding new markets for its gas,” said Shaimerden Chikanayev, a partner at GRATA International, a law firm. “While the region cannot fully replace the volumes or profit margins previously achieved in Europe, it offers a readily accessible and stable outlet for Russian gas exports.” Central Asia is accessible due to old Soviet pipelines that link the region to Moscow. These pipelines, known as Central Asia–Center, were originally built to take gas from Turkmenistan, via Uzbekistan and Kazakhstan to Russia. This system has now been engineered to run in reverse. The pipeline has a capacity of around 50 bcm per year, but there are ongoing efforts to increase it. Still, this is only a quarter of what was once supplied to Europe, nor are the revenues as lucrative. In 2023, the average rate charged by Gazprom to Uzbekistan for gas was $160 per thousand cubic meters (tcm), this compares to European prices that fluctuated between $200-400tcm throughout the 2010s. For Stanislav Pritchin, head of the Central Asia sector at the Institute for World Economy and International Relations (IMEMO), Moscow, the price is not a major factor. “Russia of course sells gas to Kazakhstan, Uzbekistan, and Kyrgyzstan lower than the market price. This is a politically motivated decision. And this is not just because it is struggling with [selling to] Eastern Europe. Russia could sell it to Central Asia at market prices, but this is the Russian approach towards its allies in the region,” he said. Central Asian Serendipity For Central Asian states, these new supplies have come at a good time. Countries such as Kyrgyzstan are trying hard to...

Oil and Gas

Ukraine’s Drone Strike on Russian Oil Hub Sparks Concerns Over Kazakhstan’s Energy Security

On February 17, seven Ukrainian unmanned aerial vehicles (UAVs) attacked an oil transportation facility of the Caspian Pipeline Consortium (CPC), targeting the Kropotkinskaya oil pumping station in Russia. Following the attack, reports emerged that the volume of oil pumped from Kazakhstan through the CPC could decrease by 30% for a period of one and a half to two months. Conflicting Reports on the Impact On February 18, Ukraine officially confirmed the strike. "Yesterday, the Ukrainian defense forces carried out a pinpoint strike on strategic facilities of the military and fuel and energy infrastructure of the Russian Federation... The Kropotkinskaya and Andriapol oil pumping stations, which played a key role in transporting fuel for the occupiers, were hit. After the strike, they were put out of action, significantly complicating the logistics of fuel supplies to the aggressor," the General Staff of the Armed Forces of Ukraine stated. Shortly after, Transneft, the Russian shareholder in the CPC, warned that oil pumping volumes from Kazakhstan could drop by approximately 30% due to the damage. Meanwhile, Russian Deputy Prime Minister Alexander Novak provided an even bleaker assessment. During a meeting with President Vladimir Putin, he stated: "We see a decrease in pumping volumes by about 30 - 40% compared to levels before the drone attack." Novak estimated that restoring the CPC infrastructure would take "several months, at least," citing the need to replace damaged Western-made equipment, including Siemens gas turbines. However, later that day, Kazakhstan’s Ministry of Energy issued a statement disputing these claims. "Currently, there are no restrictions on Kazakh oil shipments via the CPC, and acceptance is proceeding as scheduled," the ministry said. Despite this, Russian Foreign Minister Sergey Lavrov framed the attack as a direct assault on Kazakhstan’s energy infrastructure. Expert Perspectives: Overreaction or Serious Threat? While officials issued conflicting statements, financial analyst Rasul Rysmambetov urged against panic. Writing on his Telegram channel ArtFinanze, he dismissed talk of a 30% reduction in pumping volumes as an "overreaction." However, he acknowledged that the attack exposed the risks of Kazakhstan’s reliance on foreign transit routes. "Geopolitical and other risks when exporting through third countries can easily double. It’s too early to panic; there are few catastrophic scenarios at this stage. But if attacks on infrastructure continue, it will become increasingly difficult to protect the underwater pipeline system, especially considering the Russian Black Sea Fleet’s recent losses. Kazakhstan’s oil facilities have been largely spared so far, but there’s no guarantee this will continue. Contrary to popular belief, the fact that companies like Chevron are involved won’t deter anyone; on the contrary, such infrastructure can be used to exert pressure on entire countries," he warned. Kazakhstan’s Dilemma: Dependence on Russian Routes While experts downplay immediate consequences, Kazakhstan’s vulnerability is undeniable. Calls to boost domestic petrochemical production to reduce dependence on foreign pipelines remain largely aspirational. Meanwhile, efforts to diversify oil export routes have yielded little progress. Currently, 93% of Kazakhstan’s oil exports pass through Russian territory, leaving the country with limited alternatives: Caspian Pipeline Consortium...

Oil

Kazakhstan to Offset Oil Overproduction in 2024

Kazakhstan has pledged to compensate for excess oil production in 2024, reaffirming its commitment to the OPEC+ agreements. At the 58th meeting of the Joint Ministerial Monitoring Committee, Kazakh representatives confirmed the country's readiness to take necessary measures in 2025 and 2026 to meet its obligations under the OPEC+ framework. "Despite increased production this year due to the expansion of the Tengiz field, Kazakhstan remains committed to the OPEC+ agreement and will engage in negotiations with partners in accordance with international law," the Ministry of Energy stated. OPEC+ Efforts to Stabilize the Market The February 3 meeting marked the first OPEC+ gathering of 2025. Participating ministers emphasized that voluntary production cuts, implemented by several member states in December 2024, have contributed to oil market stability. Previously, on December 5, 2024, OPEC+ agreed to extend voluntary oil production limits of 2.2 million barrels per day (bpd) for the first quarter of 2025. The decision was made in response to a seasonal slowdown in demand during the winter months. A gradual easing of restrictions is expected to continue until September 2026. The next OPEC+ monitoring committee meeting is scheduled for April 5.

