The oil and gas industry is vital to Kazakhstan’s economy, accounting for 50% of total exports and 30% of tax revenues in 2022.
After a 6.8% increase in liquids production in 2023, rebounding from impact of the Russia-Ukraine conflict, real GDP growth is expected to slow by the end of 2024 due to scheduled maintenance at major assets — Tengiz and Kashagan — to align with OPEC quotas due to overproduction during the first half of the year. Furthermore, the OPEC volumes compensation plan, which extends to 2025, could hold back expansion projects in Kazakhstan. Consequently, total oil liquids output could reach 98.2 MMt (720 million barrels) by year-end, a 4.94% growth compared to 2023.
The most prominent crude export line in the country, the CPC pipeline, has a 72.5 MMt/y pumping capacity across Kazakhstan and transported 56.1 MMt of oil in 2023 to the offshore terminal near Novorossiysk, or 80.1% of the country’s total. The crude supplied to the line came from Kazakhstan’s Big 3 fields: Tengiz, Kashagan and Karachaganak.
Tengiz field
The Tengiz field, active since 1991, produced more than 30 MMt of crude oil in 2023. It is the largest producer in the country and the biggest supplier to the CPC pipeline.
In 2016, Tengizchevroil, or TCO, the project’s owner consortium and operator, announced an initial $36.8 billion for the Tengiz Future Growth Project and the Wellhead Pressure Management Project, to achieve over 39 MMt/y output by 2022.
However, the final launch of the WPMP did not occur until April, with the completion of the FGP expected by the second quarter of 2025. This was due to COVID-19 related issues that disrupted construction and affected supply chains, as well as the sheer complexity of the project, given the remote location of the facilities.
On the economic side, the project’s final cost could be around $47 billion, 27% higher than the original budget.
Impact of Tengiz FGP delays on Kazakhstan’s economy
Tengiz’s production plateau of 39.9 MMt/y, with 12 MMt from FGP, is now expected in 2027 instead of 2026, based on S&P Global Commodity Insights assessment on the impact of the FGP development’s delay that will shift the project’s startup from 2024 to 2025.
Consequently, Kazakhstan could produce around 7 MMt less crude oil between 2024 and 2026. If the FGP had started in 2024, crude production in the country would have grown by 7.7% year-on-year, surpassing the 6.8% growth between 2022 and 2023 .
Thus, the FGP delays will likely slow Kazakhstan’s real GDP growth in 2024.
Kashagan field: a potential solution
A possible solution from an economic perspective could be enhancing the production in Kashagan — the second-largest crude producer in the country and the second-largest supplier to the CPC pipeline.
Kashagan came online in 2016 and is operated by the North Caspian Operating Company, a consortium of international oil and gas companies, and Kazakhstan oil and gas company KazMunaiGaz. The field currently produces roughly 20 MMt of crude and has a planned Phase 2A expansion seeking to enhance production to over 22 MMt. In February, Qazaqgaz, a state-owned Kazakh gas company, and Qatar UCC holdings signed a contract for the construction of two gas processing plants for Kashagan — with 1 Bcm/y and 2.5 Bcm/y capacity — to be completed by 2026 and 2028-29, respectively. Furthermore, Sanzhar Zharkeshov, the CEO of QazaqGaz, said each additional 1 Bcm/y of gas processing capacity would increase Kashagan oil output by 1.17 MMt/y.
Analysts at Commodity Insights projects that if the gas processing plants announced by Qazaqgaz-UCC holdings are commissioned within the timeline established, Kashagan could produce an additional 10.6 MMt of crude oil between 2026-2030, consequently making up for the reduced output due to Tengiz FGP startup delays.
Qazaqgaz gas processing project and associated challenges
NCOC is undergoing disputes with the Kazakh government over the field’s overall development costs, whose arbitration resolution could cost the consortium over $150 billion. Currently, the company is involved in the construction of a 1 bcm/y Qazaqgaz gas processing plant for the field, but it confirmed is not related to the new Qazaqgaz plants and has not shown public support or approved any upstream investment for them.
ExxonMobil and KazMunaiGaz hold a combined 45% share in the Tengiz field, and due to the FGP startup delay, they could produce around 3.2 MMt less crude oil until 2026.
These companies, which also hold a 33.7% participation in the NCOC, could influence the consortium to ease negotiations with the Kazakh government regarding the disputes, amid of supporting Qazaqgaz plans. If successful, both companies could potentially recover an additional 3.6 MMt of crude oil from Kashagan until 2030.
If the gas processing plants proposed by Qazaqgaz and UCC Holdings receive NCOC approval, the volumes of sour gas needed for reinjection to enhance on-site oil production are likely to increase. However, injecting additional sour gas presents challenges, such as potential hydrogen sulfide, or H2S, leakage and pipe corrosion. Kashagan’s original startup in 2013 was delayed by three years due to H2S corrosion, necessitating the replacement of two offshore pipelines to the Bolashak processing plant, escalating development costs to over $50 billion.
If sour gas injection poses dangers, a solution could be to reinject part of the sweetened gas from Qazaqgaz processing plants. The company aims to increase processing capacity and the commercial gas resource base in the country by 3.5 Bcm by 2029. However, injecting sweetened gas could negatively impact the Kazakh domestic gas market, which is expected to face a deficit from 2025 to 2029.
Looking ahead
The oil and gas industry remains a cornerstone of Kazakhstan’s economy, significantly contributing to exports and tax revenues. However, delays in the Tengiz FGP highlight the economic impact of such setbacks.
The Kashagan field offers a viable solution if Qazaqgaz’s proposed gas processing plants receive approval and are completed on schedule.
Resolving disputes between the Kazakh government and NCOC is crucial for sustained economic growth. Proactively addressing technical, political and economic challenges is key to maintaining Kazakhstan’s position in the global oil and gas market.
