Oil and Gas Problems in Kazakhstan

Kazakhstan's Oil Accumulation Alternation Administration Challenges Kazakhstan is able with affluent oil reserves, which accommodate an important antecedent of revenues for abiding bread-and-butter advance and advance of the country's active standard. This cardboard addresses the claiming the Republic of Kazakhstan faces in managing its oil accumulation chain. The country's accommodation for adorning awkward oil is basal and a abundant allocation of that adorning accommodation is alfresco the Republic; added to that, best of the pipelines and refineries to consign oil to all-embracing markets are accordingly managed by the Republic and bunch corporations (MNCs). Thus there are political, abstruse and banking risks for the republic's oil accumulation chain. 14 Jay Nathan, The Peter J. Tobin College of Business, St. John's University As in alternative oil bearing nations, Kazakhstan's oil industry revenues anon depend on the common prices for oil and oil products, based on accumulation and demand; and revenues depend on the bulk of assembly and alteration the final artefact to barter (Rasizade, 1999). For Kazakhstan's oil accumulation chain, the concrete administration basement abutting food of awkward oil to refineries and to the apple markets through pipelines, has been arduous and costly. Moreover, currently Kazakhstan is able with abandoned a few ; refineries and accordingly the above allocation of Kazakhstan's awkward oil is actuality aesthetic in Russia. Recently, China has invested heavily in the architecture of pipelines beyond the Republic of Kazakhstan to accumulation the added appeal for oil in China. Thus Kazakhstan has to administer political, abstruse and banking risks in the affiliation of her oil accumulation alternation (Gaudenzi and Borghesi, 2006; Lockamy and McCormack, 2004). In the era of accelerated abstruse development and globalization. It is acute that every nation adapts to such an environment. Supply alternation administration has become an important agency for comestible aggressive advantage for all acknowledged industries and businesses (Magretta, 1998). The cold of every accumulation chain, including the all-around oil industry, is to aerate the all-embracing bulk generated. The bulk a accumulation alternation generates [to an organization, or to a nation] is the aberration amid what the final artefact is annual to the chump and the accomplishment the Introduction Kazakhstan has ample deposits of oil; however, the country faces a austere disadvantage of not accepting any absolute admission to the accessible sea, as the Caspian Sea is landlocked. While her oil industry's upstream cost, i. e. , the bulk for exploration, development and assembly of awkward oil, may be agnate to that of best alternative oil bearing nations, its afterwards cost, i. e. , busline of awkward oil to the refinery, adorning and busline to markets in particular, is added cher (Sridharan, Canines and Patterson; 2005). For Kazakhstan to carriage the oil to apple markets, the industry has to depend on pipelines (Cavenagh, 1999) through alternative countries. Also, advancement such an operation requires a ample cardinal of accomplished workers, but Kazakhstan does not accept abundant of them. Kazakhstan's Oil Accumulation Alternation Administration Challenges 15 accumulation alternation expends in bushing the customer's request. For best bartering accumulation chains, bulk will be acerb activated with accumulation alternation profitability, the aberration amid the acquirement generated from the chump and the all-embracing bulk beyond the accumulation alternation (Chopra and Meindl, 2003; Lee, 2002; Cavinato, 2002). The Republic of Kazakhstan will do able-bodied to monitor—especially to sustain advance — the all-embracing bulk of her oil accumulation alternation in the advancing years. because of refinery accretion {www. gravmag. com, 2006). It is important to agenda that greater bread-and-butter rewards can be acquired abandoned with well-integrated all-around oil accumulation alternation management. Oil Assembly Administration Agreement and Risks in Kazakhstan The Ministry of Activity and Mineral Resources of Kazakhstan and the Ministry of Ammunition and Activity of Russia, periodically set quotas for Kazakhstan's oil breeze through Russian territory. For example, on December 25, 2000 the allocation for Kazakhstan was set at 17. 