Expertise
Kazakhstan❜s Gas Sector: A New Vision
Petroleum continues its review of the National Energy Report 2023, prepared by the team at S&P Global and presented in October 2023 during Kazakhstan Energy Week-2023 / XV Eurasian KAZENERGY Forum. In issue No.6 of our journal last year, we discussed the current state of the country's oil industry. What is the situation with gas?
The new vision for the gas industry, as outlined in the Comprehensive Development Plan for the Gas Sector of the Republic of Kazakhstan for 2022-2026, envisions expanding the role of gas in the economy and transforming the industry's fundamental economic profile. The country's leadership established a national gas operator in 2021, National Company QazaqGaz JSC to achieve this goal.
Today, QazaqGaz operates across the entire gas production and supply chain, including exploration, extraction, transportation, and sales. Here is a brief overview of the objectives in each segment:
- Exploration and Production: The aim is to increase the gas resource base by enhancing the investment attractiveness of gas field development projects (including through higher purchase prices from producers) and increasing the total volume of commercial gas production.
- Storage and Transportation: Expanding gas processing to increase commercial gas production; extending the pipeline system to cover more cities and settlements (especially those previously unserved by pipeline gas), and increasing imports as necessary.
- Processing and Sales: Expanding consumption through further gasification, particularly in the residential sector, power generation, and petrochemical industries.
- Pricing: Ensuring higher profitability in the sector by raising prices (and tariffs for pipeline transportation) to encourage investments and production expansion and to prevent QazaqGaz from incurring significant losses on domestic sales. One of the key measures is the introduction of differentiated prices for end consumers (for example, higher prices for export-oriented industries) and increasing pipeline transportation tariffs to better reflect costs.
Review of Key Achievements and Challenges in the Natural Gas Sector
Achievements:
- There has been a notably active increase in the gross extraction of natural gas, primarily driven by its expansion at the Kashagan field, while the volumes of commercial gas production (gross extraction minus re-injection) are also growing. Since the main portion of Kazakhstan's gas production is associated gas, its dynamics are mainly determined by the trends in the development of oil fields.
- Since gaining independence, Kazakhstan has succeeded in creating a unified domestic gas transportation and distribution system.
- Further gasification of the country remains a strategic priority for the state; by the end of 2023, natural gas pipeline supplies had reached 60% of the population, surpassing the target set several years ago (56% by 2030). Over the last decade, the actual volume of gas end-consumption more than doubled—from 9 bln cubic meters in 2010 to 19 bln cubic meters in 2023.
- Gas exports from Kazakhstan to China increased from less than 1 bln cubic meters in 2015 to 7.4 bln cubic meters in 2019-20 but decreased to 5.1 bln cubic meters in 2022. Exports to China provide QazaqGaz with an important source of revenue, helping to offset financial losses from gas sales in the domestic market.
Challenges:
- Low purchase prices from gas production companies, combined with low prices for end consumers, threaten the implementation of Kazakhstan's gasification program, making the production of commercial gas unprofitable and not encouraging its efficient use by consumers.
- In the longer term, the growth in demand on the Kazakh domestic market, amidst limited commercial gas supplies, will likely negatively impact exports to China. Kazakhstan will have to make a difficult choice between the lucrative export to China and the expansion (usually unprofitable) реализации газа на внутреннем рынке.