OIL IN KAZAKHSTAN

OIL IN KAZAKHSTAN

Kazakhstan is a major oil producer. It has the second-largest oil reserves as well as the second-largest oil production among the former Soviet republics after Russia. The country's estimated total petroleum and other liquids production was 1.70 million barrels per day in 2014. The key to its continued growth in liquids production from this level will be the development of its giant Tengiz, Karachaganak, and Kashagan fields. Development of additional export capacity will also be necessary for production growth. [Source: U.S. Energy Information Administration (EIA) <>]

Although Kazakhstan became an oil producer in 1911, its production did not increase to a meaningful level until the 1960s and 1970s, when production plateaued at nearly 500,000 barrels a day , a pre-Soviet independence record production level. Since the mid-1990s and with the help of major international oil companies, Kazakhstan's production first exceeded 1 million barrels a day in 2003.<>

Kazakhstan is one of the world’s top 20 oil producers. It has emerged as the biggest oil producer from oil rich Caspian Sea region and is expected to become one of the world's largest producers in the coming decade. Oil and gas from Kazakhstan are looked upon increasingly as alternatives to oil and gas from the volatile Middle East. Pipelines can carry energy sources directly for Kazakhstan to Europe and China.

Most of oil and gas deposits in Kazakhstan are concentrated in the western part of the country. Kazakhstan holds two thirds of the crude reserves in the Caspian Sea. Most of the Caspian Sea natural gas is in Turkmenistan. Under the Soviet Union, Kazakhstan’s oil deposits were scarcely explored. After the break up the Soviet Union, most of the develop was handled by the state. These days foreign companies such as Chevron Texaco and Exxon Mobile have large stakes in the development.

The healthiest parts of the economy are the oil, gas, and mineral extraction industries. Plentiful reserves of oil, coal, and natural gas make energy production dominant industrial sector. Offshore Caspian Sea fields, still in early production stages, have huge capacity; extraction expanding with Western investment and new pipeline project. Natural gas fields, notably Karachaganak, expand output in the 1990s. Thermoelectric power plants, main source of power, fueled by lignite mines. Kazakhstan remains a net importer of energy and fuel. The Kazakhstan economy has remained poorly diversified. Oil accounts for more than half of Kazakhstan’s industrial output, and many other industries are dependent on [Source: Library of Congress]

Oil Reserves and Statistics for Kazakhstan

According to the Oil & Gas Journal (OGJ), Kazakhstan had proved crude oil reserves of 30 billion barrels as of January 2014—the second largest endowment in Eurasia after Russia, and the twelfth largest in the world, just behind the United States.1 Kazakhstan's current oil production is dominated by two giant onshore fields in the northwest of the country: Tengiz and Karachaganak, which produce about half of Kazakhstan's total petroleum liquids output. The offshore Kashagan field, in Kazakhstan's part of the Caspian Sea, will also play a major role in Kazakhstan's liquids production in the coming years. [Source: U.S. Energy Information Administration (EIA) <>]

Crude oil - proved reserves: 30 billion barrels (1 January 2014 est.), country comparison to the world: 12. Crude oil - production: 1.655 million barrels a day (2013 est.), country comparison to the world: 18. Crude oil - exports: 1.406 million barrels a day (2010 est.), country comparison to the world: 9. Crude oil - imports: 119,600 barrels a day (2010 est.), country comparison to the world: 45. [Source: CIA World Factbook =]

Refined petroleum products - production: 288,600 barrels a day (2010 est.), country comparison to the world: 44, Refined petroleum products - consumption: 258,200 barrels a day (2013 est.), country comparison to the world: 48. Refined petroleum products - exports: 149,800 barrels a day (2011 est.),country comparison to the world: 38. Refined petroleum products - imports: 94,430 barrels a day (2010 est.), country comparison to the world: 51. =

Kazakhstan possesses two thirds of the crude oil reserves in the Caspian Sea region. By some estimates it holds 95 billion barrels, four times the proven reserves of Mexico. If this true it would hold the 8th largest reserves in the world.