3 actor tons. The announcement amid Kazakhstan and Russia of October 9, 2000 sets the assumption of "a distinct route," whose sole abettor is the Kazakh Oil Company. Annual quotas depend mainly on the political relations amid the two nations. Besides politics, there is additionally a abstruse accident factor, i. e. , the aerial bulk of activity abrasion and deterioration, which may bassinet the capability and affection of casework provided to exporting countries. In addition, the abridgement of able aliment of these oil pipelines does abide primarily due to the actuality that a ample cardinal of acquiescent bounded technicians and engineers who are appropriate are not accessible to day (Doing Business with Kazakhstan, 2004). Kazakhstan's oil activity systems were congenital in the '70s {more than 60 percent of oil pipelines of the Western branch, to be exact) and the blow in the '80s {75 percent of the Eastern branch). Thus, at the end of the year 2000, Oil bearing countries and all-around accumulation chains Activity makes the auto of all-around accumulation chains go annular (Bud La Londe, 2006). A archetypal oil accumulation alternation begins with the awkward oil producer, next, the oil moves to the refiner, the transporter, the banker and assuredly to the gas pump breadth a chump receives the product. The top apple oil producers are Saudi Arabia, Russia, the United States, Iran, Mexico, China, Canada, United Arab Emirates, Venezuela, Norway, Kuwait, Nigeria, Brazil, Kazakhstan and Iraq. The Alignment of the Petroleum Exporting Countries (OPEC) controls above awkward oil food to the world. OPEC influences the bulk of awkward oil by ambience assembly quotas. The ethics {revenue opportunities) are added by processing and chemically alteration the awkward oil, which is alleged "refining. A 42-gallon butt of awkward oil makes about 19 1/2 gallons of gasoline, nine gallons of ammunition oil, four gallons of jet ammunition and 11 gallons of alternative products, including lubricants, kerosene, city and petrochemical feed-stocks to accomplish plastics. This adds up to added than 42 gallons Accumulation alternation administration has become an important agency for comestible aggressive advantage for all acknowledged industries and businesses. Kazakhstan's Oil Accumulation Alternation Administration Challenges 16 55 percent ofthe pipelines were 10 to 20 years old and 12 percent had been acclimated for added than 30 years. Only 1 percent has been acclimated for beneath than 10 years. As time goes by, those pipelines are accepting alike earlier and that agency not abandoned the accident and bulk of advancement them would be larger, but additionally the bearings presents austere abstruse problems as able-bodied for the Republic of Kazakhstan {Petroleumjournal. com, 2006). anatomy of collective ventures, assembly administration agreements and exploration/field agreements. Oil is recovered from 55 fields. The better of these fields are: Tengiz (some one billion bags of predicted oil reserves); Karachaganak (340 actor bags in oil reserves, added than 1. billion bags in gas condensates and added than 1. 3 abundance cubic meters of accustomed gas); Uzen (with over 1. 5 billion bags of geological hydrocarbon reserves, of which added than 200 actor bags are extractable) and Kumkola (with 350 actor bags of oil reserves, of which 80 actor bags of oil and 75 billion cubic meters of accustomed gas are proven). The Caspian and Aral Sea shelf additionally accommodate cogent reserves. Currently, there are abandoned three above refineries in Kazakhstan: Atyrau, Shymkent and Pavlodar (see Exhibit 2). Kazakhstan's Oil Fields and Production Mangistau and Atyrau oblasts (provinces) are the basic oil bearing areas in Kazakhstan (see Exhibit 1). They annual for added than 70 percent of the absolute oil extracted in the Republic. The alternative three extracting regions, Aktyubinsk, Kzylorda and Zapadno Kazakhstanskaya, annual for the remainder. All-embracing oil projects accept taken the Exhibit 1: Assembly (in thousand tons) by regions 1998 Awkward oil, thousand bags Aktubinskaya Atyrauskaya Zapadno-Kazakhstanskaya Kyzylordinskaya Mangistauskaya 23,818. 7 2,640. 8 11,135. 1 3,007. 8 7,035. 0 1999 26,735. 8 2,326. 7 12,359. 3 3,928. 8,121. 7 2000 30,647. 9 2,701. 1 13,422. 0 13. 5 533. 8 9,173 2001 36,060. 0 3,405. 3 15,589. 5 49. 4 6,172. 8 10,843. 0 Source: Civic Statistics Agency of Kazakhstan, 2005 Kazakhstan's Oil Accumulation Alternation Administration Challenges 17 Exhibit 2: Design and Delivery Capacities of Above Refineries Bulb Design Accommodation m In. bags Actual Deliveries min. bags Per ages Design thousand bags Actual thousand bags Per day Design thousand bags Actual thousand bags Shymkent Oil Refinery PavlodarOil Refinery Atyrau Oil Refinery 6. 5 3. 6 2. 3 590 326. 8 189. 5 245. 4 19. 7 22. 6 14 10. 9 6. 3 7. 5 4. 677 418 2. 7 8. 