Kazakhstan has lived a tough year since oil prices started falling in the summer of 2014. Now it seems to be getting worse, or at least these are the signs emerging from government and private sector forecasts.
On September 23, the Ministry of Energy said oil production would miss the target of 80.5 million tons in 2015. This marks the second consecutive year of decreases in oil output in Kazakhstan, as last year output fell slightly to 80.8 million tons.
On October 1, the independent PRIX index forecast a fall in oil exports for Kazakhstan in the fourth quarter of 2015, highlighting the impact that low oil prices are having on the Kazakhstani oil sector. The data on Kazakhstan published in the PRIX index for Q4 2015 marks a stark change after a positive forecast in the Q3 2015 report published in June 2015.Enjoying this article? Click here to subscribe for full access. Just $5 a month.
The PRIX index collects forecasts on the 20 major oil exporting countries from around 300 analysts. Selected analysts participate anonymously to construct an index that looks into the short term dynamics of the most important players in the oil market.
Among post-Soviet countries, Azerbaijan and Russia appear alongside Kazakhstan, albeit with different perspectives: oil exports in Azerbaijan are predicted to be down, whereas, despite sanctions, Russia’s oil exports are expected to increase.
John Friedman, analytical advisor at PRIX, said that “everybody is waiting to see who will blink first in the oil price war,” noting how “all the producers are feeling the pain of lower oil prices, but nobody wants to give in.” In this light, the index shows that “we’re still in a bear market for oil,” according to Friedman.
Importers in Asia will enjoy this period because oil is likely to remain cheap and production from the largest exporting countries will remain steady (or decline just slightly, as in the case of Kazakhstan). China and India could be the winners in the short term.
However, according to Indra Overland, a project director at PRIX, “If oil remains abundant and cheap in the longer term, it could undermine Asian attempts to promote renewable and other energy sources, especially in the transport sector.”
It is important to note that the PRIX index also highlights the degree of agreement among surveyed experts. In the past forecasts, disagreement among Kazakhstan analysts has increased significantly, something that can be read as unpredictability, according to the index. In fact, Kazakhstan, together with Azerbaijan, can be seen as the least predictable market for the panel of PRIX experts.
Delays in the start of the giant Kashagan oil field and the possible shelving of the Tengizchevroil expansion project in western Kazakhstan are the two factors driving down production, which has also been affected by the depletion of older oil fields. Low oil prices, though, make it uneconomical to exploit expensive projects and there are few signs that this vicious circle can be broken.
Astana is hosting the annual KAZENERGY Forum this week. The tone of the meeting has been quite gloomy as the Ministry of Energy has published data that is far from promising. Notably, China has featured prominently in this edition of KAZENERGY. The supply contract through the Kazakhstan-China oil pipeline might represent a life saver for Kazakhstan in the nearest future.
Oil companies in Kazakhstan have benefited from the ailing tenge currency, which has retreated around 40 percent against the dollar this year. But these short term effects are likely to be balanced negatively by the reduction in the value of assets and rising personnel costs. As recently as 2013, KAZENERGY was a meeting of smiling executives ready to reap the benefits from Kashagan’s start — but that optimism now seems like it was decades ago.
Paolo Sorbello is the Business News Editor at The Conway Bulletin.