Major non-OPEC countries (reserves as of Jan. 1, 1998): 1) Russia: 50 billions of barrels; 2) Mexico: 40 billions of barrels; 3) China: 24 billions of barrels; 4) U.S.: 22 billions of barrels; 5) Kazakhstan:16 billions of barrels; 6) Azerbaijan: 11 billions of barrels; 7) Norway: 10.4 billions of barrels: 8) United Kingdom: 5.0 billions of barrels; 9) Canada: 4.8 billions of barrels; Turkmenistan: 1.5 billions of barrels. <>

Production: 1) Russia: 5.9 millions of barrels a day; 2) Mexico: 3.0 millions of barrels a day; 3) China: 3.2 millions of barrels a day; 4) U.S.: 6.4 millions of barrels a day; 5) Kazakhstan: 0.4 millions of barrels a day; 6) Azerbaijan: 0.2 millions of barrels a day; 7) Norway: 3.2 millions of barrels a day; 8) United Kingdom: 2.5 millions of barrels a day; 9) Canada: 1.9 millions of barrels a day; 10) Turkmenistan: 0.1 millions of barrels a day. <>

Caspian Sea Oil

The Caspian Sea—the world's largest inland body of water—is rich in oil. Bordering Azerbaijan, Russia, Kazakhstan, Turkmenistan and Iran, it is 760 miles (1,200 kilometers) long, 130 (200 kilometers) to 300 (480 kilometers) miles wide and has a surface area of 143,550 square miles (370,000 square kilometers) and is 92 feet (28 meters) below sea level. It is about the same size as California or five times the size of Lake Superior, and 1½ time the size of all the Great Lakes combined in terms of surface area but hold less water than Lake Baikal in Siberia. [Source: Robert Cullen, National Geographic, May 1999]

Oil was noted more than 700 years ago in the Caspian Sea by Marco Polo who wrote of “a fountain from which oil springs is in great abundance." Most of the oil and natural gas was produced from organic matter that has flowed in by regional rivers and been compressed.

The world’s oil industry developed in Caspian Sea around Baku in the 1870s. Large reserves of oil had been discovered in the mid 19th century. Not much was made of the discoveries under czarist Russian rule. The area boomed when t was opened up to foreign investors. Fortune seekers from all over the world came to Azerbaijan in 1872 when the Russian czars opened up the Baku fields to foreign investment. Among them were Alfred Nobel, the founder of the Nobel Prize, and his brothers, and the Rotchchilds. (See Azerbaijan)

Some local people got lucky. There are stories of men with nothing more than a shovel finding oil Beverly-Hillbilly-style in their cotton fields. Gushers were given names like “Wet Nurse” and the “Devil’s Bazaar.” Workers toiled in waist-deep muck trying build channel to direct oil into lakes before it dissipated.

Baku experienced rapid development in the last quarter of the 19th century and early 20th century because of the development of Baku’s oil wealth. Thousands of Russians, Caucasus people, Armenians, and southern Azerbaijanis poured into northern Azerbaijan to cash in on the “oil rush” there.

In the early 1990s, when oil prices were relatively high and there was trouble in the Persian Gulf, Western companies rushed into the Caspian Sea area and leapt over themselves, trying to win concessions for the right to drill for oil and gas.

Russia wants its share of profits from oil and natural gas in the Caspian Sea basin. It wants to control the flow of Caspian Sea oil with pipelines built through its territory. Even though Asia is see as the best market for oil from the Caspian Sea the difficulties in getting it there may prove to be too difficult to overcome: trade embargoes in Iran, political instability in Afghanistan and Pakistan and high costs of building a pipeline to China.

Oil in the Caspian Sea

The Caspian Sea basin was expected to be one of the world’s most important sources of oil by the year 2015 but although it is an important energy source it hasn’t turned out to be the gusher that it was touted to be. The United States, Europe and Asia have a keen interest in the area as a source of energy if supplies from the Middle east are disrupted. So far the biggest beneficiary has been China, which has secured much of the oil produced in Kazakhstan.

