Expertise
Kazakhstan Tightens Rules for Mini-Refineries: from «Semi-Finished Product» to Euro Standards
In recent years, Kazakhstan’s oil refining sector has become the arena of a quiet but fundamental clash of interests. On one side is the state, seeking to meet domestic demand for fuels and lubricants fully and to shut down channels of “grey” and “black” exports. On the other side are dozens of mini-refineries, for which the export of “semi-finished products” has long been almost the only way to survive.
The Ministry of Energy of Kazakhstan announced the preparation of amendments to the law “On State Regulation of the Production and Circulation of Certain Types of Petroleum Products.” According to the draft document, starting January 1, 2029, all refining enterprises will be required to produce at least 45 percent of the so-called in-demand petroleum products: gasoline, diesel fuel, and liquefied petroleum gas.
This step may fundamentally change the market. For some plants, it will be a chance to move into a new league. For others, it will be a cause of bankruptcy.
Asymmetry of the industry
Three Kazakhstani refineries, Atyrau, Pavlodar, and Shymkent, with a combined capacity of about 17,5 mln tons per year, account for up to 98% of total processing. The plants produce fuel that meets K-4 and K-5 standards, which allows the country to be supplied with gasoline and diesel fuel of acceptable quality.
A completely different picture is observed at more than two dozen mini-refineries. Their total design capacity is about 4,5 mln tons per year, but the product range is most often limited to straight-run products.
Over the past five years, processing volumes at mini-refineries have increased from 0,4 mln to 0,8 mln tons per year and may reach 1 mln tons due to reduced crude supplies to the three large refineries, according to the ministry. Through straight-run distillation of crude oil, mini-refinery owners supply semi-finished products derived from it, such as naphtha, marine and furnace fuel, low-octane gasoline, and straight-run fuel oil, which accounts for up to 50% of their output, mainly for export. In contrast, large refineries supply the entire domestic market with gasoline and diesel fuel, where demand for these products continues to grow annually.
According to the Ministry of Energy, the result is the export of products that could undergo further processing to obtain in-demand petroleum products. The ministry reports that straight-run fuel oil from mini-refineries contains more than 17% light petroleum products, such as gasoline, diesel fuel, and jet fuel. At the same time, fuel oil produced by large refineries is suitable only for combustion at thermal power plants.
Moreover, exports are processed at preferential rates. Formally, crude oil is processed into “mazut,” which reduces taxes by almost four times. Budget losses are estimated to reach tens of bln tenge annually. According to the ministry’s calculations, with a crude oil processing volume of 800 thousand tons per year, the difference in income between the export of petroleum products and the export of crude oil amounted to about 51,5 bln tenge.
Why the state opted for tough measures
This situation with mini-refineries did not arise yesterday, but why has the ministry only now begun to bring order to the sector? There are several reasons, and each of them directly concerns national security.
Growth of domestic demand. In 2024, the consumption of petroleum products in the country amounted to 12,1 mln tons, which is 6% more than a year earlier. At the same time, Kazakhstan still imports approximately 35% of its jet fuel and periodically purchases gasoline and diesel from the Russian Federation.
Degradation at large refineries. Over the three years from 2020 to 2022, there were 127 accidents and unscheduled shutdowns at plants, despite the completion of the modernization program. Overloading of capacities threatens supply disruptions and price increases. On 3 July 2023, for the first time in Kazakhstan’s recent history, all three domestic refineries were fully or partially shut down. At 5:25 pm local time, the Atyrau refinery was shut down due to a power cutoff from KEGOC. That same day, a catalytic reforming unit at the Shymkent refinery went down due to an accident, which reduced AI-95 gasoline output by 29,000 tons. tons per day. The Pavlodar refinery was on planned maintenance from June 20 to July 19. Supplies from Russia then made up for the fuel deficit.
Non-compliance with standards. Products from mini-refineries do not meet the Technical Regulations of the Customs Union and Euro 4/Euro 5 environmental standards. Most often, they are produced by the straight-run distillation of crude oil without undergoing deep processes such as catalytic cracking, hydrotreating, and isomerization. As a result, the gasoline and diesel produced retain high levels of sulphur, aromatic hydrocarbons, and benzene. Elevated gum content and low octane lead to engine problems, including detonation, fuel-system fouling, and rapid wear.
The use of such fuel also leads to increased emissions of soot, sulphur oxides, and nitrogen oxides, which worsen the environmental situation and negatively impact public health.