The «Black Gold» for the Budget
Forecasts of world oil prices and some aspects of their impact on the State budget of the Republic of Kazakhstan
Nuguzhinova Asemkhan, Ibrashev Ersin, Analysts of the Analytics and Project Management Department of the Information and Analytical Center of Oil and Gas JSC
After a sharp drop in world oil prices in 2015, the price level started to increase gradually in 2017, amid agreement of OPEC+ countries on the reduction of oil production and the positive dynamics of world oil demand. The rise in prices last year was also influenced by geopolitical instability and declining reserves of oil and petroleum products on world markets.
The oil and gas industry of the Republic of Kazakhstan remains one of the most important sectors of the economy, and therefore the price of oil is an important indicator used for predictions of further development of the economy of the country, including in the process of forming the State budget.
The growth of the world economy, according to the World Bank forecasts , in 2017 totaled 3.0%, versus 2.4% a year earlier. The average world price for Brent oil amounted to 52.4 US dollars  per barrel, which is 23.6% higher than the level of the previous year.
In 2018, according to the World Bank forecasts, the global GDP could rise to 3.1%. World oil demand in 2018, according to forecasts by the International Energy Agency (IEA) , will increase by 1.3 mln barrels per day - up to 99.1 mln barrels per day, against 97.8 million barrels per day in 2017. The largest growth in oil demand is expected to take place on the territory of the Asia-Pacific region - by 0.6 mln barrels per day, which is also a leader in oil consumption (34.8% of world demand in 2017 - 34.0 mln barrels per day). Oil and petroleum products reserves may rise by 0.2 mln barrels per day in 2018 and 2019.
OPEC forecast  involves a higher growth in the demand for hydrocarbon raw materials (hereinafter referred to as the HRM) in 2018. The cartel expects growth in world oil demand by 1.53 mln barrels per day - up to 98.51 mln barrels per day.
Among the main aspects, underlying global energy development scenarios that predetermined the analysts' forecasts regarding oil prices, following assumptions are considered:
- The OPEC countries will continue to adhere to the agreements on production, which will lead to higher prices;
- Short production cycle of the United States allows to respond quickly to rising prices. According to forecasts by the U.S. Energy Information Administration, oil production in that country in 2018 may reach 10.6 mln barrels per day, which is 1.3 mln barrels per day above the level of 2017. In this case, the production in the United States will reach its highest level since 1970, when 9.6 mln barrels per day were produced ;
- Countries outside OPEC will increase production in case of rising prices for raw materials. According to IEA projections, total supply of countries outside OPEC in 2018 will grow by 1.7 mln barrels per day due to increasing supplies from Brazil, Canada and other countries with growing production, and reducing production in Mexico, China and other countries;
- There is uncertainty on the level of production in Venezuela, where since 2005 oil production is declining every year (except 2007 and 2014), despite significant reserves of the HRM countries;
- Political instability in the Middle East remains.
In view of these factors, the forecasts of the analysts of world's major investment agencies and companies surveyed by Thomson Reuters on the cost of Brent oil in 2018, range from 59.4 to 70.0 US dollars per barrel.
However, this growth may change to decline already in 2019. According to forecasts by the World Bank , world economic growth will slow down from 3.1% in 2018 to 3.0% in 2019, and 2.9% in 2020, together with the United States plans to increase the production of shale oil, can have a negative impact on the level of world oil prices. Projections for the annual average price of Brent oil in 2019, according to Thomson Reuters, ranges from 43.0 to 78.0 US dollar per barrel, the price of West Texas Intermediate (WTI) from 43.0 to 72.0 US dollars per barrel, which indicates a possible market volatility during this period.
The level of global oil prices will also affect the economy of the Republic of Kazakhstan, as one of the net exporter of oil in the world.
According to the Information and Analytical Center of Oil and Gas JSC (IACOG JSC), oil and gas condensate production in 2017 was at 86.2 mln tons. In 2017, 69.8 mln tons of Kazakhstani oil was exported. According to the IACOG JSC, the weighted average price of crude oil for the refineries on the territory of the country at the end of 2017 was 24.9 US dollar per barrel.
According to the State Revenue Committee of the RoK , the share of the oil and gas sector in the GDP for 2016 (latest available data) was only 18.2%. However, the country's budget annually receives funding (transfer) from the National Fund of the Republic of Kazakhstan (hereinafter referred to as the National Fund), a large portion of which consists of taxes and payments from the oil sector. For the year 2017, the National Fund revenues amounted to 2.034 trillion tenge, 99.98% of this amount came from the proceeds of the oil and gas sector of the country .
According to the report on the formation and use of the National Fund of the Republic of Kazakhstan , the amount of a transfer of funds from the National Fund to the country’s budget for the year 2016, amounted to 2.856 trillion tenge, which is 16.2% higher than the year 2015. According to the report of the Government of the Republic of Kazakhstan "On execution of the country’s budget in 2016 , the total budget revenues in 2016 totaled 7.7 trillion tenge. Thus, the National Budget revenues account for 37.3% of it.