About 1.1 percent of the world’s oil and natural gas comes from the Caspian Sea. Oil deposits on the Caspian Sea are the third largest after deposits in the Persian Gulf and Siberia. Some have estimated that there are 70 billion to perhaps 200 billion barrels of oils in the Caspian Sea, but more like the figure is between 20 billion and 95 billion, with most of it in Kazakhstan. By contrast Saudi Arabia, the world’s largest source of oil has 261 billion barrels of proven reserves. If the 200 billion barrel figure is true then the Caspian Sea area holds 16 percent of world’s oil reserves. But the consensus seems to be the Caspian Sea has a lot of oil but claims that it oil was going to replace the Persian Gulf were overhyped. [Source: Robert Cullen, National Geographic, May 1999]

The Caspian Sea has proven reserves of 48 million barrels, the third largest reserves in the world, and 292 trillion cubic feet of natural gas. Offshore fields account for 41 percent of total Caspian crude oil and lease condensate (19.6 billion barrels) and 36 percent of natural gas (106 Tcf). In general, most of the offshore oil reserves are in the northern part of the Caspian Sea, while most of the offshore natural gas reserves are in the southern part of the Caspian Sea. In addition, the U.S. Geological Survey (USGS) estimates another 20 billion barrels of oil and 243 trillion cubic feet of natural gas in as yet undiscovered, technically recoverable resources. Much of this is located in the South Caspian Basin, where territorial disputes over offshore waters hinder exploration.

Initially a lot of dry holes were drilled, which lowered some estimates. The high costs of extracting and transporting Caspian Sea oil makes it less profitable than oil from other places such as the Persian Gulf. The Soviets failed to grasp the regions potential because they failed to do extensive deep-water drilling.

Many of the oil fields are deep in the earth or are otherwise difficult to reach and developing them was prohibitively expensive for the Soviets. Only since the collapse of the Soviet Union have the sites been exploited as Western companies with their advanced technology and piles of money have developed them. Billions of dollars has been poured into development. In the 1990s there just as many broken contracts, international lawsuits and swindled investors as there were new oil wells and businessmen who struck it rich. Over time the losers were weeded out and few winners remained.

The EIA—the U.S. government’s Energy Information Agency—estimates that the Caspian Sea region produced an average of 2.6 million barrels per day of crude oil and lease condensate in 2012, around 3.4 percent of the total world supply. Production in 1999 was about 1.1 million a day, or 1.5 percent of the world's total.

Money from the oil boom has manifested itself in an increase in the number of Mercedes and Chevy Blazers but relatively little money has trickled down to ordinary people. Even worse is the fact that money that could be used to build the economy is sent to overseas accounts or spent on trophy developments. Local local people, brought up in the Soviet system, have not learned how to start up new business to exploit the boom. For many Caspian Sea people the only way to make money is to poach caviar-bearing sturgeon.

Oil Fields in the Caspian Sea

Oil is found primarily in three areas: 1) the Baku fields, which extends from east from Baku and is shared by Azerbaijan and Turkmenistan; 2) the Tengiz Field, which is claimed mostly by Kazakhstan and lies under the waters of the northern Caspian Sea; and 3) the Kashagan oil field, a huge deposit discovered in 2000. There is much less oil in territory claimed by Russia and Iran. Large natural gas reserves in the eastern Caspian Sea in Turkmenistan's territory. In the early 2000s, an announcement was made that a large deposit of oil was found in the Severny structure in the north Caspian basin.

Over the past decade, Kazakhstan's onshore oil fields, particularly the Tengiz field, were the biggest contributor to the region's production. As Azerbaijan developed the Azeri-Chirag-Guneshli (ACG) field group between 2006 and 2008, its offshore production began accounting for an increasing part of total Caspian production. Other significant sources of Caspian oil include production in Turkmenistan near the coast and in Russia's North Caucasus region. [Source: U.S. Energy Information Administration, July 2015 ~]

While most current Caspian oil comes from onshore fields, the biggest prospects for future growth in production are from offshore fields, which are still relatively undeveloped. Chief among these is Kazakhstan's Kashagan field, believed to be the largest known oil field outside the Middle East. EIA estimates that the Caspian area produced 2.8 trillion cubic feet of natural gas in 2012, with large portions reinjected back into fields or flared. The large amount and dispersed nature of Caspian natural gas reserves suggest the possibility of significant future growth in production.

