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THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND THAT THE INFORMATION
MUST BE READ IN CONJUNCTION WITH THE SECTION HEADED “WARNING” ON THE COVER OF THIS DOCUMENT.
INDUSTRY OVERVIEW
The information contained in this section and elsewhere in this document
have been extracted from various official government publications, available
sources from public market research and other sources from independent suppliers,
and from the independent research report prepared by Frost & Sullivan. We
engaged Frost & Sullivan to prepare an independent industry report in connection
with the [REDACTED]. The information from official government sources has not
been independently verified by our Company, the Sole Sponsor, the [REDACTED],
the [REDACTED], the [REDACTED] and the [REDACTED] or any of our or their
respective directors and advisers, or any other persons or parties involved in the
[REDACTED], and no representation is given as to its accuracy. Accordingly, the
information from official government sources contained herein may not be accurate
and should not be unduly relied upon.
SOURCE OF INFORMATION
We have commissioned Frost & Sullivan, an independent market research and
consulting company, to conduct an analysis of, and to prepare a report on the crude oil
market in Kazakhstan. The report prepared by Frost & Sullivan for us is referred to in this
[REDACTED] document as Industry Report. We agreed to pay Frost & Sullivan a fee of
HK$550,000 which we believe reflects market rates for reports of this type.
Founded in 1961, Frost & Sullivan has 40 offices with more than 2,000 industry
consultants, market research analysts, technology analysts and economists globally. Frost
& Sullivan’s services include technology research, independent market research,
economic research, corporate best practices advising, training, client research,
competitive intelligence and corporate strategy.
We have included certain information from the Industry Report in this
[REDACTED] document because we believe this information facilitates an understanding
of the crude oil market in Kazakhstan for the prospective investors. Frost & Sullivan’s
independent research consists of both primary and secondary research obtained from
various sources in respect of the crude oil market in Kazakhstan. Primary research
involved in-depth interviews with leading industry participants and industry experts.
Secondary research involved reviewing company reports, independent research reports
and data based on Frost & Sullivan’s own research database. Projected data were obtained
from historical data analysis plotted against macroeconomic data with reference to
specific industry-related factors. Except as otherwise noted, all of the data and forecasts
contained in this section are derived from the Industry Report, various official
government publications and other publications.
In compiling and preparing the research, Frost & Sullivan assumed that the social,
economic and political environments in the relevant markets are likely to remain stable in
the forecast period, which ensures the steady development of the crude oil market in
Kazakhstan.
OVERVIEW OF GLOBAL OIL INDUSTRY
Introduction of crude oil
Crude oil, also known as petroleum, is a naturally occurring global commodity
composed of hydrocarbon deposits and other organic materials. Crude oil is further
refined in the midstream to produce usable products including gasoline, diesel, and
various other forms of petrochemicals for various downstream usage.
Crude oil classification
Two of the most important quality characteristics of crude oil are density and sulfur
content. Density ranges from light to heavy, and sulfur content is characterised as sweet or
sour. Sweet oil refers to oil with less than 0.5% sulfur content. Sour oil refers to oil with
more than 0.5% sulfur content.
Light crude oil has low density and high quality, meaning that it has a higher price
compared to medium and heavy oils. The different types of crude oil are classified based
on the American Petroleum Gravity (API) gravity and viscosity. The properties may vary
in terms of proportion of hydrocarbon elements and sulfur content as it is extracted from
different geographical locations all over the world.
• Light oil: API gravity higher than 31.1
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INDUSTRY OVERVIEW
• Medium oil: API gravity between 22.3~31.1
• Heavy oil: API gravity below 22.3
Crude oil benchmark
There are three primary benchmarks of crude oil that serves as a reference for buyers
and sellers of crude oil:
(i) Brent Blend: The most popular and widely used crude oil benchmark, Brent
Blend refers to the light, sweet oil that comes from four oil fields in the North
Sea.
(ii) West Texas Intermediate (WTI): The main benchmark for crude oil in the
United States. It is a light, sweet oil ideal for gasoline refining.
(iii) Dubai Crude: Dubai Crude is a lower quality benchmark than Brent Blend or
WTI. This light, sour oil is mostly mined in the Middle East.
Industry value chain analysis
The following diagram sets forth the crude oil value chain:
Exploration Production Transportation Refining Retaining
• Geographical • Drilling the oil to the • Gathering • Refinery and • Marketing
Evaluation & Design ground surface • Storage Fractionation of crude • Retaining
• Field Development • Sale oil into petroleum • Processing
• Drilling Operations • Transportation: products • Trading
Pipelines, Tankers, • Product Blending • Distribution
Outfield Services Trucks, Shipment, • Downstream
• Contract Drilling Railways application (e.g.
• Drilling Related Services & Techniques Transportation,
• Production & Maintenance heating, chemicals,
medical, construction)
Upstream Midstream Downstream
Source: Frost & Sullivan
Global oil reserves
Oil reserves refer the amount of crude oil that can be feasibly recovered. Global
proven oil reserves maintained at around 1,500 billion barrels in each year during 2016 to
2020. In 2020, OPEC and OPEC+ member countries controlled about 80% of total world
proved crude oil reserves. The change in world proven crude oil reserves is mainly
associated with (i) the crude oil price trend which affects the investments on oil reservoirs
and the economic value of oil reserves; (ii) available technology and (iii) government
regulations involved in reporting and disclosing the reserves.
Kazakhstan owned approximately 30 billion barrels of proven oil reserves as of
2020, ranking 11th in the world and accounting for around 1.9% of the global oil reserves.