2 Source: Civic Statistics Agency of Kazakhstan, 2005 • Pavlodar (a adopted broker was accustomed a administration acknowledgment in 1997; the bulb has been beneath government ascendancy back summer 1999) processes mainly ablaze awkward from Siberia and food the arctic arena of Kazakhstan; • Atyrau belongs to Kazakhoil, processing abundant calm oil and food the western region; • Shymkent was mostly awash (95 per cent) to clandestine investors in 1996. It processes committed awkward from the arena (Kumkol, Aktyubinsk, Turkmen fields) and food the south, decidedly Almaty. Kazakhstan's Oil Assembly and Administration Costs A aggregation of altered schemes abide for adding oil revenues amid the host country and the adopted partner. The accepted ambition for administration of acquirement from assembly to bazaar is about 85 percent to the host country and 15 percent to the oil company. This arrangement can be construed in a array of altered agency with altered types of acknowledged forms; it additionally depends on the host country's laws and preferences, but in accepted oil companies ambition this ratio. This cardinal has assorted over the years. For example, in Saudi Arabia the arrangement is abundant college in favor of the Saudis due to huge affluence and belfry assembly costs. In the Caspian, the arrangement is acceptable to be lower due to added carriage costs of accepting the oil out of the region, i. e. , activity architecture costs and alteration fees and political risks in the area. Part of the problems with signing affairs with Caspian nations has been the nations' abhorrence to admit the bread-and-butter call of abbreviating the arrangement (Feiveson, 1998). The upstream breakdown of costs is about 10 percent for analysis to acquisition an economical acreage (odds are about one in 10 holes accomplished will hit a commercial-sized field), 80 percent (or higher) to advance the acquisition and 10 percent in connected on pg. 20 The allowances an added cardinal of appropriately accomplished cadre would befar the able administration of the absolute accumulation alternation activities are enormous; it is a cardinal call for the Republic of Kazakhstan to advantage and sustain approaching oil revenues. Above Oil Pipelines and their Routes Map Here are the assorted Kazak pipelines and their routes: Kazakhstan's Oil Accumulation Alternation Administration Challenges 18 Exhibit 3: Map of Above Pipelines Oil ptpalin«a Existing) prundw eonsiruClioR A Maior Ott nekl RBfinoty » Planntd wunott • • confl altercation 0 Mil« 200 Km 400 Oil Pipelines Basement in Central Asia Source: Adapted from Kazakhstan Oil and Gas All-embracing Conference Proceedings, 2002 The above pipelines are articular by the Kazakhstan Ministry of Power, Industry and Trade as the projected antecedence consign routes for oil in the afterward order: 1. Atyrau-Samara pipeline: The possibilities for oil exports forth the AtyrauSamara oil activity are belted by its throughput accommodation and by the allocation set by Russia. This is a acute agency for the advance of both awkward oil assembly and consign supplies. To access the throughput accommodation from 10 to 15 actor bags per year, a alternation of abstruse measures in Kazakhstan and Russia are actuality taken at a bulk of 22 actor dollars; Kazakhstan's Oil Accumulation Alternation Administration Challenges 2. Tengiz-Novorossisk oil pipeline: The Caspian Activity Consortium's (CPC) oil consign activity activity is a concise antecedence westward. This activity ensures an absolute aperture for Kazakhstan's oil exports to the Black Sea and opens up opportunities for the allure of adopted investments in the oil-and-gas sector. The all-important agreements for the activity participants accept already been active and operations initiated; 3. Trans-Caspian pipeline: Planned to chase a avenue through the Black Sea to Turkey, the Trans-Caspian oil activity activity is advised to be a priority. The oil activity will amplitude from Western Kazakhstan to an aperture on the Mediterranean (the Turkish anchorage of Ceyhan) via the Caspian Sea. The breadth of Azerbaijan, Georgia and Turkey creates risks for the activity due to the complicated aerial area and baptize barriers and the charge to cantankerous confiict-prone zones; 4. Kazakhstan-China pipeline: Back 2004, in the Kazakhstan area of the Caspian Sea, the aggregate of the awkward oil assembly has increased. The consign oil activity of the CPC abandoned cannot accommodated the appeal for oil busline infrastructure. Preliminary engineering and bread-and-butter calculations accept apparent that an oil activity eastward to China is a able and economically favorable project. The Kazakhstan-China oil activity activity can, simultaneously, accommodated Kazakhstan's civic aegis interests and accommodate an aperture to accommodated China's growing appeal for oil. The oil pipeline's avenue will canyon over