Among former Soviet republics, Kazakhstan has the second-largest proven oil reserves and is the second-largest producer at 1.7 million barrels per day. But as a landlocked country with no direct access to global sea-lanes, Kazakhstan must largely rely on pipelines to export its oil to foreign consumers. Because of the country’s significant production potential, many hope that it could someday become a big enough supplier to alter OPEC’s behavior or to export substantial quantities of oil and gas to Europe without involving Russia.
Estimates currently put Kazakhstan’s proven reserves around 30 billion barrels of oil. After the collapse of the Soviet Union, foreign investment from international oil companies raised Kazakh oil production to over 1 million barrels per day. The country’s Tengiz and Karachaganak fields alone account for half of the country’s production, while a third oil field, Kashagan, is expected to produce an additional 347,000 barrels per day when it comes online. (Because of a series of delays and cost overruns, the Kashagan field is not expected to come online until 2016.) The oil produced at Tengiz is very light and sweet, and it typically contains a high yield of natural gas. In addition to being exported as its own grade, Tengiz gas is also mixed with Russian Siberian Light to create the CPC Blend.
The Kazakh Energy Ministry handles the country’s oil interests through its national oil company, KazMunaiGas. The company has a minority equity in the Karachaganak (10%), Kashagan (16.8%) and Tengiz (20%) oil fields. The Energy Ministry regulates foreign investment through its Subsoil Use Law; the ministry can unilaterally terminate any contract with an international oil company that does not conform to certain provisions of the law. The Subsoil Use Law also establishes the Kazakh government’s right to preempt any sale of assets owned by international oil companies. For example, in 2013, ConocoPhillips attempted to sell its 8.4% stake in the Kashagan field to India’s Oil and Natural Gas Corporation. Ultimately the company had to sell its stake to KazMunaiGas, which then re-sold it to the China National Petroleum Corporation.
Kazakhstan is a country reliant on pipeline infrastructure. Extensive pipelines exist connecting Kazakhstan with other Central Asian countries, Russia, and China. Though much of its own energy exports are currently piped through Russia, China continues to pursue Kazakhstan as a direct source of supply for satisfying its growing energy consumption. Most significantly, the Atasu-Alashankou pipeline has transported over 381 million barrels of oil from Kazakhstan to China.1 Russia has also shown interest in using Kazakh pipelines to get Russian oil to China.
People often hold up Kazakhstan’s vast energy resources as a possible avenue for Europe to obtain oil and gas that bypasses Russia. Many fear that Russia could try to use Europe’s reliance on Russian energy to influence foreign policies on the Continent. But despite Kazakhstan’s massive estimated reserves, the country has had difficulty realizing its full energy potential. The giant Kashagan field already has been delayed indefinitely because of cost overruns, engineering mistakes and mismanagement; it is unclear when the field will be brought online.
Even if Kazakhstan were to successfully start up production at the Kashagan field and navigate the contentious politics surrounding proposals for pipelines traversing the Caspian Sea and directly export to European buyers, it would only impact Europe’s energy security by increasing the amount of oil and gas in the global market. The pipeline route used to deliver Kazakh supplies to foreign consumers would not actually matter much, since history has shown that attempts to use oil or gas as a political weapon are rarely effective.