U.S. Investment and Kazakhstani Oil
Since Kazakhstan became independent, the country’s government has pursued a purposeful and consistent policy encouraging the participation of foreign capital in implementing joint economic projects. At the same time, the oil and gas sector in Kazakhstan, which is the world’s 14th country in terms of hydrocarbon deposits discovered, has become an attractive target for long-term investment by many major international companies – a perfectly sound judgement.
Experts at the U.S. Department of Energy estimate the possible Kazakhstani hydrocarbon resources, including those in the Caspian shelf, to be 8-18 billion tonnes, or 58-130 billion barrels in oil equivalent. U.S. specialists believe that the possible resources in the Kazakhstani section of the Caspian shelf alone could amount to between 5 and 12 billion tonnes, or from 36 to 88 billion barrels of oil equivalent.
However, Kazakhstani and foreign experts acknowledge that the country is unable to develop such vast energy resources on its own. The process of attracting foreign direct investment into the oil and gas sector of Kazakhstan has, in a way, taken on elements of competitiveness, with leadership being won chiefly by financial affluence, but also by advanced scientific and technical potential.
The active penetration of U.S. capital into Kazakhstan began in April 1993, when the government and Chevron, both holding equal shares, created the Tengizchevroil joint venture, with the aim of developing the Tengiz oil field. Today, the shares of the participating companies are distributed as follows: Chevron 50%, Mobil 25%, Kazakhoil 20%, and the Russian-U.S. LUKArco 5%. At present, Tengizchevroil is the largest company in Kazakhstan in terms of annual oil production and investment in the GNP of the country.
According to data from Kazakhstan’s Committee for Statistics, Tengizchevroil produced 9,586,649 tonnes of oil in 1999. The TCO administration estimates that, last year, the total economic profit to Kazakhstan from the activity of TCO, including allocations to the budget in taxes, royalties, transport tariffs paid, salaries to permanent staff, and distribution of profits among the founders, comprised $512 million.
TCO’s General Director, ?.Winterton, says that during the next several years the company will invest over $2 billion in production. Such a substantial investment will allow oil production to increase to 17 million tonnes in the next two years. It is planned to complete construction of the fifth processing train and increase oil production to 33.250 tonnes per day. Consequently, oil production at the Tengiz field should comprise around 10.4 million tonnes in 2000.
Some other major U.S. oil companies besides Chevron hold strong positions in Kazakhstan’s economic space: ExxonMobil, Oryx, Texaco and others. In fact, one or other of these companies participates in every single major joint project for exploration and surveying operations, or for production and shipment of Kazakhstani oil.
Experts from U.S. oil companies estimate the recoverable oil and condensate resources in Kazakhstan to be around 2.8 billion tonnes or 20.52 billion barrels of oil, and 1.84 trillion cubic metres or 165.1 trillion cubic feet of gas. In the U.S.A., for instance, the corresponding figures come to 3.7 billion tonnes or 29.8 billion barrels of oil, and 4.68 trillion cubic metres or 165.1 trillion cubic feet of gas respectively.
Major U.S. oil companies have, therefore, wide scope for long-term activities in Kazakhstan.
According to estimates by experts at Kazakhstan’s Investment Agency, direct U.S. investment in the oil and gas sector of the country totaled over $1.9 billion or 70% of the total foreign investment in Kazakhstani oil and gas projects, as of the beginning of 1999.
The total oil deposits in the Kazakhstani fields operated by U.S. companies comprise over 1.5 billion tonnes, according to data from Kazakhoil. The oil deposits are sufficient for hydrocarbon production in the transferred fields to increase to 70 million tonnes of oil per year or 1.4 million barrels per day.
U.S. Department of Energy experts project that, after the Caspian shelf fields come into operation, oil production may be increased to 170 million tonnes of oil per year or 3.4 million barrels per day.
Today, major U.S. companies are taking part in the following major projects in Kazakhstan:
• Tengizchevroil JV with Chevron and Mobil participating (Chevron – 45%, Mobil – 25%, LUKArco – 5%, Kazakhoil – 25%);
• the Kazakhstancaspiyshelf international consortium with Mobil and Phillips Petroleum Co. participating (under the provisions of the Agreement on Production Sharing Agreement from the Caspian Shelf Project, the total profits to the partners will come to around $600 billion over 40 years of operation);
• developing the Karachaganak field (Texaco – 20%). The total profits from developing this oil and condensed gas field are estimated at $35 billion;
• the Arman joint venture for developing the oil fields in Mangistau region, with Oryx participating (50%). Oil production in 1998 comprised 247,857 tonnes;
• joint development of the Myortvy Kultuk field, with Oryx and Exxon participating;
• the Tulpar-Munay Ltd. joint venture for developing and producing hydrocarbons in the fields in Aktobe and West Kazakhstan regions, with Mobil participating;
• developing the North Buzachi field, with Texaco participating (65%);
• the Caspian Pipeline Consortium (Chevron – 15%, Mobil – 7.5%, Oryx – 1.75%, and LUKArco – 12.5%);
• FIOC is the owner and operator of a 97.5% share in the Sazankurak oil field and holds a 51.83% interest in the joint company Condensate Holdings LLP created to develop the Chinarevsk oil and condensed gas field. FIOC also has a 22.5% share in Central Asia Oil, a joint company carrying out oil exploration in the Caspian.