Global Proven Oil Reserve, 2016–2020
Breakdown by top 5 countries, 2020 (%)
2016–2020
CAGR 1.0% Venezuela
19.6%
Saudi Arabia
Billion barrels % 33.8%
Iran
2,000 8 16.9% Iraq
1,548.7 United Arab Emirates
1,489.1 1,491.3 1,494.7 1,546.0 6.9% 13.5% Others
1,500 6 9.4%
1,000 3.4% 4 Country/ Proven Oil Reserves Percentage
region (Billion barrels) Share
Venezuela 303.6 19.6%
500 2
Saudi Arabia 261.6 16.9%
0.1% 0.2% 0.2%
Iran 208.6 13.5%
0 0
Iraq 145.0 9.4%
2016 2017 2018 2019 2020
United Arab
Emirates 107.0 6.9%
Global Proven Oil Reserves Growth rate Sub-total 1,025.8 66.3%
Note:
i. 2021 actual data to be published by OPEC in forth quarter in 2022.
ii. “Proven Reserves” indicates that there is a greater than 90% chance that the oil will be recovered
using current technologies.
iii. Figures exclude oil sand.
Source: Organization of the Petroleum Exporting Countries (OPEC), Frost & Sullivan
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INDUSTRY OVERVIEW
Global crude oil production
The global crude oil production declined slightly from 75,367.2 thousand
barrels/day in 2016 to 69,093.3 thousand barrels/day in 2020 at a CAGR of -2.1% over the
period of 2016 to 2020. The downtrend is mainly associated with the unprecedented
turbulence in energy markets especially oil market, which is caused by COVID-19
pandemic.
Kazakhstan supplied approximately 1,470.0 thousand barrels/day of crude oil in
2020, ranking 13th in the world. The Kazakhstan’s oil production accounted for
approximately 2.1% of the global crude oil production in 2020.
Global Crude Oil Production, 2016–2020
Breakdown by top 5 countries, 2020 (%)
2016–2020
CAGR -2.1% United States
16.3%
Saudi Arabia
Thousand barrels/day
% Iraq
13.3%
80,000 75,367.2 74,494.8 75,695.1 75,242.9 15 55.7% China
69,093.3 5.6% 5.8%
Brazil
10 Others
60,000 4.3%
5
40,000 1.6% Country/ Oil production Percentage
-0.6% region (Thousand barrels/day) Share
-1.2% 0
United States 11,283.0 16.3%
20,000
-8.2% -5 Saudi Arabia 9,213.2 13.3%
Iran 3,997.6 5.8%
0 -10
China 3,889.0 5.6%
2016 2017 2018 2019 2020
Brazil 2,940.8 4.3%
Global Crude Oil Production Growth rate Sub-total 31,323.6 45.3%
Note: 2021 actual data to be published by OPEC in forth quarter in 2022.
Source: Organization of the Petroleum Exporting Countries (OPEC), Frost & Sullivan
Global crude oil demand
Global crude oil demand decreased from 95,887.4 thousand barrels/day in 2016 to
90,727.2 thousand barrels/day in 2020, representing a CAGR of -1.4% over the period from
2016 to 2020. The decline of crude oil demand in the past few years is primarily
attributable to (i) the increasing use of alternative energy sources worldwide and (ii) the
imposition of lockdowns around the world decimated transport-related demand
contributed by COVID-19 pandemic in 2020. In 2020, global crude oil demand plunged by
approximately 9.3%.
Global Crude Oil Demand, 2016–2020
Breakdown by top 5 countries, 2020 (%)
2016–2020
CAGR -1.4% United States
20.3%
China
Thousand barrels/day
% India
120,000 15 52.8% 14.5% Russia
99,131.0 100,030.0 3.7%
95,887.4 97,674.3 Japan
90,727.2 10 5.0%
90,000 Others
3.7%
-1.9% 1.5% 5
0.9%
60,000 0 Country/ Oil demand Percentage
region (Thousand barrels/day) Share
-9.3% -5 United States 18,442.8 20.3%
30,000
-10 China 13,190.6 14.5%
India 4,510.0 5.0%
0 -15
Russia 3,367.0 3.7%
2016 2017 2018 2019 2020
Japan 3,325.6 3.7%
Global Crude Oil Demand Growth rate Sub-total 42,836.0 47.2%
Note: 2021 actual data to be published by OPEC in forth quarter in 2022.
Source: Organization of the Petroleum Exporting Countries (OPEC), Frost & Sullivan
Global oil market outlook
There is an increase in demand for petrochemicals as the global economies recover
from the Covid years. In the short-term, after a surge in oil price during 2021 attributable
to a gradual resumption of economic performance globally, it is relatively optimistic in the
oil market in the foreseeable future with the prediction on the continuous global economic
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INDUSTRY OVERVIEW
recovery. According to the short-term energy outlook released by the U.S. Energy
Information Administration (EIA), the crude oil price is anticipated to further increase by
approximately 40.3% in 2022.
On the demand side, the global oil consumption in the short-term is expected to
increase associated with (i) the fact that global GDP growth is projected to grow 4.9% in
2022 according to IMF; (ii) alternative demand as a result of high gas price in Europe and
Asia; (iii) a rise in airborne freight due to global supply chain bottleneck and (iv) current
energy market uncertainties concerning the possibility of oil supply disruptions in the
first quarter of 2022 contributed by the crisis in Ukraine and subsequent sanctions on
Russia. On the other hand, the global oil supply is assumed to be limited based on the
assumption that OPEC and OPEC+ member countries will limit production increase to
less than the current target provided by the EIA.
Nonetheless, there are numerous risks and concerns to affect the positive oil market
outlook including (i) the ongoing uncertainty and volatility related to the COVID-19
pandemic such as the Omicron variant as well as the potential future variants all present
additional downside risks which influence oil demand; (ii) a weakening of global
economic growth due to supply chain disruption; (iii) a hawkish central bank response to
inflation that likely slows down the economic growth as well as oil demand and (iv)
uncertain OPEC and OPEC+ member countries production targets.
