Tag Archives: oil

Business comment: BTC fails to live up to hype

APRIL 29 2016 (The Conway Bulletin) – In the early 2000s, the Baku-Tbilisi- Ceyhan (BTC) oil pipeline was hailed as a key component of the New Silk Road, designed by the West for the West. The dream might now be over.

Western oil producers wanted a pipeline that would pump Caspian oil to world markets without having to pass through Russia.

Everyone in Washington DC was excited. “Happiness is multiple pipelines” was the slogan that could be heard espoused by US diplomats and oil companies. It was even seen on bumper stickers around the US capital.

The 1b barrels/day dream pipeline was inaugurated in 2005 and relied on Azerbaijan’s largest oil fields as well as on Kazakh and Turkmen trans-Caspian shipments.

The decade-long excitement, however, seems to have hit a wall as Kazakh oil shipments have now faded away.

Experts don’t believe shipments will resume anytime soon. Tengizchevroil appears to have let its contract with BTC lapse. Kazakhstan’s Aktau port management has said it doesn’t foresee oil shipments from Tengiz resuming.

At a time of low oil prices and rising extraction prices, cutting expenditure on shipments of oil across the Caspian Sea was the obvious move for Kazakh producers.

Tengiz, and Kashagan whenever it comes online, will use the expanded Caspian Pipeline Consortium for future exports.

This choice will isolate Azerbaijan at a time when it is under the spotlight to become Europe’s new gas provider. The take-home from this story is that corporate interest, in the long run, overrides diplomatic objectives.

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(News report from Issue No. 278, published on April 29 2016)

Kashagan to resume production, says Kazakh energy minister

APRIL 22 2016 (The Conway Bulletin) – Kazakhstan’s energy minister Kanat Bozumbayev said he expects production at the Kashagan offshore field to resume by the end of 2016. Mr Buzumbayev’s statement sounded like a rebuttal to an earlier comment by CNPC, which said it saw Kashagan production resuming in mid-2017.

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(News report from Issue No. 278, published on April 29 2016)

Kazakhstan’s Kazmunaigas denies KMG EP’s buyout

APRIL 21 2016 (The Conway Bulletin) – Kazakhstan’s state-owned oil and gas company Kazmunaigas denied it had plans to issue new debt to raise cash to finance the buyout of minority shareholders in KMG EP, its subsidiary whose GDRs are listed in London. Ardak Kassymbek, one of Kazmunaigas’ managing directors, had earlier told Reuters that the company could borrow about $1b for the buyout.

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(News report from Issue No. 278, published on April 29 2016)

Kazakh oil producers ditch BTC pipeline export route

ALMATY, APRIL 26 2016, (The Conway Bulletin) — Kazakh oil producers have stopped exporting via the Baku- Tbilisi-Ceyhan (BTC) pipeline as they become increasingly cost-conscious during this period of low global oil prices, a shift that will damage Azerbaijan’s reputation as an energy transit route from Asia to Europe

Data from BTC showed that Kazakhstan’s latest contribution to the pipeline was in January. This is the first time in years that Kazakh producers have suspended shipments for more than a month.

This confirms the marginalisation of BTC as an export route for Kazakh producers, most predominantly Chevron-led Tengizchevroil (TCO).

Analysts said the ditching of BTC as an export route for Kazakh oil, a route once heralded as the region’s saviour, was linked to both contractual and market constraints.

“The contract between TCO and BTC for shipments recently ended, and with the CPC pipeline expansion adding new export capacity, there is capacity to export more TCO oil via CPC, which is a more economical option for TCO at low oil prices,” said Andrew Neff, senior petroleum analyst at IHS.

The CPC, Caspian Pipeline Consortium, is an oil pipeline that sweeps around the northern Kazakh shore of the Caspian Sea and ends at the Russian Black Sea port of Novorossiysk. It was designed in the 1990s to ship oil from TCO, Kazakhstan’s largest producer. It’s been gradually expanded and shipped 1.1m barrels/day in March, nearly double its rate of 10 years ago. BTC’s capacity is 1m barrels/day but in March 2016, it transported 721,500 barrels/day.