the breadth of Kazakhstan and China will agreement the activity funding. The downside of the activity is that the People's Republic of China can potentially ascendancy the bulk paid for the oil; 5. Persian Gulf-Iranian oil pipeline: The Persian Gulf-Iranian oil activity provides addition accessible oil activity avenue to the south. However, astringent antagonism from OPEC countries can accompany about a abridgement in the bulk paid for oil from the Persian Gulf. Consequently, a bargain bulk on the oil activity may action at some time in the approaching due to low advantage in that market. No agreement for advance mobilization for this activity accept yet been defined; 6. Arabian Sea-Trans-Asi an oil pipeline: The Trans-Asian oil activity via Kazakhstan-Turkmenistan-Afghanistan-Pakistan to an aperture in the Arabian Sea is politically awful risky, back it passes over the breadth of Afghanistan. Currently, application is actuality accustomed to the basal catechism of how the allotment will be organized for the project. Kazakhstan's Oil Accumulation Alternation Administration Challenges 20 Exhibit 4: Comparison of Carriage Costs per butt of Kazakh Oil Avenue Bulk to Anchorage $1. 42 $1. 42 $1. 42 Black Sea Tanker Second Activity Final Tanker Bulk $1. 23 Absolute Tengiz Novorossiysk Samsun Ceyhan NovorossiyskBosporus Bypass Turkmenistan - Kharg Source: KazakhOil Report, 2005 $2. 65 $3. 46 $3. 17 $2. 50 $0. 40 $0. 40 $0. 88 $0. 59 $0. 76 $0. 76 $0. 93 $1. 57 operating costs to aftermath the oil. Exploration costs are banknote expenditures, which accommodate payments for analysis licenses to the host countries. Development costs are basic costs attenuated over time and operating costs pay for themselves with the sales of awkward oil production. Afterwards costs accommodate busline of awkward to the refinery, refining, busline of articles to bazaar and marketing. If one were to appraise the bulk breakdown of a gallon of gas {called petrol in some countries) averaged about the world, from arena to market, the administration would be approximately: • 2. percent for analysis • 12. 5 percent {or more) for assembly and development • 20 percent to the host government • 2. 5 percent for busline to a refinery • 7. 5 percent for adorning • 2. 5 percent to carriage to bazaar • 2. S percent for business • 50 percent in taxes to the customer at the pump For example, the costs per butt for consign of Tengiz oil are: appropriation costs (the costs to get awkward oil extracted from beneath apparent and bringing it to the arena level) $2, activity costs $1. 2, alteration fee $3, aircraft by oil tanker {including alternative means) $1. 23. The absolute comes to $7. 65. Kazakhstan's Oil Accumulation Alternation Administration Challenges In Kazakhstan the adopted arrangement anatomy is a collective adventure amid a adopted close and a accompaniment enterprise, about KazakhOil, which is the accompaniment oil company. In a collective adventure both the accompaniment action and the adopted adventure advance declared amounts of capital, which can booty assorted forms, including concrete assets and rights to land. Accident is aggregate in admeasurement to capita! nvested. The bulk of ascendancy the adopted close has is usually bound and in some cases collective ventures are little added than affairs for procurement. The accepted ambition for administration of acquirement from assembly to bazaar is about 85 percent to the host country and 15 percent to the oil company. Kazakhstan's Oil Accumulation Alternation Administration Challenges 21 Kazakhstan has two abstracted activity networks: a awkward oil activity from Western Siberia food Pavlodar and Shymkent, while Atyrau runs alone calm awkward from northwest Kazakhstan. The accepted activity arrangement is burst and does not articulation the east and the west of the country, nor does it move petroleum from oil bearing fields in the west of the country to the Pavlodar or Shymkent refineries amid in the arctic and the east. The calm pipelines accommodation will not cope with the advancing cogent aggregate increases the Republic hopes to be bearing in the years to come. At present some of Kazakhstan's assembly is exported by agency of barges to Baku, Azerbaijan, breadth it is fed into the Azerbaijan activity arrangement arrangement and beatific to apple markets (Rasizade, 1999). The absolute activity networks will crave ample investments, if Kazakhstan is to advance its awkward oil and gas abeyant to the fullest. Kazakhstan's above oil ports are: Atyrau and Aktau ; above oil consign pipelines are: Tengiz-Novorossiisk (Russia); Uzen-AtyrauSamara (Russia); the Kenkyak-Orsk (Russia) band that transports oil from the Aktyubinsk fields to the Orsk refinery; and the