Azerbaijan became an important regional natural gas producer with the start of production in the Shah Deniz field in 2006. Other prospects for natural gas production growth include Russia's North Caucasus region, which has the bulk of the Caspian Sea region's onshore natural gas reserves, and Turkmenistan's Galkynysh field, which a 2009 audit suggested may be the world's fourth largest natural gas field.

Caspian oil and natural gas fields are relatively far from export markets, requiring expensive infrastructure and large investments to transport produced hydrocarbons to markets. The Caspian Sea's periodically freezing waters increase the costs of offshore projects, and shifting regulations create uncertainty for foreign companies investing in natural resources in the region.

Oil Wealth and Caspian Sea or Caspian Lake

The presence of all oil in the Caspian Sea suddenly made Central Asia an important place geopolitically. There was talk of the Caspian Sea replacing Iran and Iraq as major sources of oil. How the resources of the Caspian Sea will be divided among the five nation is unresolved. Discussions are expected to go on for some time. The legal status of the Caspian Sea was governed by treaties between the Soviet Union and Iran. But since the collapse of the Soviet Union in 1991 the five nations that share the sea have repeatedly failed in reaching new agreements.

Lying at the heart of this issue is whether the Caspian Sea is a sea or a lake. If it is a sea it resources are divided in accordance with international maritime agreements in which countries are allowed an economic coastal zone that extends 200 nautical miles (230 miles, 375 kilometers) from the shoreline, or if a zone is less than 400 miles between two countries it is divided equally. If it is a lake, the countries control a coastal zone of about 50 nautical miles and all countries are given control of a common area in the middle.

Iran and Russia regard the Caspian Sea as a lake with common resources because it gives them access to oil and gas deposits they otherwise wouldn’t have access to. Azerbaijan, Turkmenistan and Kazakhstan regard it as a sea that should be divided into national sectors so they can control resources that are within the sea shoreline limits rather than lake shoreline limits. During conference in Baku in November 2010, the five Caspian nations failed to agree on the answer.

If it is decided that the Caspian Sea is a lake the area in the middle would be treated as an international sea bed and all five countries must agree on how the resources will be exploited, sold and transported and how the profits will be divided up. Under the International Convention on the Law of the Sea, the Caspian Sea fits most of the criteria to be considered a sea but under the 1921 Treaty of Friendship between the Soviet Union and Iran, the Caspian Sea was treated like a lake with most of its resources—at that time mostly fish and caviar—shared between the two nations. Russia has suggested dividing the sea bed while allowing the waters above to be used by all, which sound good in principal but would allow a country to keep resources in its sector but doesn’t address the issue of how the resources would be transported.

Disputes have broken out as to how the oil wealth should be distributed. Iran wants it be split equally among the five countries bordering the Caspian Sea so that everyone gets 20 percent. Iran currently gets 12 percent. Much of the territory it claims is in Azerbaijan waters. In 2000, an Iranian gunboat drove off BP geologists working for Azerbaijan in an unarmed ship in waters claimed by both Azerbaijan and Iran. Turkmenistan has accused Azerbaijan of looking for oil in its waters. While attempting to negotiate a solution, the black market sales and poaching is rapidly depleting resources.

