Liquefied Gas of Kazakhstan: Prices and Prospects
Prices are set free
From January 1, 2018, by order of the Minister of Energy of Kazakhstan maximum wholesale price for liquefied petroleum gas (LPG) increased domestically from 34,319 KZT to 38,701 KZT per ton excluding VAT (exchange rate of National Bank of Kazakhstan as January 1 is 332.33 KZT for 1 USD). As commented by the press-service of the Ministry, the increase is caused by the rising world prices, because wholesale price for liquefied petroleum gas depends on the quotations on the international market.
"In view of the increasing demand, as well as lower wholesale prices for liquefied petroleum gas on the domestic market, the owners and producers of LPG bear losses from sales on the domestic market. For example: the production cost of liquefied petroleum gas of CNPC-AktobeMunaiGas equals to about 52,000 KZT per ton, JV Kazgermunai LLP - 38,403 KZT per ton, Zhaikmunai LLP it is 67,478 KZT per ton, and Kazakhoil Aktobe LLP - 44,334 KZT per ton," the Ministry reports.
The price increase took place against the backdrop of recurrent LPG deficit in regions, caused by the price disparity when compared with neighboring countries, resulting in fuel being semi-legally shipped abroad, especially to Russia. Thus, last year, when the wholesale price of liquefied petroleum gas within the country, set by the Ministry of Energy of Kazakhstan, stood at 31,360 KZT per ton (VAT included), in Russia the average price on the market (in terms of the Kazakhstani currency) reached 125,000 KZT, in Tajikistan - 107,100 KZT.
According to the Law of the RoK «On gas and gas supply", the Energy Ministry, in coordination with the Ministry of National Economy, quarterly sets the wholesale price limit on LPG, which is valid throughout the territory of the Republic of Kazakhstan. While the retail price on the domestic market is not regulated and is set by the participants of the market. According to the monitoring data submitted by the local executive bodies, in December of 2017, the lowest retail prices were registered in the Aktobe Region - 45-49 KZT per liter, and Mangystau Region - 45-50 KZT per liter. The highest prices were recorded in the Karaganda Region - 70-75 KZT per liter, Almaty Region - 72-75 KZT per liter.
After January 1, according to the monitoring date, retail prices were formed as follows: in Aktobe Region - 55 KZT per liter, Mangystau Region - 52-65 KZT per liter. In other regions the increase of retail prices for LPG was not observed.
On the territory of the former Soviet Union, a number of countries - from Belarus to Uzbekistan are engaged in the production of liquefied petroleum gas, but only in two of them - Russia and Kazakhstan - annual industrial volumes are measured in millions of tons: in the Russian Federation it is 15-17 mln tons annually, while in the Republic of Kazakhstan it is almost 3 mln. While the demand for LPG has been steadily growing: according to the Ministry of Energy, if in 2016 volumes of LPG consumption on the domestic market amounted to 720 thousand tons, then in 2017, they grew by 32% and reached 953 thousand tons.The first months of the current year also show a steady tendency for growth.
All of this leads to the fact that the Government refuses to regulate prices for LPG and releases them under the control of the free market. In particular, in accordance with the amendments, that are discussed in the Kazakhstani Parliament, to the existing Law "On gas and gas supply", starting from 2019, the wholesale trades of liquefied petroleum gas will be held through the electronic trading platforms (ETP). According to the authors of the amendments, if the existing rules of regulation remain without any changes, factories will continue to suffer losses, the illegal export will grow and liquid gas shortages on the domestic market will remain. “The wholesale price limit, approved by the Ministry of Energy, will not affect gas sold via ETP In the first phase, it is proposed to sell about 20% of the liquefied gas, supplied to the domestic market, in the framework of the supply plan through the ETP, followed by the phased increase of the specified share. In addition, it is expected that only gas network organizations can be gas buyers on the ETP during the first phase, and subsequently a large industrial enterprises also, as well as the owners of the networks of LPG filling stations", Deputy of Mazhilis of the Parliament Baktykozha Izmukhambetov, former Minister of Energy and Mineral Resources of the RoK, comments on the essence of the amendments.
It is expected that by the second half of 2021, the Government regulation of wholesale prices will be maintained only for liquefied gas that is sold to the population through the group tank systems, as well as for petrochemistry enterprises producing products with high value-added. Justifying the need to amend legislation Izmukhambetov names for several reasons. According to his data, the country established a limit on the wholesale price of liquefied petroleum gas, which is much lower than in neighbouring countries: Russia (border region), Tajikistan, Afghanistan. Such a low wholesale price stimulates its illegal export, often leading to shortages on the domestic market.
At the same time, retail prices for liquefied gas in Kazakhstan are much higher than wholesale price, and are only slightly inferior to retail prices in neighboring countries. For example, the retail price in the eastern regions of the Republic of Kazakhstan reaches 122 thousand KZT per ton. "As a result, our plants are running at a loss, delivering gas to the domestic market. In the year 2017 only, the gross loss of Kazakhstani producers of liquefied natural gas amounted to more than 48 bln KZT”, Izmukhambetov said. Most important, according to him, is the fact that the Government regulation does not carry a proper social effect, and the end user still pays for liquefied gas price comparable to retail prices in neighboring countries. Instead of the population the profits are benefiting intermediaries - gas supplying organizations, in the form of inflated trading margin.