The U.S. General Accounting Office reports Kazakhstan production is not likely to become a major source of oil for the U.S. but could add to downward pressure on world oil prices in a tight market.
Figures quoted by GAO, the congressional watchdog agency, show Kazakhstan produced a little more than 500,000 b/d in 1992 and has a goal of 1.65 million b/d in 2005. That would give it at about 2% of world oil productive capacity in the first decade of the next century.
Kazakhstan's potential as an important supplier of oil is weakened because any pipeline moving its oil to export markets would have to pass through politically unstable areas. And domestic oil consumption was 336,000 b/d in 1992 and could increase in the future.
GAO also said Kazakhstan represents a valuable opportunity for U.S. investment and U.S. exports of oil equipment and services.
OIL PRODUCTION
GAO's report said, "Although total Kazakhstani oil production may be only a small percentage of world production, Kazakhstan has several large oil and gas fields that could generate substantial returns for investors, according to U.S. petroleum industry sources."
The report said U.S. Department of Energy data show Kazakhstan's oil production was 503,000 b/d in 1992 and gas production was 286 bcf, making it the 26th largest oil producer in the world.
The Congressional Research Service estimates the country's proved oil reserves at 3.3 billion bbl, while Kazakhstan's Ministry of Energy and Fuel Resources estimates 16 billion bbl. The lower figure would place Kazakhstan at 20th place in the world, and does not include potential reserves in the Caspian Sea region.
The country began exporting oil to markets outside the former Soviet Union in 1992 through an exchange arrangement at a rate of about 97,500-129,000 b/d.
The consulting firm PlanEcon, Washington, D.C., estimates domestic consumption of crude oil has amounted to 227,000-367,000 b/d during the past 8 years and was 336,000 b/d in 1992.
Gas consumption is about double production and rose steadily from about 388 bcf in 1985 to 636 bcf in 1992, forcing Kazakhstan to import gas from Turkmenistan and other countries in the former Soviet Union.
GAO said because Kazakhstan is landlocked, exporting oil will be difficult.
"A number of pipeline routes have been discussed, the mostly likely being one that will carry oil from western Kazakhstan through southern Russia to a port on the Black Sea. The governments of Kazakhstan, Russia, and Oman have formed a consortium to build a pipeline along this route.
"However, questions concerning the distribution of income from the pipeline within the Russian Federation may affect Russia's ability to participate in the consortium."
Alternative pipeline routes to the Black Sea or the Mediterranean are longer and would have to pass through areas of ethnic strife.
ATTRACTIVE TARGET
GAO said U.S. companies consider Kazakhstan to be attractive due to its large reserves and stable government.
Chevron Corp., for example, has signed a contract to develop Tengiz oil field, the country's largest. The Central Intelligence Agency estimates Tengiz production could: more than double Kazakhstan's oil production to 1.25 million b/d within the next decade, putting it on a par with Libya, Nigeria, and Indonesia.
British Gas plc and Italy's Agip are developing Karachaganak gas field in the northwest corner of the country, which was producing about 250 bcf/year and could be increased to more than 700 bcf.
Kazakhstan estimates onshore and offshore regions bordering the northern Caspian Sea may hold 50 billion bbl of reserves. A group of seven international oil companies is due to explore there.
GAO said, "Drawbacks to doing business in Kazakhstan include the logistics of exporting oil, the lack of clear cut Kazakhstani laws Governing investment, taxation, and other business matters, and the fact that, as in many developing countries, deals and decisions are often dependent on a few key individuals as opposed to established law, regulations, and institutions."
The government is drafting an oil and gas law and a tax law and modifying taxes applicable to oil companies and equipment and service suppliers.
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