In the long-term, a significant oil demand increase is projected to come from the
road transportation and aviation sectors. However, a long-term oil demand growth may
be limited due to the growing penetration rate of electrical vehicles. According to OPEC,
despite a slowdown of oil demand growth and accelerated demand growth in other
energy sources, such as renewables, gas and nuclear, oil is expected to remain the highest
share in the global energy mix in the long-term until 2045. Noted that the primary energy
demand of developing countries is expected to increase substantially and constitute well
over 70% of global energy demand in the long-term, contributing a stable increase in
global primary energy demand, as well as oil demand in the long-term. Associated with (i)
an expanding middle class with substantial economic growth, (ii) continued increase in
population and (iii) potential and strong economic growth, oil demand in these emerging
markets is forecasted to rise between 2020 and 2045. Overall, the future rise in primary
energy demand will underpin the dominant status of oil in the energy field.
OVERVIEW OF CRUDE OIL MARKET IN KAZAKHSTAN
Kazakhstan Oil Industry
Kazakhstan is the largest oil producer in Central Asia. Being one of the world’s
largest oil producers, the major source of revenue in Kazakhstan is oil exports. Due to its
geographical location advantage, the majority of Kazakhstan’s crude oil is exported to
Europe. On the other hand, Kazakhstan also possesses a significant amount of natural gas
deposits, ranking third in Eurasia in terms of proven gas reserves in 2020. Its enormous
natural gas reserves are typically reinjected into oil wells to boost crude oil recovery rates.
Most of Kazakhstan’s natural gas reserves are found in areas rich in crude oil or
condensate. Karachaganak and Tengiz, the two largest petroleum liquids fields, are also
the two largest natural gas fields in Kazakhstan. Further, Kazakhstan is regarded as one of
the members of OPEC+, the 10 non-OPEC member countries who also participate in the
OPEC’s initiatives such as voluntary supply cuts in order to further bind policy objectives
between the 13 OPEC members and non-OPEC members. According to OPEC, the
aggregate crude oil output and reserves of overall 23 OPEC and OPEC+ member countries
accounted for about 58.9% and 88.8% of total production and reserves respectively in
2020. Such fact indicates OPEC+ possesses a great level of influence over the global oil
market.
Historical exchange rate fluctuation (US$/KZT)
The historical fluctuation of the U.S. dollar per Kazakhstani Tenge (KZT) exchange
rate recorded an overall increase from 2017 to 2021. The KZT against the U.S. dollar was
registered robust growth from 322.2 to 431.8. The consistent depreciation in KZT is mainly
associated with (i) the continuous fall in the oil price during 2017 to 2020; (ii) a range of
geopolitical issues including U.S. sanctions on major trading partners like Russia and
Turkey in 2018 and (iii) the dramatic sell-off of emerging markets assets in the early 2020
in light of COVID-19 pandemic.
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INDUSTRY OVERVIEW
Historical Exchange Rate Fluctuation (US$/KZT), 2017–2021
US$/KZT Exchange Rate
500
419.2 420.1 426.2
378.1 386.0 393.0
400 356.5 426.3 428.7 431.8
322.2 331.1 323.4 418.7
370.0 380.8 387.1
300 334.4 330.3
315.3
200
100
0
1
2
3
4
1
2
3
4
1
2
3
4
1
2
3
4
1
2
3
4
Q
Q
Q
Q
Q
Q
Q
Q
Q
Q
Q
Q
Q
Q
Q
Q
Q
Q
Q
Q
17
17
17
17
18
18
18
18
19
19
19
19
20
20
20
20
21
21
21
21
20
20
20
20
20
20
20
20
20
20
20
20
20
20
20
20
20
20
20
20
Source: Frost & Sullivan
Production volume and domestic demand of crude oil in Kazakhstan
Kazakhstan has been one of the major production origins of crude oil in terms of
volume in the past decades, in 2020, Kazakhstan ranked 13th in terms of production
volume of crude oil over the world. The crude oil production volume has increased
moderately from 495.9 million barrels in 2016 to 647.9 million barrels in 2021, where it
peaked in 2019 and witnessed a downturn since 2020 and 2021, imputed to the outbreak of
the COVID-19, where imposition of quarantine and lockdown measures caused disruption
on production line. Overall, the production volume of crude oil in Kazakhstan recorded a
CAGR of approximately 5.5% from 2016 to 2021. As remarked by the Minister of Energy,
the aggregated oil production in Kazakhstan is expected to grow continuously during
2021 to 2030, attributable to increasing production capability and capacity of major oil
production sites. In December 2021, the Minister of Energy of Kazakhstan estimated that
the crude oil production is expected to reach about 666.0 million barrels in 2022, with a
year-over-year growth of 2.8% supported by the gradual resumption of economic
activities globally in 2021. Moving forward, the crude oil production volume in
Kazakhstan is expected to reach approximately 738.5 million barrels in 2026, representing
a CAGR of approximately 2.6% from 2022 to 2026. Further, in accordance with the plan of
the Kazakhstan’s government, the crude oil production volume in Kazakhstan will grow
and will reach around 787.7 million barrels by 2030, with a CAGR of 2.2% for the period of
2022 to 2030.
The domestic consumption of crude oil in Kazakhstan has increased steadily from
123.2 million barrels in 2016 to 130.0 million barrels in 2021, where it peaked at 136.8
million barrels in 2019. The outbreak of the COVID-19 has similarly impacted local
manufacturing and production chain, which has led to a decline during 2019 to 2020. The
uncertainties have been further intensified with the emergence of COVID-19 variants
namely Delta and Omicron, it is expected that the domestic demand for crude oil may take
approximately one to two years to resume back to pre-COVID-19 level, reaching 151.4
million barrels in 2026, representing a CAGR of approximately 3.3% from 2022 to 2026.
