Kazakhstan Revamps Oil & Gas Regulations: Foreign Investors Benefit

Kazakhstan Revamps Oil & Gas Regulations: Foreign Investors Benefit

By: Aslan Edrissov

The oil and gas industry is the core of Kazakhstan’s economy, and the current trend of higher oil prices has had a significant positive impact on the region. The new leadership in Kazakhstan has improved the resource rich country’s investment policy and introduced important changes to its legislation that make it more advantageous for foreign investment – particularly in the oil and gas sector. Since access to fair and equitable dispute resolution is one of the most important conditions for investment, Kazakhstan government focused on improving its rule of law when it comes to oil and gas investing. The Ministry of Ecology, Geology and Natural Resources has approved the National Emission Allowance Plan for 2022 – 2025. The National Plan determines the total amount of emission allowance distributed among the subjects of the regulated spheres of activity free of charge, as well as the reserve amount of allowance sold to the subjects on the terms of the auction. The regulated spheres of activity include: electric power, oil and gas, mining, metallurgical and chemical activity, as well as the production of cement, lime, gypsum and bricks.

The flag of Kazakhstan has a blue background with a golden sun with 32 rays in the center, which represents wealth and abundance. Below the sun, there is an eagle with its wings spread, which symbolizes freedom, power, and the flight to the future. The eagle holds in its talons a golden ornament with a vertical bar in the center, which represents the unity and common purpose of the people of Kazakhstan. The colors of the flag, blue and gold, represent the sky and the people's aspirations towards progress and prosperit

According to the Carnegie Endowment, Kazakhstan both seeks and has the capacity to become one of the world’s most competitive economies in the span of the next generation, a goal that President Tokayev has set for the nation in the Kazakhstan-2050 long-term development strategy, which was planned by the previous Nazarbayev administration. The backbone of this strategy is Kazakhstan’s innovative industrialization. Kazakhstan-2050 mandates, “In the next 10–15 years, [Kazakhstan must] develop a knowledge intensive basis for its economy,” and that this economy “must be founded on advanced science.”1 Kazakhstan’s development strategy rests upon the principle that its industrial output and workforce will become competitive internationally so that goods produced in Kazakhstan can be sold in the most competitive international markets and that foreign investors coming to Kazakhstan can buy and hire locally while simultaneously meeting the international standards that their companies are bound to adhere to.

In order to achieve the economic development laid out in the Kazakhstan-2050 Strategy, Kazakhstan must promote the use and manufacture of modern technologies within the country by maximizing the technological as well as the financial potential provided by foreign investment. Kazakhstan has the resources to attract this investment, most notably in its oil and gas industry. But while Kazakhstan has had success in attracting foreign capital, particularly in its hydrocarbon resources, it has not yet managed to convert that capital into competitive local industries and high technology innovation. Kazakhstan has not yet managed to develop the type of innovative backbone necessary to meet the goals set forth in the Kazakhstan-2050 strategy.

This remains true in spite of the fact that Kazakhstan’s parliament has passed a large number of laws that set specific goals for the timing and pace of the country’s economic transformation and the sectors of the economy that have been targeted for development, as well as offering various economic incentives to companies that seek to redirect their energies from the national to an international market.

The Caspian Sea and Baku are both located in the Caucasus region, with the Caspian Sea being the largest inland body of water in the world and Baku being the capital city of Azerbaijan, which is located on the western coast of the Caspian Sea. The Caspian Sea is rich in oil and gas reserves, with Kazakhstan, Azerbaijan, Russia, Turkmenistan, and Iran all having a share in the resources. Baku is a major oil-producing city and has been a center for oil exploration and production since the late 1800s.

Foreign oil and gas investors and operators, may of which are major oil companies such as ExxonMobile, British Gas, and Chevron, Chevron, Royal Dutch Shell, Lukoil of Russia, Total of France, China National Petroleum Corporation (NPC), Conoco Phillips, Statoil of Norway, ENI SpA of Italy, and Inpex of Japan stand to benefit from the change in Kazakhstan’s recently enacted legislation and its economic development initiatives. The same goes for early stage, exploration projects that own major prospects by way of licenses from the Kazakh government. These include Darby Energy, Inc. an independent, oil investor based in U.S. Darby Energy through its predecessors has been researching oil and gas fields in Kazakhstan for a number of years. The government will avail other new strategic investors of opportunities to take advantage of its streamlined investment laws. It has unveiled a plan to sell 107 exploration and development licenses for oil and gas blocks around the Caspian Sea. New owners are being sought for prospective works and already discovered oil and gas fields, located onshore and offshore. Oil and gas blocks that will have received expressions of interest will be put up for bidding for exploration and production licenses in an online auction.

However, some blocks will not be open to privately held domestic and foreign investors. Indeed, 23 licenses will be made available exclusively to a pair of state-run companies: KazMunayGaz, the country’s fourth largest oil producer, and the gas pipeline operator Qazaqgaz. These two companies will have to enter into direct talks with the ministry to negotiate license terms and exploration commitments.

Kazakhstan has proven oil reserves of about 4.1 Gt, and gas reserves of around 1,800 bcm (2021). About 70% of the Kazakh oil potential is located in the west of the country, particularly around the Caspian Sea. The country produced 87 Mt of oil and 27 bcm of gas in 2021.

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