KazMunayGas

Kazakhstan Ships First Batch of Kashagan Oil to Baku

Kazakhstan has shipped its first batch of oil from the Kashagan field to the Azerbaijani port of Baku, marking a significant step in the country’s efforts to diversify its export routes. The shipment was confirmed by the national oil company KazMunayGas (KMG). The tanker Taraz, carrying Kashagan oil, departed from the port of Aktau and is en route to Azerbaijan. Upon arrival in Baku, the oil will be transported via the Baku-Tbilisi-Ceyhan (BTC) pipeline system to the Mediterranean Sea. The export operation is being carried out by KMG Kashagan B.V., a subsidiary of JSC NC KazMunayGas, which manages Kazakhstan’s share in the North Caspian Production Sharing Agreement (PSA). This initiative aligns with Kazakh President Kassym-Jomart Tokayev’s directive for KazMunayGas to develop alternative hydrocarbon export routes. The shipment also advances the development of the Trans-Caspian International Transportation Route, a vital corridor for Kazakhstan’s oil exports. In 2022, KazMunayGas and Azerbaijan’s state oil company SOCAR signed a general agreement to enable the transit of Kazakh oil. In March 2024, the two parties finalized plans for a phased increase in deliveries through Azerbaijan. Under the agreement, annual transit volumes are expected to reach 2.2 million tons. KMG Kashagan B.V., which holds a 16.88% stake in the North Caspian PSA, represents Kazakhstan’s interests in the North Caspian Project (NCP). The company is responsible for the exploration and production of hydrocarbons in the Caspian Sea, as well as the independent transportation and sale of its production share under the PSA’s terms. Energy analysts highlight that diversifying export routes will help Kazakhstan reduce its reliance on traditional oil supply corridors, thereby increasing flexibility and resilience in the face of global market volatility.

Oil and Gas

Kazakhstan Ends Era of Cheap Fuel: Price Controls Set for Abolition

On January 17, the Ministry of Energy of the Republic of Kazakhstan published a number of draft orders on the Open NLA (normative legal acts) portal, which were to be discussed within five days. In total, the Ministry proposed the abolition of eleven orders regulating wholesale and retail prices for petroleum products, which have been under price control since 2014. In addition, it intends to change the calculation formulas and price ceilings for wholesale and retail sales of liquefied and natural gas. I have been writing about the need for price liberalization since 2018, as seen in articles such as “#Kazneft, part 2: The Bermuda Gasoline Triangle - Why Prices Will Rise” and “#Kazneft, part 4: We Rank Seventh in the World for the Cheapest Gasoline. Is It Sold at a Loss?” This is a landmark event for the Government of Kazakhstan, which has long maintained not only the lowest fuel prices in the region but some of the lowest globally. The country consistently ranks among the top ten nations with the cheapest energy resources, including fuel, natural gas, coal, and electricity. Cheap and Even Cheaper According to Global Petrol Prices, as of January 20, 2025, fuel prices per liter in dollar terms across the EAEU, CIS, and neighboring countries are as follows: (Table 1) Country RON-95 Diesel Turkmenistan 0,43 0,29 Kazakhstan 0,47 0,55 Russia 0,61 0,71 Azerbaijan 0,65 0,59 Belorussia 0,75 0,75 Kyrgyzstan 0,81 0,81 Afghanistan 0,83 0,83 Uzbekistan 0,99 0,95 Georgia 1,09 1,06 China 1,15 1,02 Ukraine 1,39 1,37 Mongolia 1,49 1,19 Kazakhstan ranks seventh globally for the affordability of RON-95 gasoline, trailing behind Angola, Egypt, Algeria, Kuwait, Turkmenistan, and Malaysia. At the same time, there are “throwaway” prices in Iran, Libya, and Venezuela, but these price indicators do not reflect the actual availability of fuel in these countries. Turkmenistan also shows relatively low fuel prices, primarily due to the use of alternative fuels, such as methane, in transportation. Kazakhstan has historically had nearly double the price gap compared to its neighboring countries, which has facilitated the shadow export of fuel despite an official ban on exporting petroleum products. A Leaky Bucket I have described Kazakhstan's domestic fuel market as a "leaky bucket"— no matter how much fuel is produced, it is constantly in short supply. In 2024, the country processed about 18 million tons of oil, with its three major refineries — Atyrau: 99% owned by the national company KazMunayGas (KMG), Shymkent: 51% owned by China National Petroleum Corporation (CNPC), and 49% by KMG, and Pavlodar: 100% KMG — accounting for approximately 17 million tons. Mini-refineries produced an additional one million tons. The production of petroleum products (excluding fuel oil) amounted to around 14.5 million tons. The balance of petroleum products for 2025 is as follows, million tons: (Table 2) Product Production in the Republic of Kazakhstan Import from Russia Import to production, % RON-92, RON-95, RON-98 5,0 0,29 6 % Diesel fuel 5,1 0,45 9 % Jet fuel 0,75 0,3 40 % Bitumen/tar 1,1 0,50 45 % For 2025,...