The President of the PetroMining OPOs Association, Sayat Boranbekov, spoke at the government hour with the participation of the Minister of Energy of the Republic of Kazakhstan “On the current activities and prospects for the development of the oil industry”.
In the Majilis of the Parliament of the Republic of Kazakhstan, the PetroMining OPO Association presented solutions for restoring the level of production at OPOs.
In the Majilis of the Parliament of the Republic of Kazakhstan, the PetroMining OPO Association presented solutions for restoring the level of production at OPOs.
In his report he emphasized the importance of the contribution of small OPOs to the country's oil production industry, recalling that oil production in Kazakhstan is more than such large projects as Tengiz, Karachaganak, and Kashagan. In reality, sovereign production of independent oil producing organizations (OPOs) and production of KazMunayGas support the country's energy security and subsidize certain sectors of the economy.
According to official data, the pattern is quite stable, and the level of oil and gas condensate production is maintained – the total production in 2021 amounted to 85.88 million tons, in 2022 it was 84.24 million tons, and in 2023 - 89.97 million tons.
However, apart from major projects, from 2018 to 2023, oil and gas condensate production by KazMunayGas oil producing organizations dropped from 36.3 to 30.2 million tons (by 16.8%). And for OPOs, the decrease is from 21.2 to 16.5 million tons (by 22.1%).
In recent years, OPOs and KazMunayGas have supplied 50% of the oil produced to meet the country's domestic needs. In addition, through state regulation of oil products, they support such areas as agriculture, utilities, road construction, transport and petrol stations.
According to official data, the pattern is quite stable, and the level of oil and gas condensate production is maintained – the total production in 2021 amounted to 85.88 million tons, in 2022 it was 84.24 million tons, and in 2023 - 89.97 million tons.
However, apart from major projects, from 2018 to 2023, oil and gas condensate production by KazMunayGas oil producing organizations dropped from 36.3 to 30.2 million tons (by 16.8%). And for OPOs, the decrease is from 21.2 to 16.5 million tons (by 22.1%).
In recent years, OPOs and KazMunayGas have supplied 50% of the oil produced to meet the country's domestic needs. In addition, through state regulation of oil products, they support such areas as agriculture, utilities, road construction, transport and petrol stations.
Sayat Boranbekov noted that, given the requirements for providing the domestic market with oil, which do not apply to large projects under the PSAs, and the tasks for implementing the Concept for the Development of the Fuel and Energy Complex of the Republic of Kazakhstan for 2023-2029 to increase refining volumes to 21 million tons, in the current conditions, a scenario in the oil and gas industry is becoming realistic in which OPOs (including KazMunayGas) will be forced to supply almost 100% of the produced oil to the domestic market by 2029-2030. PetroMining experts predict that after 2030, there may be a shortage of oil supplies to supply the domestic market.
There are several reasons for the decline in oil production. Firstly, it is the old fund of deposits, and secondly, the lack of fair income, which does not allow for sufficient reinvestment in maintaining current production and in geological exploration.
The representative of the PetroMining OPOs Association noted that today, within the framework of the Decree on the liberalization of the economy signed by the Head of State with the support of the Ministry of Energy and the Agency for the Protection and Development of Competition of the Republic of Kazakhstan, the abolition of state regulation of wholesale prices for petroleum products is expected, which implies an improvement in the OPOs economy and the possibility of reinvestment in their production. But at the same time, the Government is discussing the issue of withdrawing about 50% of the increase in prices for petroleum products in the form of an increase in excise rates.
The representative of the PetroMining OPOs Association noted that today, within the framework of the Decree on the liberalization of the economy signed by the Head of State with the support of the Ministry of Energy and the Agency for the Protection and Development of Competition of the Republic of Kazakhstan, the abolition of state regulation of wholesale prices for petroleum products is expected, which implies an improvement in the OPOs economy and the possibility of reinvestment in their production. But at the same time, the Government is discussing the issue of withdrawing about 50% of the increase in prices for petroleum products in the form of an increase in excise rates.
"Excise tax by its nature is an "indirect tax on harmfulness", in the current situation it becomes a tool to combat production by confiscating margins, which worsens the economic situation in the industry and creates even greater financial insufficiency of OPOs in reinvesting in maintaining oil production. Taking this opportunity, we appeal to the deputies and the competent bodies of the Government bloc to support and exclude any increase in excise rates. This runs counter to the initiative of the Head of State with the aim of supporting domestic business within the framework of the signed Decree on the liberalization of the economy," noted the President of the PetroMining OPOs Association.
The only solution for the oil and gas industry, according to the association's experts, is to equalize the profitability (netbacks) between oil exports and the domestic market, which, in the context of falling oil production, will allow OPOs and KazMunayGas to restore its level in the medium term.
"On behalf of the OPOs, we appeal to you, dear deputies and members of the Government. For the sustainable development of domestic oil production, comprehensive support from the state is required. As we see in practice at the moment, individual administrative and fiscal preferences do not lead to its growth and development. For the industry, it is important to reduce state regulation and maximum liberalization of the industry, the development of free competition (including refining and sales of petroleum products), and reduce the tax burden," said Sayat Boranbekov during the meeting.