Kazakhstan Oil Challenges and Perspectives
Kazakhstan is the largest oil producer in Central Asia. Over recent years, it has made big investment in oil production. However, oil price slump has negatively affected the Kazakh economy, like other producers. Consequently, Kazakhstan has seen its national currency and economic indicators plunge. This issue would be challenging in the long-term for Kazakhstan which seeks to dominate the Central Asia region. That is why it joined OPEC's oil production cut scheme in a bid to bring prosperity back to its economy. The present article aims at reviewing Kazakhstan's oil policy which is of high significance for its future economy.
Kazakhstan is the largest oil and gas exporter in Central Asia. This country is ranked 11th among countries which hold crude oil reserves. At its current level of output, Kazakhstan will be able to continue exporting oil for 60 years.
According to data released by the US Energy Information Administration (EIA), Kazakhstan is the largest holder of offshore oil reserves in the Caspian Sea. Holding 31.2 billion barrels of crude oil, this country sits on the largest proven gas reserves in the land-locked sea. Furthermore, Kazakhstan's gas reserves in the Caspian Sea are estimated at 104 tcf. Kazakhstan's oil production capacity stands at 1.387 mb/d and its gas production at 1.05 tcf a year. Kazakhstan, whose crude oil production was on an upward trend for one decade, due to numerous reasons suddenly saw its output decline in 2015 and 2016.
Energy-Reliant Economy
Over recent years, oil has been instrumental in the Kazakhstan economy. Crude oil makes up some 58% of Kazakhstan's exports. Dependence on petrodollars has exacerbated the impact of oil price fall on the economy of Kazakhstan. For instance, the sharp decline in oil prices has slashed the country's gross domestic product (GDP). A review of the current situation in Kazakhstan and the impact of oil revenues on its economy indicate that over coming years the Kazakh economy's dependence on revenue from energy resources would go up. There are several reasons for such a prediction.
First and foremost, Kazakhstan's economy has over recent years become dependent on revenues from energy sales, and finding a proper alternative would not be possible in the short run. This is specifically because the government has not made good use of oil revenues for investing in infrastructure and industry. Like any other rentier government, the Kazakh government has merely spent petrodollars on day-to-day affairs.
Second, the Kazakh economic dependence on revenue from energy sales could give rise to fundamental challenges for the government with regard to the distribution of rents between elites and a specific class of people. That could trigger riots and cause opposition to the government.
Third, the decline in energy revenues following the oil price slump in global markets has been challenging to the Kazakh economy; therefore, its government would not have a chance to envisage long-term planning. In other words, the government has no option but to allocate portions of its revenue to aforethought sectors in a bid to leave behind the current crisis.
Fourth, economic crisis in Russia and its impact on Kazakhstan do not allow structural reforms in this Central Asian country in order to wean its economy off oil and gas revenues.
These points indicate that Kazakhstan's economic dependence on oil and gas revenues will continue in coming years. That could turn the Kazakh economy into a rentier government at national level.
Kazakhstan Status in Future Markets
The issue of energy has taken up added importance in Kazakhstan's foreign policy in recent years and has further pushed this country into bold relief. The Kazakhs were hopeful of being placed among top 10 producers and exporters of oil in the world. To that end, the Astana government had focused on the strategy of diversifying hydrocarbon products, expanding export markets and increasing hydrocarbon product exports. Kazakhstan enjoyed an important status in the world energy market due to its huge oil and gas reserves. Therefore, all projections agreed on the point that Kazakhstan would become one of the most important producers and exporters of oil and gas in the world over coming years. However, ongoing trends in Kazakhstan's energy sector and oil production indicate that previous estimates by economic bodies and major oil companies were incorrect and therefore their approach vis-à-vis the Kazakh economy would change.
Also, maintenance or reduction of oil production in Kazakhstan could reduce to some extent the importance and position of this country in the world energy markets. Besides, due to populist policies, the government's decision to keep the price of oil products low in the country would not encourage foreign investors to eye projects there and they prefer to be involved in Kazakhstan's oil exports. This issue could also affect Kazakhstan's future oil production.
The current trend of developments indicates that the Kazakh government would most probably be not able to attract more investment into its oil sector because it cannot make investment itself and would need foreign investment. Foreign investors do not see new investment cost-effective either in the light of oil price fall. In addition to this all, even if the government manages to find a new investor their investment will not yield results in the short-term; therefore, the trend of oil production in Kazakhstan is forecast to remain unchanged in coming years.