Another source of income to the budget of the RoK at the expense of the oil industry is the income from payments of export customs duty on crude oil (ECD), which directly is deposited to the National Budget. In 2016, income from the ECD in the budget totaled 639.0 bln KZT . In general, according to the National report of the Extractive Industries Transparency Initiative Standards (EITI) Project , the share of oil and gas sector in the revenue of the Government in 2016 was 28%.
In 2017 the amount of the transfer from the National Fund, according to the law of the RoK “On guaranteed transfer from the National Fund of the Republic of Kazakhstan in 2016-2018”, was planned at the level of 2.9 trillion KZT. The planned volume of transfer from the National Fund to the National Budget in 2018 is 2.6 trillion KZT .
In 2018, according to forecasts by the Energy Minister of the RoK , the production level could rise to 87 mln tons. In this case, the export of oil in 2018, according to forecasts by the IACOG JSC, may exceed 70 million tons.
It is worth noting that the draft of the National Budget for 2018 lists the price of oil at the level of 45 US dollars per barrel . When world prices rise above that level, which is consistent with the projections of the global investors, revenue part of the budget of Kazakhstan under otherwise equal conditions can significantly exceed the indicators.
- The World Bank (2018) "Global Economic Prospects" http://www.worldbank.org/en/publication/global-economic-prospects
- The World Bank (2018) “World Bank Commodities Price Data (The Pink Sheet)” http://pubdocs.worldbank.org/en/406371515004954502/CMO-Pink-Sheet-January-2018.pdf
- The International Energy Agency (2018) "Oil Market Report" https://www.iea.org/oilmarketreport/omrpublic/
- OPEC (2018) "OPEC Monthly Oil Market Report" dated January 18, 2018 http://www.opec.org/opec_web/en/publications/338.htm
- U.S. Energy Information Administration (2018) "Short Term Energy Outlook", dated February 6, 2018 https://www.eia.gov/outlooks/steo/
- The International Energy Agency (2018) "Short-Term Energy Outlook Data Browser", dated February 6, 2018 https://www.eia.gov/outlooks/steo/data/browser/#/?v=8&f=A&s=&start=2014&end=2019&id=&maptype=0&ctype=linechart&linechart=WTIPUUS~BREPUUS&map
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- Official website of the State Revenue Committee of the RoK (2018) "Dynamics of taxes and payments submission to the National Budget" http://kgd.gov.kz/ru/content/dinamika-postupleniy-nalogov-i-platezhey-v-gosudarstvennyy-byudzhet-1
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- Decree of the President of the Republic of Kazakhstan No. 495 “On approval of the report on the formation and use of the National Fund of the Republic of Kazakhstan in 2016”, dated June 7, 2017 http://adilet.zan.kz/rus/docs/U1700000495
- Official site of the Ministry of Finance of the RoK (2018) “Report on execution of the National Budget in 2016”, dated 19.06.17 http://www.minfin.gov.kz/irj/portal/anonymous?NavigationTarget=ROLES://portal_content/mf/kz.ecc.roles/kz.ecc.anonymous/kz.ecc.anonymous/kz.ecc.anonym_budgeting/budgeting/reports_fldr/yearly_reports
- Official site of the Ministry of Finance of the RoK (2018) "Execution of the National budget in 2016” http://www.minfin.gov.kz/irj/go/km/docs/documents/%D0%9A%D0%BE%D0%BD%D1%82%D0%B5%D0%BD%D1%82%202017/%D0%98%D1%8E%D0%BD%D1%8C%2c %202017/19.06.2017/%D0%9F%D1%80%D0%B5%D0%B7%D0%B5%D0%BD%D1%82%D0%B0%D1%86%D0%B8%D1%8F1.pdf
- Official site of EITI in the RoK (2018) "National EITI report”, page 12 http://eiti.geology.gov.kz/ru/national-reports
- The law of the Republic of Kazakhstan “On guaranteed transfer from the National Fund of the Republic of Kazakhstan in 2016-2018”, dated November 30, 2017, No. 111-VI LRK.
Official site of the Ministry of Finance of the RoK (2018) "Draft law on National Budget for 2018-2020”, dated 28.08.17 http://www.minfin.gov.kz/irj/portal/anonymous?NavigationTarget=ROLES://portal_content/mf/kz.ecc.roles/kz.ecc.anonymous/kz.ecc.anonymous/kz.ecc.anonym_budgeting/budgeting/planing_fldr
- Official online resource of the Ministry of Energy of the RoK "Talk abstracts of the Energy Minister K. Bozumbayev to the press conference (22.01.2018)” http://energo.gov.kz/index.php?id=17276
- Official site of the Prime Minister of Kazakhstan (2017) "A draft of the National Budget for 2018-2020, adopted by the Government of Kazakhstan”, dated August 29, 2017 https://primeminister.kz/ru/news/all/v-pravitelstve-rk-prinyali-proekt-respublikanskogo-budzheta-na-20182020-godi-15206