Kazakstan is well endowed with energy resources, including abundant reserves of coal, oil, and natural gas, which made the republic one of the top energy-producing regions of the Soviet Union. In 1993 Kazakstan was the second largest oil producer, third largest coal producer, and sixth largest natural gas producer among the former Soviet republics. Industry in Kazakstan is dominated by the energy sector; in 1994 electric power generation accounted for 19 percent of GDP, and fuel extraction and processing accounted for nearly 23 percent. Thus, the national economy is strongly affected by changes in levels of fuel extraction and energy production (see fig. 6).
Kazakstan's oil reserves have been estimated at as much as 2,100 million tons, most of which is in relatively new fields that have not yet been exploited. In addition, new offshore discoveries in the north Caspian more than replaced the annual drawdown of known reserves in the early 1990s. In 1993 Chevron Oil made an initial investment in a joint venture, Tengizchevroil, to exploit the Tengiz oil fields at the northern end of the Caspian Sea in what was envisioned as the leading project among foreign oil investments. Recoverable reserves at Tengiz are estimated at 25 billion barrels, or about twice the amount in the Alaskan North Slope, although Tengiz oil is extremely high in sulfur. The French firm Elf-Aquitaine has leased about 19,000 square kilometers of land in the Emba region northeast of the Caspian, where there are known to be large quantities of sulfur-free oil and natural gas. Other oil deposits, with paraffin, asphalt, or tar (all harder to process), have been found in the Caspian Sea near Novyy Uzen and Buzachiy.
Oil production, which increased by an average of 3 percent per year through 1991, reached a peak production of 26.6 million tons that year before output began to decline in 1992. The most productive region in the early 1990s was the Mangyshlak Peninsula on the east shore of the Caspian Sea. In the early 1990s, Mangyshlak yielded more than 50 percent of the republic's oil output before experiencing a decline of 11 percent in 1992. Kazakstan also is known to be rich in deposits of heavy oil, which currently are not commercially viable but which are potentially valuable.
The republic planned to increase its oil exports from the 7.8 million tons of 1992 (15 percent of total exports) to as much as 37 million tons in 1996 (50 percent of total exports), for which anticipated revenue was about US$2.9 billion. By 1993, however, domestic and CIS industry conditions made such goals unrealistic. The most important obstacles to increased oil production and export involve Russia. In 1994 Russian refineries in western Siberia, upon which Kazakstan's oil industry continues to rely heavily for processing, cut their operations drastically because paying customers could not be found; this cut resulted in the plants' lower demand for crude oil from Kazakstani suppliers. Thus, in the first nine months of 1994, Kazakstan's oil sales fell to 4.5 million tons from 8 million tons in the same period of 1993, and production for the year fell 11.7 percent. Because of the oil-exchange agreement with Russia, the cutback in Russian refinery production also reduced domestic refinery production nearly 25 percent in 1994.
The second obstacle to greater production and export of oil is pipeline access through Russia to Western customers, which Russia has curtailed because of capacity limits and political maneuvering. The lack of pipeline facilities caused Chevron to announce substantial capital investment cutbacks in the Tengiz oil fields for 1995. In the mid-1990s, the pipeline that connects Kazakstani oil fields with the Russian Black Sea port Novorossiysk provided the sole access to the oil of the Tengiz fields for Chevron and its Western customers (see Transportation and Telecommunications, this ch.). The uncertainties of relying on the existing Russian line or on a second line passing through the war-torn Caucasus region led to discussions of new pipeline projects passing through Iran or even eastward across China to the Pacific Ocean. In September 1995, a new agreement with Turkey laid plans for pipelines crossing Georgia to ports in Georgia and Turkey, providing a new outlet possibility for Kazakstan's Tengiz oil. Also, in October 1995 Kazakstan joined in a new consortium with Russian and United States companies to build a pipeline to the Black Sea. Chevron and Mobil Oil of the United States, British Gas, Agip of Italy, and Russia's LUKoil enterprise were to fund the entire pipeline project in return for a 50 percent share in the pipeline. The governments of Kazakstan and Russia were to receive the other 50 percent. However, pipeline construction was delayed amid further international negotiation over alternative routes.