History of Caspian Sea Oil Development in Kazakhstan

Martha M. Hamilton wrote in the Washington Post: “here's a strong allure to the region where Marco Polo reported oil springs as early as the 13th century, a region that attracted the Nobel brothers, Standard Oil and the Rothschilds in the 1800s. Scoggins likened oil rush in Kazakhstan in the 1990s to "the oil business in the Middle East back in the 1930s and 1940s," which also involved big risks and heavy investment. [Source: Martha M. Hamilton, Washington Post, April 26, 1998 ^-^]

“The boom started in a small way in the late 1980s when Chevron Corp. began exploring deals with the Soviet Union. Chevron looked at possible ventures in Siberia and at active fields in what is now Kazakhstan, said Nick Zana, managing director of Chevron's Eurasia Strategic Business Unit. Once the Soviet Union broke up, Chevron and Kazakh Oil Co. began running operations in the Tengiz field there on a 50-50 basis. Mobil has since acquired a 25 percent interest in Tengiz from Kazakh Oil and is also investing in Turkmenistan. The other large operation in the Caspian area is the Azerbaijan International Operating Co. (AIOC) -- a consortium of the State Oil Co. of Azerbaijan and international oil companies including British Petroleum PLC, Amoco Corp., Unocal Corp., Exxon Corp. and Pennzoil Co. -- which signed an $8 billion, 30-year contract in 1994 to develop three fields there. ^-^

Kazakhstan's oil reserves were estimated in the mid-1990s to have as much as 2,100 million tons, most of it relatively new fields that had not yet been exploited. In addition, new offshore discoveries in the north Caspian more than replaced the annual drawdown of known reserves in the early 1990s. In 1993 Chevron Oil made an initial investment in a joint venture, Tengizchevroil, to exploit the Tengiz oil fields at the northern end of the Caspian Sea in what was envisioned as the leading project among foreign oil investments. Recoverable reserves at Tengiz were estimated at 25 billion barrels, or about twice the amount in the Alaskan North Slope, although Tengiz oil is extremely high in sulfur. The French firm Elf-Aquitaine leased about 19,000 square kilometers of land in the Emba region northeast of the Caspian, where there are known to be large quantities of sulfur-free oil and natural gas. Other oil deposits, with paraffin, asphalt, or tar (all harder to process), were found in the Caspian Sea near Novyy Uzen and Buzachiy.[Source: Library of Congress, March 1996 *]

“In 1995, Chevron, having spent nearly $700 million to develop operations at Tengiz and bring once-hazardous facilities up to U.S. standards, found it was producing more oil than it could get to market, Zana said. One of the problems was that Russia was allowing less oil from the field to be shipped through its pipelines than Chevron had expected. ^-^

“Chevron brought in a marketing team that came up with alternative ways to export oil, including barter deals, barge shipments, and rail shipments that at one point used 30 percent to 40 percent of the region's total rail cars, Zana said. "Marketing was really the wrong term" to describe the team, he said. "Once we got it to the markets, buyers were plentiful. The challenge was transportation."” ^-^

Developing a Strategy to Get the Oil Out of Kazakhstan

Te key to effectively developing Kazakhstan’s oil and natural gas lay in building new pipelines, both to link existing shorter pipelines and to carry oil and gas to additional markets. Chevron and other oil companies created the Caspian Pipeline Consortium to work on that issue. [Source: Martha M. Hamilton, Washington Post, April 26, 1998 ^-^]

Martha M. Hamilton wrote in the Washington Post: The Clinton administration :backed an east-west export route from Baku, Azerbaijan, to the Mediterranean port of Ceyhan, Turkey, particularly as an alternative to north-south routes that would traverse Iran. Other proposed routes would take oil to Russia's Black Sea and through the Bosporus. In October, the AIOC is scheduled to make its decision on what should be the principal export route for Caspian oil. "We strongly support the development of energy resources in the Caspian area because we think it would add significantly to the world supply of oil and gas," said Energy Secretary Federico Pena. "We do not want to become overly dependent on any one region of the world for our imports of oil, which are now at 50 percent," he said. ^-^

“Pena said the administration favors the idea of multiple pipelines — but continues to oppose moving oil through Iran. The opposition is based both on Iran's support of terrorism and development of weapons of mass destruction and on a fear that a pipeline could give leverage to the Iranian government. "We want to deter Iran from becoming an energy gatekeeper in a region that is vital to our energy security," Pen~a said in a speech last week. U.S. oil companies may not be eager to make the large investments that would be needed to build a pipeline, said oil industry analyst Julia Nanay of the Petroleum Finance Corp. The administration's support for a pipeline that would go to Turkey isn't necessarily the best way to meet the commercial goals of U.S. companies, she said. ^-^