Production Volume and Domestic Demand of Crude Oil in Kazakhstan, 2016–2026E
CAGR 2016–2021 2022E–2026E
Crude Oil Production
Crude Oil Production 5.5% 2.6%
Crude Oil Domestic Consumption
Crude Oil Domestic Consumption 1.1% 3.3%
Million barrels
800 738.5
702.3 720.5
666.0 684.2
647.9
600 585.9 594.2
551.1 551.9
495.9
400
200 137.6 142.1 146.7 151.4
123.2 123.2 133.8 136.8 127.0 130.0 133.1
0
2016 2017 2018 2019 2020 2021E 2022E 2023E 2024E 2025E 2026E
Note:
1. 2021 actual data to be published by OPEC in forth quarter in 2022.
2. The conversion rate of 7.56 barrels = 1 tonne is applied.
Source: Ministry of National Economy of the Republic of Kazakhstan Statistics Committee, Frost & Sullivan
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INDUSTRY OVERVIEW
Crude oil export volume and value from Kazakhstan
The crude oil export volume has increased from 468.0 million barrels to 518.6
million barrels during 2016 to 2021, representing a CAGR of approximately 2.1%.
Kazakhstan serving as a crude oil export hub between Europe and the PRC, the
Kazakhstan government and foreign investors have continued the endeavour to facilitate
international trading and export of oil originated from Kazakhstan. The Kazakhstan
government confirmed the continuous support to continue the construction of energy
corridors to China and Europe and establish the production infrastructure to facilitate the
sale of various energy products. Foreign investors heavily and continuously invest in the
continual development of important oilfields such as Tengiz, Karachaganak and
Kashagan. In turn, the crude oil export volume is expected to attain 623.7 million barrels
in 2026, representing a CAGR of approximately 3.8% from 2022 to 2026.
The crude oil export value on the other hand, has peaked at US$37.8 billion in 2018
since 2016, while it declined during 2019 to 2020 due to the booming of alternative shale
oil in the U.S. as well as the outbreak of the COVID-19 which significantly impeded the
global manufacturing and production chain. Overall, the crude oil export value has
increased from US$19.4 billion to US$38.5 billion from 2016 to 2021, representing a CAGR
of approximately 14.7%. Moving forward, the export value of crude oil is expected to
increase with a CAGR of 1.3% during 2022 to 2026.
The export volume and export value of crude oil are expected to grow in the
forecasted period, attributable to (i) the continuous demand for associated products of
crude oil including petrochemical products, such as plastics, fertilisers, packaging,
clothing, electronic devices and medical equipment especially from the export
destinations of Kazakhstan including Europe and the PRC. Petrochemicals are also
essential in the manufacturing of technologically advanced energy systems, including
solar panels, wind turbines, batteries, thermal insulation and electric vehicles, which are
prevailing propositions outlined by the governments of various export destination
countries; (ii) crude oil demand associated with developing regions in both the European
and Asian countries, such as Indonesia, Vietnam, the PRC, Croatia, Poland and Turkey
and (iii) stringent containment measures as well as the rollout of mass vaccination
programme is expected to lead to the normalisation of economic activities post COVID-19
in the medium and long run, which would propel various industries such as
transportation and manufacturing and thereby boosting the consumption of crude oil.
In terms of export value, the top export destination of crude oil from Kazakhstan in
2020 are in descending order, Italy (27.6%), Netherlands (10.8%), India (7.7%), France
(6.8%) and Greece (5.4%). Other export destination may include Switzerland, Turkey,
Romania, the PRC, Spain and South Korea, where the export value of these countries in
general exceed US$1 billion.
Crude Oil Export Volume and Value from Kazakhstan (Crude Oil), 2016–2026E
CAGR 2016–2021 2022E–2026E
Crude Oil Export Volume (barrels)
Crude Oil Export Volume 2.1% 3.8%
Crude Oil Export Value (US$)
Crude Oil Export Value 14.7% 1.3%
Top export destination of crude oil from
Million Barrels US$ billion Kazakhstan by export value (2020)
800 120
Others
623.7 Italy
600 578.3 601.8 27.6%
520.9 533.0 535.2 539.8 518.6 537.5 558.7 90
468.0
59.2 62.3
400 52.1 56.0 59.3 60 41.8%
37.8 33.6 38.5
26.6 23.7 10.8%
200 19.4 30
Netherlands
5.4% 7.7%
0 0 6.8%
2016 2017 2018 2019 2020 2021E 2022E 2023E 2024E 2025E 2026E Greece France India
Note:
1. 2021 actual data to be published by the Ministry of National Economy of the Republic of
Kazakhstan Statistics Committee in forth quarter in 2022.
2. The conversion rate of 7.56 barrels = 1 tonne is applied.
Source: Ministry of National Economy of the Republic of Kazakhstan Statistics Committee, Trade Map, Frost &
Sullivan
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INDUSTRY OVERVIEW
PRICE TREND OF CRUDE OIL
Crude oil price is greatly influenced by some geopolitics factors such as the
diplomatic behaviours of major Organization of the Petroleum Exporting Countries
(OPEC) countries in the world.
In general, the price of crude oil hovered around US$30.7 to US$74.2 per barrel
during the historical period of 2016 to 2021. The relatively low-price level in early 2016
was mainly due to the increasing production of shale oil in the U.S. During the period
from 2016 to 2019, the crude oil price showed a general uptrend, except the slump in early
2020. Since 1 January 2020, the international market oil price has been experiencing a
plummet after OPEC’s failure to strike a deal with its allies on the output cut in March
2020 and Saudi Arabia’s reaction intensified the situation by way of cutting oil prices and
boosting production. The global outbreak of the COVID-19 pandemic also restrained the
demand of crude oil, which further intensified oil supply and demand imbalance. In April
2020, crude oil price plummeted to below US$20 per barrel. The crude oil price started to
rebound since May 2020 due to the rebalancing of oil supply and demand along with
world’s top oil producers such as Saudi Arabia, UAE and Kuwait ended their voluntary
extra oil production. The crude oil price increased to US$50 per barrel at the end of 2020
from the bottom point in April 2020. In 2021, the crude oil price kept increasing to US$74.2
per barrel by the end of 2021. The rapid growth is primarily attributable to (i) the
increasing oil demand with the resumption of global economic activities throughout most
of the time in 2021; (ii) weather-related supply disruptions; (iii) restrained production by
OPEC and its partners and (iv) the higher natural gas prices, which increased oil demand
for heating and electricity generation. Nonetheless, at the end of 2021, the crude oil prices
declined slightly amid the emergence of the new Omicron COVID-19 variant, reflecting
market expectations of lower global crude oil consumption in the coming months.
