Kazakhstan, whose oil reserves have earned it recognition worldwide, is planning to buy oil fields in neighbouring Russia. According to specialists, this is a necessary measure for the Kazakh government to control the prices of oil products. The first week of the New Year saw yet another leap in oil prices. For the first time in history, the oil price reached a threedigit number – USD 100 a barrel. Last week, however, it went slightly down. However, experts believe new price records are not far off. According to analysts, a sharp growth of demand for oil will inevitably cause a growth of energy prices. And following the fuel, utilities and grocery prices will increase as well.
Kazakh Prime Minister Karim Masimov announced at the end of 2007 that one of the government’s main tasks in 2008 would be to curb inflation. He said that in order to achieve the desirable results, he did not rule out a possibility of an “intervention” of the national company KazMunaiGas into the most sensitive sectors of the country’s economy. In this context, he talked about strengthening Kaz- MunaiGas’ role in the domestic market of oil products to provide the government with leverage to restrain fuel prices. According to the specialists, the first step towards the national company’s “intervention” should become the acquisition of a 70 percent interest in private oil company Mangistaumunaigas (MMG). Masimov had personally given a green light to the transaction as recently as one month before.
The best part in MMG though is not so much its oil fields that are adjacent to those of KazMunaiGas, but the Pavlodar Petrochemical Plant (PPP) and MMG’s sales subsidiary – Helios. Helios has an extensive network of gas stations all over the country and dictates the oil products prices on the domestic market.
The leaders of KazMunaiGas have lamented on several occasions that the national company owned as little as three percent of the country’s gas stations and was unable to control the growth of prices for oil products. With the purchase of PPP and Helios, this imbalance could be corrected.
According to official data, today over 50 percent of oil today comes to Kazakhstan from Russia, and therefore Kazakhstan’s market of oil products largely depends on its neighbour’s crude prices. One third of Russian imports goes directly to the Pavlodar Petrochemical Plant.
An industry source told New Europe in Astana that KazMunaiGas is considering the purchase of PPP as part of the MMG deal in connection with the purchase of oil fields in Russia. The reason for this is that Pavlodar Petrochemicals is located in the north of Kazakhstan and had originally been designed to process crude from Russia - particularly, from the Western Siberian fields. So, today, it has to buy crude from Russia; and Russian prices are always higher than Kazakhstan’s, the source explained.
Kazakhstan’s other two refiners, Atyrau in the west and Chymkent in the south, use local crude. It is only logical that Kazakhstan is looking at buying the assets specifically in Western Siberia: they are closer to the plant, and an existing pipeline system is used to transport crude from crude. It is quite possible, however, that Kazakhstan’s desire may not exactly fit into the plans of its northern neighbour. But, the national company has already provided for such a possibility.
To purchase the oil fields in Russia, it is possible that a Kazakhstan- Russia joint venture could be created on the basis of the Pavlodar plant, the source told New Europe.
By purchasing the Pavlodar Petrochemical Plant the Kazakh government hopes to also increase its oil processing capacity. Experts have been saying lately that by 2014 the three Kazakhstan refineries will not be enough to process the produced crude. Building a fourth refinery in Kazakhstan was considered earlier. However, it is unlikely that Kazakhstan will complete a new plant by 2014. There is too little time and it will also require serious investments, another source told New Europe. Kazakhstan can do without a new plant, he said.
There is a different way to solve the problem – to increase the processing capacity of the Pavlodar refinery through its upgrade. This will take less time and money, he added. The original design capacity of the PPP was 12 million tonnes. The construction of the plant had started in the times of the Soviet Union, but was never completed after its disintegration. As a result, its current capacity is 7.5 million tonnes per year.
The hopes of the Kazakh government, in connection with its plans to purchase the 70 percent interest in MMG, are quite reasonable. However, some experts believe that the price is the main issue now. A MMG representative told New Europe “KazMunaiGas had been too fast to announce the purchase of Mangistaumunaigas. The negotiations are just starting.”