“Mobil became the first U.S. oil company to pursue a cheaper way to export oil from the region, asking the Clinton administration for a license to use a process called "swaps" through Iran to get oil to market. Swaps would allow U.S. companies to barge oil to nearby refineries in northern Iran and to pick up equivalent amounts of oil in the south of Iran to sell in world markets. Before the company filed its application, Mobil's chairman and chief executive, Lucio A. Noto, had urged that "the U.S. should send some positive signals of its own back to Iran." U.S. companies are barred from trade and investment in Iran by a 1995 executive order, but the order specifically permits an exception for the licensing of "market-based swaps of crude oil from the Caspian Sea area for Iranian crude oil in support of energy projects in Azerbaijan, Turkmenistan and Kazakhstan."” ^-^

Oil Production in Kazakhstan

Kazakhstan's two largest projects, Tengiz and Karachaganak, accounted for around half of the country's 1.70 million barrels a day total petroleum liquids production in 2014. About half of Kazakhstan’s oil is feed into its three large refineries. The other half is exported. [Source: U.S. Energy Information Administration (EIA) <>]

In the 1970s, several large discoveries were made in presalt reservoirs including Karachaganak and Tengiz. However, the development of these fields was not possible at the time because of the technical challenges of developing the deep, high-pressure reservoirs. Since international oil companies began to participate in Kazakhstan's petroleum sector and as presalt deposits became technically and commercially viable, these fields have become the foundation of the country's petroleum liquids production. <>

Although it is the second-largest liquid fuels producer among Former Soviet Union republics, Kazakhstan's future as a producer of petroleum liquids depends on the development and expansion of its three largest projects: Karachaganak, Kashagan, and Tengiz. Kazakhstan's two largest projects, Tengiz and Karachaganak, accounted for 48 percent of the country's production in the first nine months of 2014, according to data published by Energy Intelligence. A third large project, Kashagan, is due to start production in 2016 or 2017, with the combined output of all three projects likely to account for more than half of Kazakhstan's total production going forward. Additionally, both Tengiz and Karachaganak consortia have discussed expansion plans that could result in increased production from these two fields within the next few years. <>

The Tengiz partners were due to make a final investment decision by the end of 2014 on the Future Growth Project, but by early January, no decision had been announced. The Karachagank Expansion Project is at a less-advanced stage of planning. Both expansion projects will focus on increasing handling and reinjection of natural gas to increase production and ultimate recovery levels of petroleum liquids. However, continued negotiations with the government on terms and lower global crude oil prices could delay decisions on these projects. <>

The Kashagan field, the largest known oil field outside the Middle East and the fifth largest in the world in terms of reserves, is located off the northern shore of the Caspian Sea near the city of Atyrau, Kazakhstan. Kashagan's recoverable reserves are estimated at 7 to 13 billion barrels of crude oil.6 On September 11, 2013, production from the super-giant field commenced, eight years after the original scheduled startup date. In October 2013, just a few weeks after production began, production had to be halted because of leaks in the pipeline that transports natural gas from the field to shore. Production is not expected to resume until the second half of 2016 at the earliest. <>

Much of the repeated delays at Kashagan were the result of the field's adverse operating environment and complexity, resulting in significant cost overruns. The Kashagan reservoir is located more than 13,000 feet below the seabed and is under very high pressure (770 pounds per square inch). The reservoir contains high levels of hydrogen sulfide. Hydrogen sulfide is both highly toxic and highly corrosive and has been blamed for the pipeline leaks. In addition, conventional drilling and production technologies such as fixed or floating platforms cannot be used because of the shallow water and cold climate. Instead, offshore facilities are installed on artificial islands (drilling and hub islands) that house drilling and processing equipment. The processing facilities separate recovered liquid from the gas, then reinject a portion of the gas, sending the liquids and the remainder of the gas to shore for further processing. Before production can restart, these pipelines connecting the field with the onshore processing facilities will have to be replaced using higher grade materials that are more resistant to corrosion. <>

