We continue to publish a series of reports on oil and gas industry of the Republic of Kazakhstan as the end of 2018 and updated statistical data for 2017. If in 2017 crude oil output, including gas condensate, in the Republic of Kazakhstan increased by 10.5% y/y and amounted to 86.2 million tons or 1.8 million barrels per day, in 12 months of 2018 oil and gas condensate output reached a record of 90.36 million tons, having increased by 4.8% y/y. A significant increase in crude oil output in 2017 resulted from reaching the level of commercial production at the Kashagan oil field from 180 thousand barrels per day at the beginning of the year to 270 thousand barrels at the end with an annual production output of 8.35 million tons of oil. In 2018, oil output was increased to 330-340 thousand barrels per day, however, the set target of the first phase of 370 thousand was not reached due to intake capacity of the reservoir. According to forecasts of the Ministry of Energy of the Republic of Kazakhstan, oil output in 2019 will be 89 million tons. Over 12 months of last year, natural gas production increased by 4.5% y/y and amounted to 55 mn cubic meters.
According to preliminary statistical data of the Committee on Statistics of the Ministry of National Economy of the republic of Kazakhstan (CS of MNE RK), pipeline transportation in 2018 increased by 20.6% y/y and amounted to 281 mn tons. According to our estimates, the volume of oil transportation amounted to about 168 mn tons. Oil refining in the republic is carried out at three main oil refineries located in Atyrau (Atyrau refinery), Pavlodar (Pavlodar refinery) and SKR (Shymkent refinery). Three refineries account for about 94% of refined products in the country in 2007-2018. In 2016-2018, the main refineries in the republic were modernized. The total cost of modernization of the three refineries is estimated at $ 6.0 bn. Before the modernization of the refineries, about one third of gasoline was imported from the Russian Federation, whilst by the end of 2018 all domestic fuel demand was covered by domestic production and, moreover, there was a surplus for the production of high-octane gas distillate AI 92.
According to the Ministry of Energy, in 2019 considering the current rate of production of high-octane distillates there will be a surplus of domestic gasoline output in the amount of 500-600 thousand tons. The ratification of the agreement within the framework of the EAEU will allow Kazakhstan to export surplus of fuel to the countries outside the Union.
According to preliminary data for 2018, oil and gas industry’s share in the GDP structure increased from 17% a year earlier to 21%. However, if we take into account oil and gas industry and related industries (oil refining and production of petrochemical products), as well as their servicing industries (trade and transportation of oil and oil products), the share of the industry, according to our current estimate, approaches 46%-47% of GDP.
In 2011-2014, the share of oil revenues in the structure of the consolidated budget was 46-48%. Starting from 2015, oil revenues began to decline amid a plunge of crude oil prices to 32.4% in 2015 and in 2016 they reached their minimum value of 22.3% during the period under review. According to our preliminary calculations for 11M2018, the share of oil revenues of the consolidated budget was 36.2%. In 2017, the share of expenditures of the consolidated budget to GDP for the first time in 4 years increased to 26%. Such an increase budget expenditures resulted from provision of assistance to the banking system. Over 11M2018, the share of expenditures of the consolidated budget to the forecast GDP decreased to 17%. Along with the reduction in expenses of the consolidated budget, there is a decrease in the share of transfers from the National Fund (NF) in at the amount of 25.9% of the official budget to. The non-oil deficit of the state budget for 11 months of 2018 was at the level of T365 billion (-0.6% of the forecast value of GDP) against the planned T883 billion or 1.5% of GDP. The non-oil deficit of the consolidated budget for 11M2018 amounted to T4.9 trillion and decreased as compared to 11M2017 (-T7.3 trillion). According to our estimates, according to the results of 2018, the non-oil deficit of the consolidated budget will amount to -8% of GDP, while the oil sector will decrease to -1.4% of GDP.
Increase in the cost of oil at the global markets and the expansion of oil output contributed to the increase in revenues to the National Fund (NF) from the oil sector in the form of taxes by 60% y/y to T3,201bn in 2018.
Balance of payment of oil-exporting countries is directly dependent on energy prices at global markets, as well as oil demand in oil importing countries. With this in mind, the change in the value of energy commodities, which in the structure of domestic exports reach at least 60-80% (the share of crude oil and gas condensate 57-72%), significantly affects the nominal value of the country's export proceedings. The growth of oil prices in 2017 reduced current account deficit to $ 5.4 bn, or -3.4% of GDP. For 9 months of 2018, current account deficit continued to decline and amounted to $488 mn, which is about -0.3% of GDP, with the average Brent oil price at $ 71.5 per barrel of Brent. According to preliminary estimates, current account balance in 2018 reached a surplus of $925 mn, or circa 0.5% of GDP. This sensitivity of current account to exports with oil and oil products is due to the fact that net exports are the only “balancing” item in current account structure of the country.
Foreign direct investment is another “balancing” item in the country's balance of payments. Significant decline of the nominal value of Kazakhstan's exports were compensated by direct investments inflow under the financial account, reaching in some years $13 bn (2008 and 2016). As of 2017, balance of direct investment amounted to $3.7 bn US dollars (-72.5% y/y). For the first 9 months of 2018, balance of direct investments, according to preliminary data from the NBK, amounted to $4.9 billion US dollars (+ 69.4% y/y).
