At a time of world financial crisis and plunging prices for oil, Kazakhstan’s oilmen are trying to cut costs by setting their priorities straight. But they expect a certain support from the government. Some analysts believe that the oil price will fall below USD 40 per barrel regardless of the recent decision by the Organization of Petroleum Exporting Countries (OPEC) to cut output by two billion barrels a day. Under such scenario, every oil company in the world will have to pull in their belts.

“In spite of this, we want to preserve the potential that we have built over the past years, and, first of all, to prevent a reduction of the production potential. But with the price for oil below USD 40, we will have problems,” national oil company KazMunaiGas (KMG) President Kairgeldy Kabyldin said at a press conference in Astana. Kabyldin explained that it would be the national company, working on such old fields as Uzen and Emba that would be the first to feel the blow of the crisis.

According to the KMG president, with the cost of production at those fields from USD 25 to USD 27 per barrel, plus the transportation costs and the taxes, the company will definitely be operating in the negative. “An oil field is not a water tap that you can turn off and on at will. If we shut down a field now, it will take us five years to achieve the same production level again. Our goal is to preserve the current production level with the oil price of 40 dollars per barrel,” Kabyldin said.

Also, it should not be forgotten that Uzen and Emba are the major employers in their respective towns, and the lives of many people depend on their operation. Therefore, the national company is counting on preferences from the government. A working group has already been set up to analyse the issue. At the same time, in spite of the OPEC decision to cut output, the national company is not going to follow it. According to Kabyldin, KazMunaiGas plans to produce at least 17 million tonnes of oil by the end of the year. As far as the former Soviet republic on the whole is concerned, Kazakhstan plans to maintain the production level at 70 million tonnes per year. “In the conditions of a financial crisis, we must count money and invest more wisely.

We plan to set the priorities,” the KazMunaiGaz head emphasised. According to him, a discussion is presently under way as to which projects will be suspended until the world economic situation improves and which will get a green light. But it is already known that the new refineries in the Turkish port of Ceyhan and in the Black Sea port of Batumi have been included in the former group. The national company’s plan for the nearest future is to concentrate on the upgrade of the three existing local refineries. The other two important priorities identified by Kabyldin include advanced production and infrastructure projects. The latter include expansion of the Caspian Pipeline Consortium (CPC) and construction of the Kazakhstan Caspian Transportation System (KCTS).

Recently, in Moscow, the CPC shareholders have finally, after six long years, come to an agreement with regard to the pipeline expansion. Within this project, the national company has secured for itself a very important and beneficial arrangement that allows Kazakhstan to pump large volumes of its export crude through the pipeline. In the spring of 2008, two CPC shareholders, Oman and BP decided to sell their shares in the project. Kazakhstan and Russia had the right of first refusal for the offered shares. After negotiations, the Russian side bought Oman’s seven percent stock for USD 700 million, and the Kazakh side bought BP’s 1.75 percent stock for USD 250 million. “BP’s share is more attractive for us than that of Oman, although Oman’s stock is bigger.

By giving preference to BP, we received a right to pump additional 10.5 million tonnes. If we had bought Oman’s share, for much more money, we would have received just a 1.5-million-tonne throughput,” Kabyldin explained. According to him, in those transactions, the commercial and economic interests were the priority. Once the pipeline is expanded to 67 million tonnes, Kazakhstan will be able to pump through the CPC up to 50 million tonnes of crude per year, twice as much as now. Russia’s entitlement will be 17 million tonnes a year. In addition, Kaz- MunaiGaz preserves its right to buy from Russia a half of Oman’s stock. “But this will be subject to the financial situation,” Kabyldin said.