Oil Production in Kazakhstan in the 1990s and Early 2000s

Oil production in the early 2000s was 1.2 million barrels a day. Production increased from around 300,000 barrels a day in 1994 to 800,000 barrels a day in 2001. Kazakhstan hoped to increase production to 2 million barrels a day by 2015, with the aim of being be one of the world’s top 10 producers. Kazakhstan produced 47 million tons of oil in 2002, 52 million tons in 2003, 56 million tons in 2004 and 61 million tons in 2005. Kazakhstan earned $5 billion from oil sales in 2000. Large amounts of oil were refined in Russia's refineries.

Oil production, which increased by an average of 3 percent per year through 1991, reached a peak production of 26.6 million tons that year before output began to decline in 1992. The most productive region in the early 1990s was the Mangyshlak Peninsula on the east shore of the Caspian Sea. In the early 1990s, Mangyshlak yielded more than 50 percent of the republic's oil output before experiencing a decline of 11 percent in 1992. Kazakhstan also is known to be rich in deposits of heavy oil, which currently are not commercially viable but which are potentially valuable. [Source: Library of Congress, March 1996 *]

The republic planned to increase its oil exports from the 7.8 million tons of 1992 (15 percent of total exports) to as much as 37 million tons in 1996 (50 percent of total exports), for which anticipated revenue was about US$2.9 billion. By 1993, however, domestic and CIS industry conditions made such goals unrealistic. The most important obstacles to increased oil production and export involve Russia. In 1994 Russian refineries in western Siberia, upon which Kazakhstan's oil industry continues to rely heavily for processing, cut their operations drastically because paying customers could not be found; this cut resulted in the plants' lower demand for crude oil from Kazakhstani suppliers. Thus, in the first nine months of 1994, Kazakhstan's oil sales fell to 4.5 million tons from 8 million tons in the same period of 1993, and production for the year fell 11.7 percent. Because of the oil-exchange agreement with Russia, the cutback in Russian refinery production also reduced domestic refinery production nearly 25 percent in 1994. *

The second obstacle to greater production and export of oil is pipeline access through Russia to Western customers, which Russia has curtailed because of capacity limits and political maneuvering. The lack of pipeline facilities caused Chevron to announce substantial capital investment cutbacks in the Tengiz oil fields for 1995. In the mid-1990s, the pipeline that connects Kazakhstani oil fields with the Russian Black Sea port Novorossiysk provided the sole access to the oil of the Tengiz fields for Chevron and its Western customers (see Transportation and Telecommunications, this ch.). The uncertainties of relying on the existing Russian line or on a second line passing through the war-torn Caucasus region led to discussions of new pipeline projects passing through Iran or even eastward across China to the Pacific Ocean. In September 1995, a new agreement with Turkey laid plans for pipelines crossing Georgia to ports in Georgia and Turkey, providing a new outlet possibility for Kazakhstan's Tengiz oil. Also, in October 1995 Kazakhstan joined in a new consortium with Russian and United States companies to build a pipeline to the Black Sea. Chevron and Mobil Oil of the United States, British Gas, Agip of Italy, and Russia's LUKoil enterprise were to fund the entire pipeline project in return for a 50 percent share in the pipeline. The governments of Kazakhstan and Russia were to receive the other 50 percent. However, pipeline construction was delayed amid further international negotiation over alternative routes. *

In the first quarter of 1995, major accidents and power shortages at drilling sites reduced production by about 10 percent compared with output in the first quarter of 1994. Refinery output in that period was even lower; only about half the first quarter's oil was refined, and the Pavlodar refinery closed entirely because it received no crude oil from Russia. *

Kazakhstan Oil Exports and Export Grades

Kazakhstan is an exporter of light, sweet crude oil. In 2013, Kazakhstan exported nearly 1.4 million barrels a day of crude oil and condensate, according to the Global Trade Information Service.7 More than three-quarters of Kazakhstan's crude exports travel around or across the Caspian Sea headed to European markets. An additional 16 percent of Kazakhstan's crude exports head east via a pipeline to China. Kazakhstan's exports will likely increase in the coming years, as production begins at Kashagan and expands at Tengiz and Karachaganak. However, the rapid growth of oil production and exports will require an expansion of export capacity. [Source: U.S. Energy Information Administration (EIA) <>]