According to the EIA, Brent crude oil price is anticipated to reach US$105.2 per
barrel in 2022 and US$89.0 per barrel in 2023. In light of (i) current market uncertainties
about the possibility for oil supply disruptions attributable to the crisis in Ukraine and
subsequent sanctions on Russia and (ii) the steady decrease in global oil inventories since
mid-2020, the crude oil price surged in the first two months of 2022 and increased by
12.3% month-over-month change in February 2022. It is anticipated that the crude oil price
will increase rapidly in 2022, with approximately 40.3% increase. On March 31 2022, OPEC
and OPEC+ member countries has decided to raise crude oil output production by
approximately 432,000 barrels per day in starting in May 2022, with a slight increase of 8%
compared to the previous target. Such moderate increase in crude oil production is
unlikely to slow down the recent oil price rally due to the fact that the major reason of
current oil price hike — the fear of and the Russian supply disruptions have not been
settled. Therefore, it is estimated that the oil price is likely to remain at a high level of
US$100 per barrel during 2022. On the demand side, the global oil consumption in the
short-term is expected to increase associated with (i) the fact that global GDP growth is
projected at 4.9% in 2022 according to IMF; (ii) the alternative demand as a result of high
natural gas price in Europe and Asia and (iii) a rise in airborne freight due to global
supply chain bottleneck. On the other hand, the global oil supply is assumed to be limited
based on the assumption that OPEC and OPEC+ member countries will limit production
increase to less than the current target provided by EIA. Further, there are numerous risks
and concerns to affect the positive oil market outlook including (i) the ongoing
uncertainty and volatility related to the COVID-19 pandemic such as the Omicron variant
as well as the potential future variants all present additional downside risks which
influence oil demand; (ii) a weakening of global economic growth due to supply chain
disruption; (iii) a hawkish central bank response to inflation that likely slows down the
economic growth as well as oil demand; (iv) uncertain OPEC and OPEC+ member
countries production targets and (v) current market instability associated with the conflict
between Ukraine and Russia. According to EIA, the crude oil price is expected to reach
US$116.0 per barrel in the second quarter of 2022 and US$102.0 per barrel in the second
half of 2022. After considering the aforementioned events, it is expected the crude oil price
is likely to stay above US$100.0 per barrel from March to the end of 2022. Nonetheless, the
crude oil price will witness a decline of approximately 15.4% in 2023, assumed that (i)
global economic activities resumption will slow down; (ii) global supply chain problems
will be settled in the foreseeable future and (iii) the current market uncertainty is
temporary. During the period of 2024-2025. it is estimated that the crude oil price will
expand and reach US$92.4 per barrel and US$91.5 per barrel in 2024 and 2025 respectively,
which is in line with the analysis provided by the World Bank in October 2021. The crude
oil price will remain at high levels in 2024 and 2025.
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INDUSTRY OVERVIEW
Crude Oil Prices, 2016–2025E
Unit: US$ per barrel Forecast
120 107.4
110.0
97.2 101.0 100.0
97.1
90 82.5
81.0
74.2
60 55.0
30 27.5
30.7
18.4
0 0.0
01/2016
05/2016
09/2016
01/2017
05/2017
09/2017
01/2018
05/2018
09/2018
01/2019
05/2019
09/2019
01/2020
05/2020
09/2020
01/2021
05/2021
09/2021
01/2022
22
23
24
25
20
20
20
20
Note: The crude oil price refers the Brent Crude Oil Spot Price and the price is shown as month-average
or year-average on each data point.
Source: World Bank, U.S. Energy Information Administration (EIA), Frost & Sullivan
KEY GROWTH DRIVERS AND MARKET OPPORTUNITIES
1. Rising Demand for Petrochemical By-products
Demand for petrochemical by-products such as plastics is on the rise due to
increased demand for downstream applications, namely consumer packaging and
personal protective equipment. Plastic packaging for food and other commercial products
can be made from a range of petrochemical products, including polyethylene and
polystyrene. In particular, upstream ethylene has found support from consistent demand
from the packaging and fast-moving consumer goods applications of some polyethylene
grades and styrenics. On the ride of economic recovery, strong packaging demand for
hygiene and food applications continues to support the demand for petrochemical.
2. Increasing refining capacity and plans
To increase production, both in the short and long term, the Shymkent plant is
planning to increase its load by 800,000 tons in 2022 while the Pavlodar oil refinery plans
a project on the reconstruction of the hydro-purification plant. The productivity of the
Pavlodar plant is expected to increase up to six million tons and produce 160,000 tons of
winter diesel fuel, up to approximately 17% increase in the near future. Modernization of
the bitumen production unit at the Aktau bitumen plant will raise the production capacity
from 400,000 to 450,000 tons per year. On the other hand, an oil refinery worth
approximately US$420 million, in Algabas village, Terekti district, West Kazakhstan
region is being built and it is expected to produce 750,000 tons of refined products a year.
In addition, the Atyrau Refinery Modernisation Project was launched in 2021 to upgrade
the oil refinery facilities in Kazakhstan. Such project includes modernization of
mechanical wastewater treatment facilities and biological wastewater treatment facilities,
and remediation of the evaporation fields of 860 hectare and construction of a new effluent
pipeline extending from the refinery for 3.5 km to a municipal wastewater treatment plant
instead of existing open wastewater discharge channel. Increasing refining capacity
improves oil production and accelerates the development of the oil industry in
Kazakhstan.
