Kazakhstan’s ongoing oil saga has experienced an unexpected turn of events in recent weeks. First, Minister of Energy and Mineral Resources Vladimir Shkolnik broke the news that Kazakhstan would sign an agreement on joining the much-debated Baku-Tbilisi-Ceyhan pipeline in October 2005. As recently as his May trip to Baku, Kazakh President Nursultan Nazarbayev had abstained from signing the BTC agreement (see EDM, May 31).
Second, an Indian delegation headed by Deputy Foreign Minister Rajiv Sikri made a two-day visit to Astana. The trip could have been passed off as a routine intergovernmental consultation if not for the fact that the talks almost exclusively centered on energy issues. The delegation included representatives of the state Indian Oil and Natural Gas Corporation (ONGC), which recently joined with steel giant Mittal Group to set up ONGC Mittal Energy Limited and Mittal Energy Services Ltd. After unsuccessful attempts in the past to acquire stakes in Kazakhstan’s Kurmangazy fields, estimated to hold up to 1 billion tons of oil, ONGC is apparently set to make renewed forays into Kazakhstan’s oil sector in tandem with the powerful steel tycoon Lakshmi Mittal, who is thought to hold considerable sway over the Kazakh government and business circles. Some sources indicate that, even before their trip to Astana, Indian government officials and oil producers had secured promises of a 20% stake in the Kurmangazy oil fields project currently under development by Kazakhstan’s Kazmunaygaz national company and Russia’s Rosneft (Turan, July 29).
To this day Kazmunaygaz and the Kazakh Ministry of Energy and Mineral Resources have had several rounds of talks with the ONGC on developing the Satpayev and Makhambet oil deposits in western Kazakhstan, which have estimated reserves of 200 million tons of oil. ONGC also is interested in dozens of minor oil exploration projects in the Kazakh sector of the Caspian Sea. At the talks in Astana, the Indian delegation disclosed that they intend to invest some $1.5 billion in oil-exploration activities in Kazakhstan.
However, even relying on Lakshmi Mittal’s strong presence in Kazakhstan, the latecomer ONGC faces slim chances of gaining a firm foothold in the oil business in Kazakhstan, where important oil reserves in Aktobe region have already been taken up by the Chinese National Petroleum Company (CNPC), the main rival of Indian oil producers in the region. On July 30 the management of the Chinese joint-stock company CNPC-Aktobemunaygaz announced the beginning of crude oil production at the Umit deposits in Aktobe region. The daily output of crude is reported to have reached 120 tons per day, a very small amount, but with potential to increase several times in coming months. According to the Chinese oil company, in the years 1997 to 2004 the CNPC increased the oil output in Aktobe region from 2.75 million tons to 5.32 million tons. Chinese hold also 50% shares in the North Buzanchi project in Mangystau region and in the Chinese-Russian Aday joint venture in Atyrau region.
Some experts note that Chinese companies have abandoned their old strategy of investing exclusively in the development of proven oil fields, in order to minimize investment risks, and are now increasingly purchasing assets related to newly found oil deposits. The Chinese have set a target of supplying 20 million tons of crude annually to the pipeline running from Atyrau (western Kazakhstan) to Urumchi, Xinjiang, at any cost. The CNPC expansion leaves very little room for Indian oil-exploration activities in Kazakhstan. Nevertheless, Deputy Foreign Minister Sikri sounded optimistic, “Chinese companies are already here. They are undoubtedly strong. But we are strong too” (Novoye pokolenie, August 12).
Kazakhstan’s oil fields are likely to turn into a new battleground for rival Chinese and Indian oil giants. Theoretically, Kazakhstan could benefit from this rivalry among potential investors. The Indian company has joined the game at a time when Kazakhstan’s oil-based economy has begun to show clear symptoms of the “Dutch Disease.” Over the last three years the total volume of Kazakhstan’s external debts doubled to reach $32 billion. The amount of money in circulation has increased ten times, pushing the country toward a new wave of inflation. It is hard to expect that drawing new investments into the oil sector would radically improve the economic situation in the country. But if Kazakhstan uses foreign investments effectively and begins by diversifying its export routes to ease its dependence on Russia for transporting its oil, then the effort may bring fruits. Whatever the political environment in the region, Kazakhstan must export its oil to (or through) Iran and to India and Pakistan (Kursiv, August 5).
The Indian oil producers and their Kazakh counterparts discussed oil cooperation in broad terms. Nothing was definitely promised to ONGC. It remains to be seen whether or not India will take a leading position in Kazakhstan’s oil boom.