Caspian Activity Consortium (CPC) that transports oil from Western Kazakhstan to the Black Sea at Novorossiysk (Baker and McKenzie, 2002). Even admitting the Republic has upgraded its all-embracing educational system, abnormally the post-secondary curricula, bulk offerings and the bookish accuracy clay afterwards the Western-type system, there is still a absence of engineers and technicians to advance and to sustain the advance of the oil industry. The allowances an added cardinal of appropriately accomplished cadre would be for the able administration of the absolute accumulation alternation activities are enormous; it is a cardinal call for the Republic of Kazakhstan to advantage and sustain approaching oil revenues. Accepted Issues in All-around Activity Market In contempo years, appeal for activity has surged. This bound access has helped ammunition all-around bread-and-butter growth, but placed ample burden on suppliers aggrandized by cartography and alternative confusing factors. On the appeal side, added activity aegis and ecology apropos may advance to changes in arresting countries' activity policies. These uncertainties accept been reflected in the bazaar through animation and aerial prices (Birol, 2006). Daniel Yergin of Cambridge Activity Research Associates Inc. (CERA) during a appointment on "The Economics and Cartography of Russian Energy" at Georgetown University in Washington D. C. n October 29, 2007, forecasted that oil prices are acceptable more decoupled from the fundamentals of accumulation and appeal (Yergin, 2007). Action Implications for the administration in Kazakhstan Kazakhstan is not a above amateur in geopolitics. OPEC affiliate states and Russia accept political ascendancy in the all-around activity market. Russia, Kazakhstan's arctic neighbor, not abandoned has huge oil affluence on her own, but additionally Activity makes the auto of all-around accumulation chains go round. Kazakhstan's Oil Accumulation Alternation Administration Challenges 22 controls the adorning capacities, as able-bodied as some of the flows of aesthetic oil from Kazakhstan to apple markets. However, for the adolescent republic, the affluent drop of oil is a blessing; at the aforementioned time, it can calmly be blown by corruption and bad accessible policy. Fortunately, in today's all-around apple — armed with capital business ability and with acquaint abstruse from alternative oil bearing nations — it is accessible for the administration of Kazakhstan to booty a abiding appearance of accurate awkward oil deposits in the Caspian Sea and aural the absolute republic of Kazakhstan. 7. Feiveson, H. (1998). "The Problem of Caspian Energy. " Princeton, New Jersey: Princeton University. 8. Gaudenzi, B. and A. Borghesi. (2006). Managing Risks in the Accumulation Alternation Using Ahp Method. " All-embracing account of Logistics Management, vol. 17, pp. 114-136. www. gravmag. com 9. Lee, Hau L. (2002). "Aligning Accumulation Alternation Strategies with Artefact Differentiation. " California Administration Review, pp. 105-119. 10. Lockamy, A. and Kevin McCormack. (2004). Linking SCOR planning practices to accumulation alternation performance. All-embracing account of Operations & Assembly Management, vol. 24, pp. 1192-1218. 11. Civic Statistics Agency of Kazakhstan, 2005. www. petroleumjournal. kz References 1. Birol, F. (2006). "World Activity Prospects and Challenges. The Australian Bread-and-butter Review, vol. 39, no. 2, pp. 190-195. 2. Bud La Londe. (2006). "Energy Problem Cries for Decisive Action. " Accumulation Alternation Administration Review, Vol. 10, Issue 6, pp. 6. 3. Cavenagh, A. (1999, February 24). "Caspian Oil Activity Has a Slov^ Road to Syndication. " Activity Finance International, pp. 50-51. 4. Cavinato, J. (2002, May June). "What's Your Accumulation Alternation Type? " Accumulation Alternation Administration Review, pp. 60-66. 5. Chopra, S. and Meindl, P. (2004). SupplyChain Administration (Second Edition). New Jersey: Prentice-Hall. 6. Doing Business with Kazakhstan. (2004). Edited by Marat Terterov. London, England: Kogan Page Publishers. 12. Rasizade, A. (1999). "Azerbaijan, the U. S. and Oil Prospects On The Caspian Sea. " Account of Third Apple Studies, vol. XVI, No. 1, pp. 29-48. 13. Report of Baker and McKenzie. (2002, November). CIS Activity Notes. 14. Report of KazakhOil (2005). 15. Sridharan, U. , Caines, R. and C. Patterson. | (2005). "Implementation Of Accumulation Alternation Administration and its Impact on the Bulk Of Firms. " Accumulation Alternation Management, Vol. 10, pp. 313-318. 16. Yergin, D. (2007). "Oil Bazaar Fever as Prices Near $100. " Activity & Gas Journal, Issue II, pp. 97-97.

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