3. Revival of the Transport Sector
The COVID-19 outbreak has seriously disrupted economic and social activities
across the globe. As the government imposed stringent social distancing, business closure
and travel restrictions, and encouraged work from home to minimise crowds in public
places, there has been a sharp patronage reduction of public transport. As the impact of
COVID-19 is diminishing, transport sector is likely to revive in the near future, with the
relaxation of social distancing, business closure and travel restrictions, which in turn
drive the consumption of oil.
4. Promotion of the Belt and Road strategy and Rising Crude Oil Export
Kazakhstan is an important part of the Belt and Road Initiative, giving access across
Eurasia to the Caspian nations and onto Europe via both Russia and Turkey, minimising
national border controls and maximising rail connectivity. The engagement with the Belt
and Road Initiative and the exploitation of new infrastructure builds are important for the
development of Kazakhstan. As of April 2019, Kazakhstan has invested about US$30
billion on infrastructure development, transport and logistics assets and competence as
part of the Belt and Road Initiative. Kazakhstan is one of the most important partners for
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INDUSTRY OVERVIEW
the PRC’s strategy in trade and energy. On May 12 2020, China National Petroleum
Corporation’s Pipeline Engineering Company and Alashankou Daodu Pipeline Company
signed a design contract for a new China-Kazakhstan liquefied petroleum gas pipeline.
The new pipeline is designed to cope with insufficient transportation capacity and end
reliance for petroleum gas pipeline transportation on trucks and cargo trains that are high
in cost, as well as in oil and gas loss, and subject to weather problems. Kazakhstan will
transition from an agricultural and energy play to diversify by developing a service
economy in transhipping, logistics, warehousing and added value manufacturing. The
diversification of economy will support the growth of the downstream industries and
create the demand for oil industry in Kazakhstan. On the other hand, the enhanced
cooperation between Kazakhstan and other countries would further facilitate the export
of crude oil from Kazakhstan to other countries. The export volume of crude oil in
Kazakhstan demonstrated moderate growth, rising from 61.0 million tons to 70.3 million
tons with a CAGR of 3.6%, which serves as the driver to the oil industry in Kazakhstan.
5. Technological advancement in oil production
The technological advancements serve as one of the drivers to oil industry,
especially in the process of exploration and extraction. Robotics and other automated
technologies are used to perform high-risk jobs. For example, automated drilling will
reduce overhead, increase employee safety and make it economically feasible to drill on
smaller sites. Logistical improvements will make the entire supply chain more efficient
that the use of metal-organic frameworks could revolutionise oil and gas transportation
by eliminating the need to vent harmful materials throughout the journey. New drilling
technologies such as Horizontal Drilling, Fracking, Multilateral Drilling, Extended Reach
Drilling, and Automated Drilling are being applied into practical use to increase the oil
production capacity. Meanwhile, technologies such as big data and AI have become more
important in future development of the crude oil production industry. Data-driven
technology solutions such as wireless networks, remote sensors, and analytics software
help industry insiders gather, track, and interpret data to maintain optimal production
and efficiency.
MARKET CHALLENGES
1. Inefficient Pipeline Infrastructure
Kazakhstan’s pipeline infrastructure is efficient and creates a potential bottleneck
for movement of product. Kazakhstan is a country reliant on pipeline infrastructure with
extensive pipelines connecting Kazakhstan with other Central Asian countries, Russia,
and China. Despite Kazakhstan’s massive estimated reserves, the country has had
difficulty realising its full energy potential. Inclement weather and ongoing repairs at
pipeline facilities has stagnated the transportation volume constantly. For instance in
March 2022, the Caspian Pipeline Consortium which is the largest oil pipeline of
Kazakhstan, had temporary decommissioned of one of its mooring structures. It is seen
during the foreign suppliers have stopped deliveries of spare parts for the damaged
facilities due to sanctions under the Russia-Ukraine crisis. In turn, the inefficient pipeline
infrastructure entailing oil transportation bottleneck.
2. Legacy of Potential Uncertainty
Kazakhstan has the potential to sustain strong growth over the long term, but, given
its current legacy of potential uncertainty and continued adherence to prudent
macroeconomic policies will be essential to achieving this goal. Realising its full
long-term growth potential will also require further structural reform in a large number of
areas, to render both the state and the economy more efficient and more resilient. There is
a legacy of potential uncertainty with respect to foreign investment by foreign operators.
3. Continued oil discoveries
There have been oil discoveries in southern Kazakhstan. In particular, sizeable
crude oil discoveries have been made, in 2019, in southern Kazakhstan which is expected
to have significant reserves and may increase the supply of new refineries that are
expected to process the crude oil. In 2021, new large oil field was discovered in Caspian
region, western Kazakhstan. According to the government, this is the largest reservoir of
hydrocarbons found in the region in the over 30 years of Kazakhstan’s independence.
Continued oil discoveries would increase the overall supply of crude oil, thereby further
increasing the competition among the oil companies in Kazakhstan.
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INDUSTRY OVERVIEW
COVID-19 EFFECT ON THE OIL INDUSTRY
The COVID-19 pandemic outbreak since January 2020 around the globe, had an
adverse impact on the crude oil demand worldwide as well as the production volume of
crude oil within Kazakhstan. Temporary suspension of workplace activities as part of the
containment measures for COVID-19 delayed the production schedule of the upstream
crude oil producer. The slow-down of economic activities especially in the downstream
application areas of crude oil namely transportation, heating, chemicals, medical,
construction resulted in significant shrinking demand from Europe and the PRC. Further,
COVID-19 has increased operational risk in relation to currencies in Kazakhstan, the
depreciation in local currencies subdued the confidence in the economy.
The crude oil and petroleum gas export value have both plunged. The export value
of crude oil plummeted from US$2,931.5 million in December, 2019, which is referred as
pre-COVID-19 level, to the lowest US$724.1 million in July, 2020, the lowest export value
after COVID-19. Export value of petroleum gas has slumped from US$230.5 million in
December, 2019 to the lowest figure US$97.3 million in March, 2021.
