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WEEKLY NEWSLETTER
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Kazakstan
Index
Kazakstan is well endowed with energy resources, including abundant
reserves of coal, oil, and natural gas, which made the republic one of the
top energy-producing regions of the Soviet Union. In 1993 Kazakstan was
the second largest oil producer, third largest coal producer, and sixth
largest natural gas producer among the former Soviet republics. Industry
in Kazakstan is dominated by the energy sector; in 1994 electric power
generation accounted for 19 percent of GDP, and fuel extraction and
processing accounted for nearly 23 percent. Thus, the national economy is
strongly affected by changes in levels of fuel extraction and energy
production (see fig. 6).
Oil
Kazakstan's oil reserves have been estimated at as much as 2,100
million tons, most of which is in relatively new fields that have 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 are 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 has 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), have been found in the
Caspian Sea near Novyy Uzen and Buzachiy.
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.
Kazakstan also is known to be rich in deposits of heavy oil, which
currently are not commercially viable but which are potentially valuable.
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 Kazakstan'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 Kazakstani suppliers. Thus, in the
first nine months of 1994, Kazakstan'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 Kazakstani 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 Kazakstan's Tengiz oil. Also, in October 1995 Kazakstan
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 Kazakstan 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.
Natural Gas
Kazakstan has enormous reserves of natural gas, most notably the giant
Karachaganak field in the northwest near the Russian border, under
codevelopment by a consortium of Agip of Italy, British Gas, and the
Russian Natural Gas Company (Gazprom). In 1992 natural gas production was
8.5 million cubic meters, half of which came from Karachaganak. By 1994,
however, production was only 4.1 million cubic meters because Russian
consumption had dropped drastically in the early 1990s. A 1995 deal with
Gazprom gave that organization part ownership of Karachaganak in exchange
for a guaranteed purchase of natural gas from Kazakstan. Foreign
investment projects at Tengiz and Karachaganak were expected to triple
domestic gas output and enhance gas processing capabilities in the later
1990s. The usefulness of increased output depends on new pipeline
agreements--still in the formative stage in 1996--with Russia and other
countries in the region.
Coal
In 1994 coal production decreased 6.7 percent to 104.4 million tons,
after a production peak of 140 million tons was reached in 1991. About
thirty major coalfields exist, most of them within 400 kilometers of
Qaraghandy in north-central Kazakstan. This region offers some of the most
accessible and cheaply extracted coal in the CIS; however, most of
Kazakstan's coal is high in ash. The largest open-pit mines are located in
the Ekibastuz Basin northeast of Qaraghandy. According to estimates,
presently exploited mines contain 100 years of coal reserves at today's
rate of consumption. Coal is a key input for industry; in the early 1990s,
more than 75 percent of coal consumption in Kazakstan went to
thermoelectric stations for power generation, and another 14 percent went
to the steel industry. In the early 1990s, Kazakstan exported about 40
percent of its coal to CIS customers, mainly Russia.
The coal industry has been plagued by poor management and strikes that
shut down major underground operations at Qaraghandy and surface
operations at Ekibastuz in 1994 and 1995. The large metallurgical works of
Qaraghandy, built under the Soviet concept of the territorial-industrial
complex combining heavy industry with on-site fuel reserves, has been
forced to curtail production when strikes are called.
Current Fuel Supply and Consumption
Despite its fuel endowments, Kazakstan remains a net importer of
energy, partly because of falling production in the early 1990s and partly
because of remaining barter agreements from the Soviet era. Undeveloped
east-to-west transportation infrastructure has prevented efficient supply
of domestic fuels to industries, which are energy intensive. As a
consequence, Kazakstan still must import oil, natural gas, lubricating
oil, gasoline, and diesel fuel from Russia, which in the postindependence
years has taken advantage of its neighbor's vulnerability to economic
pressure. In the mid-1990s, the oil exchange system between Kazakstan and
Russia meant that declining demand in Russia reduced availability of those
Russian products to Kazakstan. In 1994 Russia sent only 40 percent of the
crude oil and 48 percent of the refined products prescribed in the
bilateral agreement for that year. Gas imports showed a similar drop.
The national electric power system is divided into three grids. The
northern grid, which serves a large part of heavy industry, is connected
to the adjacent Siberian grid in Russia, and the southern grid is
connected to the Central Asian System. Kazakstan depends on Russia for
electricity and fuel. Although the Siberian generating stations that
supply the northern grid are located in Russia, they are fired largely by
coal exported from Kazakstan. Some electric power also is received from
Kyrgyzstan's hydroelectric stations to the south in exchange for coal (see
Energy, ch. 2).
In 1991 Kazakstan consumed 101.6 billion kilowatt-hours of electricity
(84.7 percent of which was produced domestically), making it a relatively
heavy energy consumer among nations of its economic stature. About 85
percent of domestic generation occurs in coal-fired thermoelectric plants.
A few thermoelectric plants use natural gas or oil; the remaining 15
percent of energy comes from those plants and from hydroelectric stations.
The main sources of coal-generated electricity are the fields of
Ekibastuz, Maykubin, Torghay, and Borlin. There are three large
hydroelectric stations, at Bukhtarmin, Öskemen, and Kapchagay. The
republic's one nuclear power station is located near the city of Aqtau.
Data as of March 1996
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