Kazakhstan does not want to reduce oil production

New Europe
Kazakhstan does not want to reduce oil production

Energy Minister says Kashagan would produce some 200,000 bpd in H2 2018, and then possibly 300,000 bpd by year-end. “Today, our daily production rate is 1.8 million barrels…we are not going to lower it. The average daily rate will stay the same until the end of the year,” Kazakhstan’s Minister of Energy Kanat Bozumbaev said on June 26, speaking on the sidelines of Government House after a weekly regular government meeting, New Europe writes in the article Kazakhstan faces oil production concerns. Kazakhstan currently produces 1.8 million barrels of oil per day and does not plan to reduce its production in spite of its obligations to the Organization of Petroleum Exporting Countries  .

According to Bozumbaev, Kazakhstan sees no need to cut its oil production as it can keep its current production rate within the framework of its OPEC deal. Bozumbaev explained that Astana’s initial obligation to OPEC was 20,000 barrels less than in November 2016 level, which would be 1.6 million barrels per day.

The International Energy Agency (IEA) stated in its April report that Kazakhstan had broken its obligation to reduce oil production by 20,000 barrels a day and have instead increased its daily production by almost 80,000 barrels since October 2017.

According to the latest IEA data, Kazakhstan increased its oil and condensate production over January-February by 40,000 million barrels per day, reaching 1.7 million barrels. Today, as stated above, the daily rate has reached 1.8 million barrels per day.

“When we were signing the Agreement, we put caveats that the limitations should not adversely affect the interests of the long-term investors in Kazakhstan, which meant Kashagan” – the minister said, referring to Kazakhstan’s major oil and gas field in the north of the Caspian Sea. The main reason that the former Soviet republic found itself in a breach of its obligation and cannot reduce its future oil production volumes is the growing production at Kashagan. At just 20,000 barrels per day, the requirement is not sufficient.

Because of two pipeline breakages, the Kashagan field development project remained idle from September 2013 until autumn 2017. The field is currently producing 140,000 to 150,000 barrels a day, according to Bozumbaev’s data. The IEA, however, has slightly different information about the production volumes at Kashagan. According to the agency’s experts, the giant field reached a production level of 170,000 barrels per day in April. The agency also expects production to grow to 180,000 barrels per day by mid-year and reach 360,000 barrels per day in 2018.

“We think that Kashagan would produce some 200,000 barrels per day in the second half of the year, and then possibly 300,000 barrels per day by the end of the year, and we are going to discuss this with our colleagues,” Bozumbaev said. He also mentioned that the Kashagan field is being developed under a Production Sharing Agreement. Kazakhstan, which is represented by KazMunaiGas, and foreign shareholders have invested huge amounts of money in the filed. “To create obstacles for the production of oil would be legally wrong and practically impossible,” the Kazakh minister said.

Apart from KazMunaiGas, the shareholders of the Kashagan field development project include Italy’s ENI, US major ExxonMobil, Royal Dutch Shell, France’s Total, Japan’s Inpex, and China National Petroleum Corporation. Bozumbaev also told the media that Kazakhstan’s partners – Russia and Saudi Arabia – were sympathetic to the fact that the start of Kashagan coincided with the introduction of limitations on oil production in November 2016.

All OPEC experts are aware that Kazakhstan’s influence on the oil price is not that critical for two reasons. About 95% of the oil production reduction agreement signatories meet their commitments and Astana is not a serious supplier in the oil market. “Very important players in the oil market – Saudi Arabia and Russia – who produce over 11 million barrels a day have joined the agreement. In comparison, Kazakhstan produces 1.7 to 1.8 million bpd,” said Bozumbaev.