Kazakhstan currently has four main export oil grades: the CPC Blend, Tengiz, Karachaganak condensate, and Kumkol. With the start of production at the Kashagan field, the Kashagan grade will become part of the export mix. CPC Blend is a very light (45.3̊ API), sweet crude (0.56 percent sulfur), and it is valued for its high yield of gasoline and light distillates. Tengiz grade accounts for about 45 percent of the CPC blend. Other components include some Russian grades such as Siberian Light, as well as Kumkol and Karachaganak condensate, along with a variety of other Russian and Kazakh grades. <>

Tengiz grade is a blend of crudes from the Tengiz and Korolev fields, and, with an API gravity of 46.42̊ and 0.51 percent sulfur content, it is very similar in quality to Saudi Arabia's Arab Light. Tengiz has been available as a distinct grade since 2007, when the production at Tengiz field expanded beyond the capabilities of the CPC pipeline. Most Tengiz grade crude travels via rail car, at least for the first leg of its journey. <>

Karachaganak condensate, originating from the Karachaganak natural gas and condensate field near the Russian border, is mainly exported as part of the CPC Blend. Remaining quantities are exported via the Uzen-Atyrau-Samara pipeline, or sold as condensate in local markets in Kazakhstan and Russia. Karachaganak liquids range from 36̊ to 44̊ API and are very sour with a sulfur content of 0.9 percent. <>

Kumkol grade (41.2̊ API, 0.11 percent sulfur) originates from a variety of fields in central Kazakhstan. This grade is a waxy crude prized by many European refiners. It is exported both as a blend (through the Kazakhstan-China pipeline) and as a distinct grade (via the Black Sea port of Batumi in Georgia), although much of it is refined domestically, providing oil products to southern Kazakhstan. <>

Oil Refining and Downstream in Kazakhstan

Kazakhstan had crude oil distillation capacity of 345,093 barrels a day , as of January 1, 2014, according to OGJ. There are three oil refineries in Kazakhstan: Pavlodar, Atyrau, and Shymkent. The Pavlodar refinery is in north-central Kazakhstan and is supplied mainly by a crude oil pipeline from western Siberia, because Russian supplies are well-placed geographically to serve that refinery. The Atyrau refinery uses only domestic crude from northwest Kazakhstan, and the Shymkent refinery currently uses crude from the oil fields at Kumkol and the nearby area in central Kazakhstan. [Source: U.S. Energy Information Administration (EIA) <>]

In 2013, the three refineries met approximately 70 percent of Kazakhstan's gasoline and diesel demand, with most of the remaining demand met by imports from Russia. Upgrading projects were underway in 2014 at all three refineries. The upgrades will allow the three plants to produce fewer heavy products and more high-quality transportation fuels. In October 2014, the government of Kazakhstan officially backed a plan to expand the Shymkent refinery instead of building a fourth refinery in the country. With these upgrades and expansions, Kazakhstan aims to meet all domestic demand for gasoline and diesel production by 2017.

Kazakhstan's oil refineries and capacities: 1) Pavlodar: 163,000 barrels a day; 2) Atyrau: 104,000 barrels a day; Shymkent: 78,000 barrels a day. Total: 345,000 barrels a day [Source: Oil & Gas Journal, January 1, 2014]

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Text Sources: New York Times, Washington Post, Los Angeles Times, Times of London, Lonely Planet Guides, Library of Congress, U.S. government, Compton’s Encyclopedia, The Guardian, National Geographic, Smithsonian magazine, The New Yorker, Time, Newsweek, Reuters, AP, AFP, Wall Street Journal, The Atlantic Monthly, The Economist, Foreign Policy, Wikipedia, BBC, CNN, and various books, websites and other publications.

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© 2008 Jeffrey Hays

Last updated April 2016

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