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Gas Pricing Reforms in Kazakhstan: Challenges, Solutions, and Prospects

Kazakhstan’s gas industry has entered an era of sweeping reforms, emerging as a key driver in the transformation of the country’s energy sector. For years, the fixed domestic gas prices system has provided social benefits and ensured affordable energy supply for households and businesses. However, it has also led to significant financial challenges for the national operator, hindered investment in infrastructure, and weakened the industry’s competitiveness. These structural constraints have become especially evident in recent years, as rising domestic gas demand has collided with limited processing capacity and a shrinking export potential.

Aiaal Anatolievich Eginov is a gas industry expert with over 15 years of professional experience. He graduated from Ural State Technical University and held key positions at SakhaTransNefteGaz, where he pioneered the establishment of a one-stop service in the Republic of Sakha (Yakutia). He introduced gas loss reduction methodologies and implemented capital repair regulations. Since 2022, he has been Head of the Production and Technical Department at TOLAGAI-2050 LLP (Republic of Kazakhstan). He is a certified professional engineer in the Russian Federation and has received government awards for his contributions to the industry’s development.

Key challenges such as a shortage of processing capacity, accumulated losses at the national operator QazaqGaz, rising domestic consumption, and the need to prepare for integration into the Eurasian Economic Union (EAEU) common gas market have created a pressing need for reforms. The planned price harmonization with EAEU partner markets, including Russia and Belarus, requires not only an overhaul of pricing mechanisms but also a modernization of the entire gas sector management system. At the same time, the launch of the EAEU common gas market, originally scheduled for 2025, has been postponed to 2027, giving Kazakhstan additional time to implement internal reforms.

Amid growing energy challenges, the Kazakhstani government is taking steps to transition to a more market-driven pricing model aimed at creating incentives for subsoil users, attracting private investors, and expanding gas processing capacity. The introduction of a new pricing formula for subsoil users, fiscal incentives, improved model contracts, and support for gas processing plant (GPP) construction projects are becoming key reform tools. These measures are designed to eliminate financial imbalances, stimulate gas exploration and production, and enhance the sector’s appeal for long-term investment.

However, large-scale changes inevitably come with risks. The tariff increases required to align prices with neighboring countries could spark discontent among households and businesses. The lack of processing capacity remains a major constraint on stable domestic supply. Additionally, structural tariff adjustments amid growing demand from the petrochemical and other industrial sectors pose further challenges in balancing the interests of all market participants.

This article provides an in-depth analysis of Kazakhstan’s gas pricing reforms, covering the new procurement price formula, the national operator’s continued priority right to purchase associated gas, fiscal incentives for subsoil users, and the prospects for price harmonization within the EAEU. It will also examine the reforms’ impact on gas production, processing capacity expansion, and the potential for building a sustainable and competitive gas sector.

Key Challenges in Gas Pricing

1. Financial Losses of the National Operator

For many years, Kazakhstan’s national gas operator, QazaqGaz, has operated under conditions where domestic gas prices were artificially suppressed to ensure affordability for households and industrial consumers. From 2015 to 2021, losses from domestic gas sales amounted to a staggering 587 bln tenge. The primary cause was a fixed price of $40–50 per 1,000 m³—significantly below market rates and production costs. For context, according to Global Petrol Prices, in 2024, Kazakhstan ranked third among countries with the lowest natural gas prices, alongside Egypt and Russia, offering gas at $0.006 per kWh. Only Iran ($0.001 per kWh) and Algeria ($0.003 per kWh) had cheaper rates.

Amid these losses, QazaqGaz was forced to offset deficits through export revenues. However, in recent years, the shift in gas volumes from exports to the domestic market has exacerbated the problem. According to Kazakhstan’s State Revenue Committee under the Ministry of Finance, between January and August 2024, the country exported 2.3 bln cubic meters of gas to China for $575.7 mln. This represents an 18.9% decrease in volume and a 20.61% decline in value compared to the same period in 2023. Kazakhstan reduced gas exports to China to meet domestic demand, a strategy that has eroded the financial stability of the national operator, making gas pricing reform an urgent necessity.

2. Shortage of Processing Capacity

A major challenge in Kazakhstan’s gas sector is the low level of raw gas processing. The country produces around 50 bln m³ of natural gas annually, a significant portion of which is associated gas. However, only half of this volume is processed into marketable gas suitable for sale and use.