CPC is a cheaper export route because, to ship oil to the start of BTC, Kazakh producers needs to transport oil across the Caspian Sea.

Mr Neff, the IHS oil analyst, said that as well as hitting BTC’s earnings, dropping Kazakh oil from its mix will also reduce the quality of BTC exports.

“It will change BTC’s overall blend and lower its quality, as Turkmen crude is heavier, plus it will reduce oil transit revenues for Azerbaijan,” he said.

BTC’s main shareholders are BP with a 30% stake and Azerbaijan’s state-owned SOCAR with a 25% stake.

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(News report from Issue No. 278, published on April 29 2016)

Car and oil imports drop in Armenia

APRIL 19 2016 (The Conway Bulletin) – A regional economic downturn has dented Armenia’s imports in 2015, data from the state Statistics Committee showed. Car imports shrank by 38% to 27,300 last year, compared to 2014. Oil imports shrank by 8%. A region-wide currency crisis has affected purchasing power in the South Caucasus and Armenia’s trade numbers reflect this.

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(News report from Issue No. 277, published on April 22 2016)

CNPC says Kazakh Kashagan restart delayed until 2017

ALMATY, APRIL 21 2016, (The Conway Bulletin) — CNPC, China’s state owned energy company, said the Kashagan oil project will re-start production in June 2017, six months later than the Kazakh government has said it expects a restart.

At a press conference in Moscow, Wang Zhongcai, a vice-president at CNPC, said a launch, by the middle of 2017, was “likely,” Reuters news agency reported.

Just last week, Sauat Mynbayev, head of Kazakhstan’s state-owned Kazmunaigas, said the government forecast production by October and earlier this year, Exxon, which holds a 16.81% stake in the project, had also said it saw commercial production resuming by the end of 2016.

In September 2013, weeks after starting production, the consortium running Kashagan, one of the largest and most complex oil development projects in recent times, was forced to halt operations due to damaged pipelines.

In mid 2013, CNPC bought an 8.33% stake in Kashagan from Kazmunaigas. The share previously belonged to ConocoPhillips.

The other Kashagan shareholders also include Kazmunaigas, Total, Eni, Shell and Japan’s Inpex.

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(News report from Issue No. 277, published on April 22 2016)

Kazakhstan’s Ozenmunaigas names new chief

APRIL 19 2016 (The Conway Bulletin) – The board of Ozenmunaigas, a subsidiary of Kazakhstan’s Kazmunaigas, said it named Dauletzhan Khasanov as its new CEO. Mr Khasanov, who is also deputy director of KMG EP, replaced Maksat Ibagarov. In Kazmunaigas’ 2015 annual report Ozenmunaigas was listed as a loss-making venture.

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(News report from Issue No. 277, published on April 22 2016)

Kazakh oil service firms criticise subsoil law changes

APRIL 21 2016, ALMATY (The Conway Bulletin) – Kazakh oil service companies have said they are concerned about changes in the country’s subsoil law that the government needs to make to comply with WTO and Eurasian Economic Union regulations.

Nurlan Zhumagulov, head of the Union of oil service companies, said the proposed new law could harm local businesses.

“The new code will cut support for domestic producers. It will cancel the conditional inclusion in bids of local goods, workers and services in subsoil contracts,” Mr Zhumagulov told local media.

Local content, an industry code- word for the use of domestic assets and human resources, has been a cornerstone of Kazakhstan’s oil industry. Over the past two decades, with a series of laws, the government had raised the proportion of local workers and service contracts awarded to Kazakh companies in the oil sector.

Now, WTO regulations and the prospect of similar rules in the Eurasian Economic Union might stop subsidies and favouritism, a move cheered by international firms looking to win business in Kazakhstan. They have said that the changes to the subsoil law will make the tender process fairer.