Whilst actively participating in the development of Kazakhstani energy resources, U.S. oil companies emphasise that the capacity of the existing export oil pipelines is insufficient. At present, Kazakhstani oil is delivered to world markets through Russian pipeline systems and so-called ‘temporary transportation routes’ using sea and rail shipment. According to estimates by Kazakhstani experts, at least 50% of the total oil exported takes the ‘temporary routes’.
A confident and long-term presence of U.S. capital in joint economic projects in Kazakhstan is strongly supported by official Washington: the Caspian was included in the zone of U.S. national interests in June 1997.
In February 1999, the Special Assistant to the US President, Head of the Russia, Ukraine, and Eurasian Affairs Office at the U.S. National Security Council, William Cortney, who will be better known to Kazakhstani readers as the first U.S. Ambassador to Kazakhstan, stated, during an official speech in J.Hopkins University, that the U.S.A. resolutely supports private investment in the energy resources of the Caspian, and the U.S. role was to improve conditions giving a wider choice for investors and newly independent states, thus confirming the basic aspects of U.S. foreign policy in Kazakhstan.
In the course of the past year, U.S. geopolitical interests in the Caspian, as a whole, and in Kazakhstan in particular, were implemented in very precisely defined directions.
U.S. experts believe that efficient co-operation among the CIS countries on one hand, and foreign investors, primarily U.S. ones, on the other, will be crucial in overcoming obstacles in the path of a rapid advance of Caspian oil resources into the world market. The key to developing the region on a basis of selling oil will be the construction of major export flow and internationally recognised pipelines.
The U.S.A. welcomes the arrival of Kazakhstani energy resources in world markets. The ‘oil dollars’ flowing into the Kazakhstani economy, forming a stabilising factor, have created great opportunities for U.S. and other foreign companies to participate in developing the investment environment in Kazakhstan.
In order to provide for exporting Kazakhstani oil abroad, options for constructing alternative oil pipelines are being studied with the direct assistance of U.S. experts (see Table):
The U.S.A. is, therefore, actively implementing financial programmes for reconstructing the oil and gas sectors of Azerbaijan and Georgia, as well as offering plans for constructing and modernising pipeline systems on the Baku-Supsa and Baku-Jeyhan routes. Commissioning the Baku-Supsa oil pipeline in April 1999 and signing the Istanbul Declaration on Implementation of the Baku-Tbilisi-Jeyhan MEP Project (construction of which will cost at least $2.4 billion) is clear confirmation of this.
Official Washington DC supports development of the Caspian oil fields on the principle of dividing the sea bottom into national sectors, and appeals to all the Caspian states to adhere to this principle when settling disputes. This is the most economically sound approach for U.S. foreign policy.
U.S. experts believe firstly, that the active development of Caspian oil resources using foreign capital facilitates the progress of a new world oil-producing centre; secondly, it prevents an excessive strengthening of the role of the Persian gulf countries and, thirdly, partially neutralises the policies of Russia, China and Iran in the Caspian region.
Table of contents
The place and role of Eurasia in the Third Millennium Nursultan A. Nazarbayev
The attraction of investment into the country is a well thought-through choice of economic development of Kazakhstan Kasymzhomart Tokaev
Chairman of the Agency of the Republic of Kazakhstan on Investment, answers questions of our magazine Dulat Kuanyshev
Domestic policies and institutional reforms are key to sustained recovery in the Eurasia Region Johannes F. Linn
Economic Outlook for the Central Asian and Caucasus Region John Odliing-Smee
Preventing and rooting out corruption: factor determining a proper framework of private sector development Johannes F. Linn
Reforms and developments in Kazakhstan’s power sector Oraz Jandosov
NOVA ZINC DRIVES TO SUCCESS Mukhit Zhanasov
Kazakhstan’s Securities Market in 2000: Opportunities and Expectations Aidan Karibzhanov
It is necessary to study potential investment markets and make practical steps toward investors Banu Babaeva
New Labour Law Abylkhair Nakipov, Akhmetzhan Abdullayev