Kazakhstan Sticks To (non)Participation In World Crude Output Restraint

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Oil-dependent Kazakhstan finds itself in a dilemma. Hooked as it is on hydrocarbon exports, it needs crude prices to kick on upwards as it attempts to recover from the severe economic battering it has taken in recent years as a consequence of oil’s plunge on world markets. At the same time, the country is under pressure to make all the investments into the giant offshore Kashagan field, which has had its fair share of delays and disasters, pay off.

It is thus unsurprising to see the Kazakh energy ministry release a two-sided statement when it comes to its (non)participation in the non-OPEC voluntary oil cut.

“Kazakhstan is planning to continue adhering to its obligations under the existing quota on production reduction at the level of 20,000 barrels per day. At the same time it is possible to revise the details of the obligations taking into consideration the situation on the global oil market,” the ministry said on May 26, the day after an OPEC-organised meeting of the world’s oil producers in Vienna.

At the gathering of the OPEC producer group, Russia and other non-members agreed to extend last December’s oil production cut by nine months, having digested how the landmark agreement had failed to get rid of global oil oversupply or deliver a sustained price recovery.

The extent of the cut mentioned in the Kazakh statement refers to Kazakhstan’s previous agreement to freeze its production rate at 20,000 b/d below last November’s level of 1.7mn b/d, as the country’s contribution to non-OPEC producers’ overall cut of 558,000 b/d. But as things turned out, Kazakh production levels actually climbed to 1.75mn b/d in March.

In 2016 as a whole, crude oil production in Kazakhstan fell by 1.4% y/y to 65.5mn tonnes, while gas condensate production amounted to 12.4mn tonnes, resulting in a total of 78mn tonnes. The total was pushed up by an additional 1mn tonnes of production following the October relaunch of Kashagan. In mid-November, meanwhile, the Kazakh energy ministry was ambitiously talking of driving output up to 80mn tonnes in 2017.

Not too rude a violation

The US Energy Information Administration (EIA) reflected Kazakhstan’s aims in its latest 2017 forecast for Kazakhstan, which featured the country’s expected production for the year as 1.9mn b/d. So what is going on here? It appears obvious that Kazakhstan has no intention of reining in its output in the near vicinity of time.

Astana, it seems, is playing a delicate game of oil politics. Other countries know just how dependent it is on crude exports and would rather tolerate relatively small violations of their commitments by the Kazakhs than see Kazakhstan abandon restraint all together. While the violations are real – even blatant – Kazakhstan is not straying too far from what fellow producers wish to see.

While pushing on with plans to raise Kashagan’s output to 4m-7mn tonnes in 2017, officials have also initiated a “drop in production in the Aktyubinsk and Kyzylorda regions… [and] have postponed the second half of a planned increase in production at the fields in West Kazakhstan Region,” Sergey Smirnov, an independent oil expert based in Astana told bne IntelliNews.

The output cut achieved at other fields fails to completely offset Kashagan’s added production, but it has, nonetheless, minimised Astana’s violation of its commitments to other producers.

Countering Kashagan

It is no secret that 20,000 bpd is a meagre amount to agree when compared to, for instance, Russia’s 300,000 bpd cut. Yet any hopes of even getting close to hitting that target will be obliterated if Kashagan’s production gets into full swing and further cuts are not made at other Kazakh fields. Kashagan is expected to lift its output to 180,000 bpd by mid-2017, compared to 170,000 bpd in March, with the ultimate goal of reaching 360,000 bpd by 2018, according to the EIA.

As things stand, Smirnov maintains that despite production creeping up, Kazakhstan’s hydrocarbon exports at “about 60mn tonnes per year, do not affect world oil quotes”.

Indeed, Kazakh officials, while at the end of March outlining how difficult it would be for Kazakhstan to slow down oil flows from fields of secondary importance, have even referred to the country’s participation in the joint OPEC/non-OPEC deal as “symbolic”. Let’s see just far they dare to stretch “symbolic”.

By Kanat Shaku

This article was originally published on bne IntelliNews. Read the original article.

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