As for latest development, the vaccination programme has been rolled out since
February 2021 in Kazakhstan, inoculating vaccines namely Sputnik V, Sputnik Light,
Covilo, CoronaVac, QazCovid-in and Comirnaty, with approximately 48.6% of the
population having completed the two doses of vaccination as in March 2022. Considering
the emergence of the new COVID-19 variant namely Omicron in early 2022, remarked by
the IMF, the worldwide access to vaccines, tests and treatments are critical in reducing the
risk of the widespread of new variants. It is expected in late 2022 to early 2023, the gradual
containment of the COVID-19 shall bring about economic recovery both domestically and
internationally. F&S is of the view that the crude oil and petroleum gas industry in
Kazakhstan is expected to regain the growth momentum in terms of volume and
aggregated value in the medium and long run since 2023.
Crude Oil Export Value from Kazakhstan during the Outbreak of COVID-19
US$ Million
4,000
2,000
0
12/2019
01/2020
02/2020
03/2020
04/2020
05/2020
06/2020
07/2020
08/2020
09/2020
10/2020
11/2020
12/2020
01/2021
02/2021
03/2021
04/2021
Source: Trade Map, Frost & Sullivan
COST STRUCTURE ANALYSIS
Cost of production in the crude oil Industry
In general, the machinery and equipment used in the oil and gas sector and the
mining industry is imported primarily from Russia and the PRC. The price index of
imported petroleum and gas well drilling machinery increased steadily from 100 to 203.4
from 2016 to 2021, representing a CAGR of approximately 15.3%, which is attributable to
increasing demand for the machinery and equipment requested from Russia and the PRC
in their local and foreign exploitation sites. The price index is expected to attain 355.1 in
2026, representing a CAGR of approximately 12.2% from 2022 to 2026.
Price Index of Imported Petroleum and Gas Well Drilling Machinery, 2016–2026E
2016–2021 2022E–2026E
Price Index (2016=100)
CAGR 15.3% 12.2%
500
400 355.1
319.3
281.3
300 246.8 249.6
237.3 223.7
192.1 203.4
200 149.7
100.0
100
0
2016 2017 2018 2019 2020 2021E 2022E 2023E 2024E 2025E 2026E
Source: Trade Map, Frost & Sullivan
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INDUSTRY OVERVIEW
COMPETITIVE LANDSCAPE OF KAZAKHSTAN CRUDE OIL MARKET
Overview of competition of Kazakhstan crude oil market
The Kazakhstan crude oil market is highly concentrated with the top 5 players
accounting for approximately 81.9% of the Kazakhstan market share in 2021 in terms of
production volume and top 10 players accounting for around 67.3% in terms of
Kazakhstan proven oil reserves. There are approximately less than 50 industry players in
the Kazakhstan crude oil market. In 2021, the estimated crude oil production volume in
Kazakhstan is around 639.3 million barrels. In general, petroleum producers are
differentiated based on the scope of services, targeted products, as well as scale of
production. In Kazakhstan, dominant companies are joint-ventures of leading oil
companies (such as Chevron, ExxonMobil, Shell) and entities owned or controlled by the
Kazakhstan State. The reason for this structure is that the development of oilfields was
difficult in the past attributed to the technical challenges of developing the deep and
high-pressure reservoirs. Hence, international oil companies began to participate in
Kazakhstan’s petroleum sector to tackle the technical problem which enhances the crude
oil market development in Kazakhstan.
As of 2021, it is estimated that the proven crude oil reserves in Kazakhstan is about
30,000 million barrels. The Group possessed approximately 530.5 million barrels of proven
oil reserves in 2021, with a market share of about 1.8% over the proven crude oil reserves
in Kazakhstan of 30,000 million barrels. The Group is ranked No.5 in terms of proven oil
reserves in Kazakhstan in 2021.
Ranking of Oil Companies by Proven Crude Oil Reserves (Kazakhstan), 2021
Estimated
Recoverable crude oil
Rank Market participant market share
(Million barrels)
(%)
1 Company A 11,500.0 38.3%
2 Company B 5,061.1 16.9%
3 Company C 1,200.0 4.0%
4 Company D 687.8 2.3%
5 The Group 530.5 1.8%
6 Company E 419.7 1.4%
7 Company F 312.6 1.0%
8 Company G 300.0 1.0%
9 Company H 114.9 0.4%
10 Company I 57.0 0.2%
Sub-total 20,183.6 67.3%
Total 30,000.0 100.0%
Note:
1. The ranking is compiled from the available information in the public domain, including
published annual report of listed companies, track record, client portfolio and other relevant
data, and based on the trade interviews and fieldworks conducted.
2. The ranking considers the recoverable crude oil reserves of top 15 oil fields due to information
availability.
3. Assumed that the crude oil reserves in Kazakhstan are approximately 30,000 million barrels in
2021, same as that in 2020.
4. The discrepancy between above estimated figures and actual figures may exist but is minimal,
attributed to the fact that over 90% of the total oil and gas condensate reserves of Kazakhstan are
concentrated in the 15 largest fields, which are included in the calculation.
Company Profile:
• Company A is a joint-venture established in 1993 with principal business of developing the crude
oil fields in Kazakhstan.
• Company B is a joint-venture established in 2009 with principal business of developing the crude
oil fields in Kazakhstan.
• Company C is a joint-venture established in 1997 with principal business of developing the crude
oil fields in Kazakhstan.
• Company D is a listed company established in 1963 which is engaged in exploration and
production of oil in Kazakhstan.
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INDUSTRY OVERVIEW
• Company E is a joint-venture established in 1996 with principal business of developing the crude
oil fields in Kazakhstan.
• Company F is China’s largest oil and gas producer and supplier, as well as one of the world’s
major oilfield service providers.
