Kazakh oil, gas sector offers assurances as president says situation stabilized

Kazakh President Kassym-Jomart Tokayev said Jan. 11 stability had been restored to his country — the second largest non-OPEC producer in the OPEC+ group — as the oil and gas sector offered assurances on its continued reliability following a bout of unrest, and disruption at some upstream assets.

Kazakhstan, which is also a gas supply source into western China and the world's largest uranium producer, suffered a major blow in early January when fuel protests in the oil town of Zhanaozen morphed into an armed insurgency centered on the commercial city of Almaty, with heavy loss of life.

In a statement, the Chevron-led consortium that operates Kazakhstan's flagship Tengiz field said normal production levels had been restored following logistics disruption at the remote site on the Caspian seashore, where some contract workers had held protests in support of the Zhanaozen demonstrations.

Tengiz is the mainstay of Kazakhstan's light, relatively low-sulfur export crude grade, CPC, which loads at Novorossiisk on the Black Sea, with December loadings averaging 1.6 million b/d.

TCO "continues to focus on ensuring the health and safety of its workforce," the Tengizchevroil consortium said. "The workplace environment is stable at Tengiz and production facilities are operating at normal rates."

Production is said to have continued undisrupted at the two other biggest CPC sources, Kashagan and Karachaganak. However, fields operated by state-producer KazMunaiGas (KMG) have been affected by the unrest, likely including those of onshore subsidiary Ozenmunaigas, which is based in Zhanaozen and produced over 100,000 b/d in the first nine months of 2021.

In response to the situation, the country's president removed his powerful predecessor, Nursultan Nazarbayev, from a key security post and fired security agency head Karim Massimov, who was then arrested on treason charges. He also called in forces from a regional security grouping led by Russia on a short-term basis, saying the country had come under attack from terrorist infiltrators.

"The situation in all regions of the country is stable... Overall, the sharp phase of the counter-terrorist operation is over," Tokayev said in a Jan. 11 speech to parliament carried on the presidential website, going on to announce the imminent departure of foreign troops as well as economic and political reforms, including measures to boost investor confidence and energy transition efforts.

KMG, which holds stakes in the three biggest fields and operates facilities from oil fields to refineries and pipelines, said it was operating mostly as normal, but with some impact from the recent turmoil.

"Oil and gas producing, oil transporting, oil refining, gas processing, service and the other group assets did not stop their production processes and maintain operations in a normal condition," KMG said in a statement.

"At the same time, there are shutdowns of some separate drilling wells at production facilities and a slight decrease in oil production, which does not significantly affect the overall results of KMG," it added, saying further details would be provided later and its finances provided "a sufficient margin of safety and cash liquidity for such force majeure cases."

Pipeline unit KazTransOil earlier said its network was operating normally, including oil transit across Kazakhstan from Russia to China. Transportation to refineries "and in export directions is carried out in accordance with the schedule approved by the ministry of energy... The transit of Russian oil to China is also carried out in a stable manner," it said Jan. 10.

Blow to confidence

Platts' data shows CPC crude trading at a discount to Dated Brent of less than $1/b since mid-October on a CIF Augusta basis, despite December seeing the highest monthly loadings of 2021, at nearly 1.6 million b/d, with a slight tightening of the discount in recent days.

Recent events have shaken confidence in a country viewed by industry as offering oil production increases through the decade as well as a source for a wide range of natural resources.

In his speech, Tokayev said selected wealthy companies and individuals would be obliged to contribute to a new health, education and welfare support fund for the population.

Kazakhstan has lately been producing above its OPEC+ quota, with December output estimated by S&P Global Platts at 1.68 million b/d, against a quota of 1.556 million b/d.

Tengizchevroil is comprised of Chevron (50%), ExxonMobil (25%), state-owned KazMunaiGas (20%) and Russia's Lukoil (5%). Other international companies holding stakes in Kazakhstan's super-giant fields include Italy's Eni, Shell and TotalEnergies.