In the first quarter of 1995, major accidents and power shortages at drilling sites reduced production by about 10 percent compared with output in the first quarter of 1994. Refinery output in that period was even lower; only about half the first quarter's oil was refined, and the Pavlodar refinery closed entirely because it received no crude oil from Russia.
Kazakstan has enormous reserves of natural gas, most notably the giant Karachaganak field in the northwest near the Russian border, under codevelopment by a consortium of Agip of Italy, British Gas, and the Russian Natural Gas Company (Gazprom). In 1992 natural gas production was 8.5 million cubic meters, half of which came from Karachaganak. By 1994, however, production was only 4.1 million cubic meters because Russian consumption had dropped drastically in the early 1990s. A 1995 deal with Gazprom gave that organization part ownership of Karachaganak in exchange for a guaranteed purchase of natural gas from Kazakstan. Foreign investment projects at Tengiz and Karachaganak were expected to triple domestic gas output and enhance gas processing capabilities in the later 1990s. The usefulness of increased output depends on new pipeline agreements--still in the formative stage in 1996--with Russia and other countries in the region.
In 1994 coal production decreased 6.7 percent to 104.4 million tons, after a production peak of 140 million tons was reached in 1991. About thirty major coalfields exist, most of them within 400 kilometers of Qaraghandy in north-central Kazakstan. This region offers some of the most accessible and cheaply extracted coal in the CIS; however, most of Kazakstan's coal is high in ash. The largest open-pit mines are located in the Ekibastuz Basin northeast of Qaraghandy. According to estimates, presently exploited mines contain 100 years of coal reserves at today's rate of consumption. Coal is a key input for industry; in the early 1990s, more than 75 percent of coal consumption in Kazakstan went to thermoelectric stations for power generation, and another 14 percent went to the steel industry. In the early 1990s, Kazakstan exported about 40 percent of its coal to CIS customers, mainly Russia.
The coal industry has been plagued by poor management and strikes that shut down major underground operations at Qaraghandy and surface operations at Ekibastuz in 1994 and 1995. The large metallurgical works of Qaraghandy, built under the Soviet concept of the territorial-industrial complex combining heavy industry with on-site fuel reserves, has been forced to curtail production when strikes are called.
Current Fuel Supply and Consumption
Despite its fuel endowments, Kazakstan remains a net importer of energy, partly because of falling production in the early 1990s and partly because of remaining barter agreements from the Soviet era. Undeveloped east-to-west transportation infrastructure has prevented efficient supply of domestic fuels to industries, which are energy intensive. As a consequence, Kazakstan still must import oil, natural gas, lubricating oil, gasoline, and diesel fuel from Russia, which in the postindependence years has taken advantage of its neighbor's vulnerability to economic pressure. In the mid-1990s, the oil exchange system between Kazakstan and Russia meant that declining demand in Russia reduced availability of those Russian products to Kazakstan. In 1994 Russia sent only 40 percent of the crude oil and 48 percent of the refined products prescribed in the bilateral agreement for that year. Gas imports showed a similar drop.
The national electric power system is divided into three grids. The northern grid, which serves a large part of heavy industry, is connected to the adjacent Siberian grid in Russia, and the southern grid is connected to the Central Asian System. Kazakstan depends on Russia for electricity and fuel. Although the Siberian generating stations that supply the northern grid are located in Russia, they are fired largely by coal exported from Kazakstan. Some electric power also is received from Kyrgyzstan's hydroelectric stations to the south in exchange for coal (see Energy, ch. 2).
In 1991 Kazakstan consumed 101.6 billion kilowatt-hours of electricity (84.7 percent of which was produced domestically), making it a relatively heavy energy consumer among nations of its economic stature. About 85 percent of domestic generation occurs in coal-fired thermoelectric plants. A few thermoelectric plants use natural gas or oil; the remaining 15 percent of energy comes from those plants and from hydroelectric stations. The main sources of coal-generated electricity are the fields of Ekibastuz, Maykubin, Torghay, and Borlin. There are three large hydroelectric stations, at Bukhtarmin, Ískemen, and Kapchagay. The republic's one nuclear power station is located near the city of Aqtau.
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