• Company G is a joint-venture established in 1981. Its scope of business includes exploration, field
development, oil and gas production, as well as purchasing of fields, processing and selling of
crude oil and refined products.
• Company H is a joint-venture established in 1995, which principally develops Karazhanbas field
in Kazakhstan. The main activities include extraction, primary processing and sales of oil, mainly
for export.
• Company I is a joint-venture established in 1997 with principal business of developing the crude
oil fields in Kazakhstan.
As of 2021, The Group is primarily operated 14 oil fields in Pre-Caspian Basin,
Kazakhstan. The Pre-Caspian Basin is one of the major basins with the most significant
amount of oil fields, with proven crude oil reserves of 19,000.0 million barrels in
Kazakhstan, accounting for approximately 63.3% of total proven crude oil reserves in
Kazakhstan. The Group possessed about 530.5 million barrels of proven oil reserves in
2021, accounting for around 2.8% market share in Pre-Caspian Basin, Kazakhstan. The
Group is ranked No.4 in terms of proven oil reserves in Pre-Caspian Basin, Kazakhstan in
2021.
Ranking of Oil Companies by Proven Crude Oil Reserves
(Pre-Caspian Basin, Kazakhstan), 2021
Estimated
Recoverable crude oil
Rank Market participant market share
(Million barrels)
(%)
1 Company A 11,500.0 60.5%
2 Company B 5,061.1 26.6%
3 Company C 1,200.0 6.3%
4 The Group 530.5 2.8%
5 Company F 312.6 1.6%
Sub-total 18,604.2 97.9%
Total 19,000.0 100.0%
Note:
1. The ranking is compiled from the available information in the public domain, including
published annual report of listed companies, track record, client portfolio and other relevant
data, and based on the trade interviews and fieldworks conducted.
2. The ranking only considers the reserves held by respective companies in Pre-Caspian Basin.
3. Astrakhan field is not included as it is located within the Russian part of the basin.
Company Profile:
• Company A is a joint-venture established in 1993 with principal business of developing the crude
oil fields in Kazakhstan.
• Company B is a joint-venture established in 2009 with principal business of developing the crude
oil fields in Kazakhstan.
• Company C is a joint-venture established in 1997 with principal business of developing the crude
oil fields in Kazakhstan.
• Company F is China’s largest oil and gas producer and supplier, as well as one of the world’s
major oilfield service providers.
Entry barriers
1. Hefty capital investment
Crude oil production industry in Kazakhstan requires significant upfront capital
investment for various purposes, including but not limited to (i) the acquiring of essential
lands and licenses through public auction or trading; (ii) the sourcing of machinery and
equipment such as drilling rig, mud pumps, drill pumps as well as the backend
geo-steering system, and cementing and completion tools; and (iii) recruiting skilled
labour with extensive technical know-how in manoeuvring throughout the production
process. Large companies can leverage their sufficient funds to acquire the identified
assets directly, while it sets tremendous hindrance for new entrants to obtain the capital
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INDUSTRY OVERVIEW
and capability to offer one-stop services. The above circumstances result in a high market
entry barrier which favours existing sizeable players, leading to a relatively concentrated
market in Kazakhstan.
2. Qualification and Track Record
In order to obtain the qualification for engaging in crude oil production industry in
Kazakhstan, an enterprise shall satisfy several conditions set by the Kazakhstan
government, for example, the oil companies have to obtain “subsoil use right” SUR
granted by the government in order to use such subsoil within the boundaries of an
allocated plot for business purposes for a specific period. Further, several factors such as a
good reputation in complying with the regulation and an effective use of resources in
producing crude oil indicate the special qualification of the oil company. This helps the oil
company to draw the attention from downstream customers and build long-term
relationships with them. Producers with good proven track record are also more likely to
be accepted by locals and thereby enable the oil production to be executed more smoothly.
However, new entrants may not be able to accumulate extensive experience in a short
period.
3. Customer relationship
In the crude oil production industry in Kazakhstan, most crude oil producers have
established solid relationship with refinery, distributors and downstream crude oil end
customers. The government as well as midstream and downstream players prefer an
already solidly established and working relationship with current producers in order to
eliminate uncertainty in collaboration with new players. As such, it poses challenges for
new players to probe into the existing eco-system of the industry.
Nature and factors of market competition
1. Multi-skilled professionals
Personnel with skilled expertise are one of the key success factors to the overall oil
production in consideration of project’s high level of complexity and difficulty. Apart
from those experts for the oil resource detection and exploitation that require both solid
professional knowledge bases and sufficient industrial experiences, multi-skilled talents
which are scarcer are also significant for improving the efficiency of production and
maximise the profit out of the play. For instance, inter-disciplinary talents are more
capable of designing the production profile to enhancing the net present value (NPV) of
the play based on their sophisticated knowledge of finance and geology. Therefore, the
ability of acquiring appropriate talents will be a key success factor in the industry.
2. Access and capacity of transportation
As the majority of the produced crude oil is transported through constructed
pipelines, which puts a great reduction to the overall operational cost, the lack of the
deployment of pipelines will increase the transportation cost and lead to weaker
competitiveness as opposed to the product from other producers. The access and the
capacity of oil companies’ transportation, which require substantial initial investments,
turned to be crucial to the long-term development.
3. Research and technology development
The oil exploitation and production industry requires a high level of technical
expertise and sophistication, therefore the mastery and innovation level of technologies
may greatly influence the competitiveness of oil companies. Leading scientists,
sophisticated facilities, cutting-edge technologies as well as strategic focus on researches
are all crucial attributes for improving the production efficiency, through higher recovery
rates or the better utilisation of resources. Moreover, the progress in technologies can also
help to reduce environmental impacts, helping to lay a leading position, and enabling the
company to standout in the industry.
COMPETITIVE STRENGTHS OF OUR GROUP
Please refer to the paragraph headed “Business — Competitive strengths” in this
document for a detailed discussion of competitive strengths of our Group.
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