Kazakhstan is taking significant steps to revise its Production Sharing Agreements (PSA) with foreign oil companies, aiming to secure more favorable terms for the country. This revision is part of efforts to meet domestic oil demand, which has remained unmet for years due to heavy reliance on imports. Experts have pointed out the necessity of this move against the backdrop of increasingly unfavorable oil supply conditions within the nation.
The bulk of Kazakhstan's oil production is derived from the famed Tengiz, Kashagan, and Karachaganak oil fields. These coveted sites were developed through partnerships with major international oil companies, attracting substantial foreign investments over the last three decades. Notably, the Tengizchevroil (TCO) project, which operates the Tengiz oil field, introduced the concept of the stabilized contract when it was established back in 1993, set to conclude by 2033. The North Caspian PSA, which governs production around the Kashagan oil field and includes other fields, was signed in 1997 and is expected to remain active for 40 years.
Historically, these agreements have favored foreign investors, allowing them to recover costs before splitting the remaining profits with the Kazakh government. Now, these terms are being reviewed as Kazakhstan aims to reflect the country’s current economic realities. President Kassym-Jomart Tokayev emphasized during a recent government meeting the importance of negotiating “more favorable terms” to shift some of the benefits from foreign companies back to the domestic economy.
Energy Minister Almassadam Satkaliyev voiced concerns about the original conditions under which these agreements were signed, stating, “It is clear… the conditions and requirements from when those agreements were signed no longer align with today’s realities.” He highlighted the need for the Kazakh government to present new requests to foreign investors following the establishment of dedicated commissions tasked with assessing these existing contracts.
Domestic oil supply has similarly been problematic for Kazakhstan. Yedil Zhanbyrshin, a member of the nation's Parliament, lamented the nation’s reliance on imports, stating, “Every year, we face a shortage of oil products, which we cover through imports. This is nonsense for a country with such vast oil reserves.” Over the past seven years, Kazakhstan brought over six million tons of oil products from abroad, predominantly from Russia, raising alarms about energy independence.
The Kazakh parliament has been vocal about changing the terms of PSas to bolster domestic supplies. Olzhas Baidildinov, from the ministry’s public council, noted the financial disincentives for companies to prioritize local market supplies. Many foreign companies prefer to sell oil for export rather than the domestic market due to profit margins. He stated, “The three whales... do not supply oil to the domestic market because it is not specified in the agreement.” The domestic price for oil hover around $20 to $25 per barrel, making it unappealing for companies who can fetch far more on the international market.
With these discussions, the government hopes to impose asks such as mandatory local supply obligations and potentially introduce new export customs duties. Currently, firms operating within the Kashagan and Karachaganak projects are free from export duties, costing Kazakhtan's national budget $5 to $6 billion annually. A forthcoming negotiation phase could yield revisions, putting the national interest back at the forefront.
Looking toward the future of energy regulation within Kazakhstan, these discussions are poised to take several years. Minister Satkaliyev mentioned, “Following the terms of the PSA, we still have time. We have at least two to three years to hold these negotiations.” This extended timeframe signifies the government's cautious but progressive approach to balancing foreign investment with national resource management.
The call for change resonates strongly as Kazakhstan strives for energy independence, aiming to fulfill domestic needs, particularly as the refinement of oil continues to lag behind consumption demands. Government officials are optimistic about reaching agreements beneficial for both the state's revenues and its growing domestic fuel needs. With changes on the horizon, oil supply to the Kazakh market may soon no longer be an afterthought.