Having negotiated since the mid- 1990s, Kazakhstan finally joined the WTO in November 2015. It requires Kazakhstan to scrap its local content legislation and stop favouring its local companies.

This comes at a tough time for the oil industry. The sharp fall in oil prices, which averaged $51/barrel in 2015, meant that service industry’s revenues fell by 25% last year, accord- ing to Mr Zhumagulov.

But the Asset Issekeshev, minister of industry, appeared to brush aside these concerns

“We are aware of all these questions and they will be resolved in the framework of the new code,” he said.

Spurred on partially by an economic downturn that has hit government revenues, Kazakhstan wants to attract more foreign investment into its extractive sectors.

It has identified its current subsoil laws as a potential weakness and a barrier to entry.

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(News report from Issue No. 277, published on April 22 2016)

Business comment: Doha dissappoints

APRIL 22 2016 (The Conway Bulletin) – Energy ministers in Baku and Astana were frustrated last week after a meeting of oil producers in Doha failed to agree to freeze oil production at January 2016 levels. Advocates of capping production had said that this would help oil prices rebound.

But Azerbaijani and Kazakh objectives at the meeting may have been slightly different to those of Saudi Arabia or Russia.

Certainly, they wanted a deal to push up oil prices but they also wanted to use any agreement as a fig leaf to cover up their sinking production levels.

Azerbaijani and Kazakh production and export volumes are too low to influence oil prices directly. They are price takers, not setters. The problem is that their ageing oilfields are simply uneconomical at $40 or even $60/barrel and this has forced producers out of the market.

Azerbaijan and Kazakhstan will continue to “freeze” production, because there’s nothing else they can do. Their production, and consequently their exports, are bound to fall again this year, according to all major forecasting agencies, from OPEC to the IEA and the EIA.

A recent survey of oil experts at PRIX said, for the first time since it started polling, that global oil exports are bound to fall in Q2. Azerbaijan and Kazakhstan will be part of this trend, the quarterly report said.

Had the Doha meeting succeeded, Azerbaijan and Kazakhstan could have hidden falling production figures behind an international agreement.

Now they have to face further oil price volatility, the main outcome of the failed Doha talks, and without a smokescreen to defend their lower output figures.

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(News report from Issue No. 277, published on April 22 2016)

Business comment: Dividends Et Impera

APRIL 15 2016 (The Conway Bulletin) – Dividends make investors happy, when they are issued, that is.

Kazakhstan’s largest publicly-traded companies have embarked on different dividend policies to weather an economic downturn that has, frankly, clobbered markets.

This week, mobile operator Kcell, which is part-owned by Sweden’s TeliaSonera and whose GDRs are listed in London, decided to give out 50% of its profits as dividend to its shareholders.

And, sticking to a long-held company policy, London-listed Central Asia Metals said it would pay out a total dividend of 12.5p.

At the opposite end of the dividend strategy spectrum, KMG EP and Halyk Bank, whose GDRs are also listed in London, ditched their annual payout to shareholders.

Both companies had traditionally given a piece of their profits to shareholders in the past.

KMG EP, a subsidiary of state-owned Kazmunaigas, said a collapse in oil prices over the past couple of years meant it couldn’t afford to pay out dividends and in a terse statement, Halyk Bank, owned by Timur Kulibayev and his wife Dinara Kulibayeva, daughter of President Nursultan Nazarbayev, said it too wouldn’t give shareholders a handout this year.

Halyk Bank didn’t explain its decision but Kazakhstan’s banking sector is bracing itself for an increase in non-performing loans linked to a 50% fall in the value of the tenge last year Broadly, these two different strategies provide an insight into Kazakh corporate mindset. Those companies with a stronger link to the Kazakh government and the political elite simply don’t need to pay dividends to keep their key investors happy.

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(News report from Issue No. 276, published on April 15 2016)