Kazakhstan Announces Its Largest Oil Field Discovery Since Independence.
Mar 11, 2021
On February 25, Kazakhstan announced its largest hydrocarbon discovery since it gained independence 30 years ago. Located in Kazakhstan’s western Mangystau province, initial reports suggest the field may have considerable commercial potential. The Mangystau provincial government released a statement saying that Meridian Petroleum, a private sector Kazakhstani company, identified the new oil field when drilling an exploratory well in the area. The field has been named after Soviet-era oilman Khalel Uzbekgaliyev, who hailed from the Kazakh Soviet Socialist Republic. While preliminary reports appear promising for a country that derives significant state revenues from its oil and gas industry, including that the oil may be low sulfur and easier to process and ship than the high sulfur oil found in Kazakhstan’s Kashagan field in the Caspian, officials warned that observers should temper their expectations. They note that further analysis is needed to determine the full extent of the reserve.
Kazakhstan is a hydrocarbon-rich country. It is ranked as the ninth-largest crude oil producer in the world and the third largest in the Greater Caspian Region, behind Russia and Iran. About 62 percent of Kazakhstan’s landmass is located above oil and natural gas reserves and the country boasts 172 oilfields, of which more than 80 are currently producing. Oil has been crucial for Kazakhstan’s post-independence economic boom. In 2018, Kazakhstan produced 90.4 million tons of oil and gas condensate, worth an estimated $28.9 billion. Oil and natural gas accounted for 35 percent of Kazakhstan’s GDP and 75 percent of its exports in 2019. Kazakhstan managed to hit a 4.2 percent economic growth rate in 2019 as a result of its rapidly developing oil and gas industry.
While the discovery of the Khalel Uzbekgaliyev oil field may well be a boon to Kazakhstan’s economic future, there are reasons for caution.
In 2000, geologists discovered the offshore Kashagan oil field, the largest new deposit of oil to be discovered since the Prudhoe Bay field in Alaska in 1968. The U.S. government was eager at the time of the discovery to support the extraction of oil from the field as part of its efforts to boost global energy security and sought to link it to a pipeline transporting Azerbaijani crude oil to the Mediterranean Sea. However, the Clinton administration was unable to see the extraction of natural resources from the Kashagan oil field though because of disputes within the Kazakhstani government and disagreements among oil companies participating in the project. Kazakhstan did not produce crude oil from the Kashagan field until 2013 after multiple disputes with environmental activists, government leaders, and private oil companies. The decade-long delay to reap the benefits of the Kashagan oil field highlights the immense technical and bureaucratic hurdles that may confront development of this new field.
Kazakhstan’s high dependence on its oil and gas industry has been a mixed blessing. The country’s budget was hurt when oil prices drastically fell in the first months of the COVID-19 pandemic and as a result of a disagreement between Russia and Saudi Arabia. Forecasts in April 2020 were dire. Kazakhstan’s National Economy Minister Ruslan Dalenov estimated exports would drop $16.3 billion and GDP would contract $10.6 billion from their earlier forecast. Even though prices stabilized that spring, Kazakhstan’s economy was rocked by its exposure to soft demand for hydrocarbons in the face of ready global supplies.
In the future, Kazakhstan’s economic exposure could be compounded by the energy market’s gradual change from hydrocarbons to renewables as the world steps up its fight against climate change.
Even as the world takes needed steps to reduce fossil fuel use to combat climate change, experts agree there will be continued demand for oil in the coming years for transportation and other uses. Discovery of the Uzbekgaliyev in Kazakhstan is certainly good news, but it will take time before the necessary fieldwork and studies are completed that will indicate its full commercial potential and enable its subsequent development. Production is likely a number of years off.