Kazakhstan’s fuel market is undergoing major changes, with the country now benefitting from a surplus of gasoline and diesel supply for the first time in years.
The Central Asian republic has grappled with a series of fuel shortages in recent years, despite its status as a crude oil exporter. In 2010, however, Astana launched a sweeping modernisation programme at its three Soviet-era refineries, aimed at expanding their processing capacity and shifting their product slate towards lighter distillates such as gasoline, diesel and jet kerosene. Eight years later, the programme is finally nearing completion.
Kazakhstan finished upgrading the Pavlodar refinery at the end of 2017, with work at its two other plants at Atyrau and Shymkent expected to wrap up later this year. As such, the country is now producing more than enough diesel and gasoline to cover domestic demand.
Kazakhstan’s energy ministry has forecast that production of gasoline and diesel will outstrip demand by 1.5-2.0 million tpy once the modernisation programme is finished. Meanwhile, overall oil products output is seen climbing by 8% this year to 15.3 million tpy.
The ministry is currently looking to impose a temporary ban on imports of Russian gasoline, to ensure that a supply glut does not arise on the domestic market. Kazenergy, a lobby group of Kazakhstan’s oil industry, has also called on the government to slash taxes on domestically produced gasoline. The current excise duty on local gasoline is set at 10,500 tenge (US$32) per tonne, whereas the duty on Russian imports is only 4,500 tenge (US$13.50). Kazenergy’s general director, Aset Magauov, warned last week that a ban on Russian supplies would be necessary as long as this disparity existed.
Astana is also in talks with Moscow to lift a restriction on its own exports of motor fuels. Under an agreement with Russia in 2014, Kazakhstan banned the sale of its gasoline and diesel to countries outside the Eurasian Customs Union (EACU), which besides Kazakhstan includes Armenia, Belarus, Kyrgyzstan and Russia. In exchange, Kazakhstan receives a volume of duty-free fuel supplies from Russian producers. Contravening EACU rules, Astana has also prohibited sales to other members of the trade bloc to safeguard domestic supply.
Kazakhstan has long eyed a share of the Central Asian fuel market, which has traditionally been dominated by Russian suppliers such as Rosneft and Gazprom Neft. In practice, its ban on fuel sales to Kyrgyzstan has proved ineffectual anyway, as a growing black market for gasoline and diesel has emerged at the countries’ border. By removing trade barriers, the government will gain access to a lucrative new source of revenues.
A fourth refinery
Kazakhstan has also unveiled plans for the construction of a fourth refinery in the western part of the country, claiming another plant will be needed to cope with domestic fuel demand after 2025.
The project has been discussed for years and is still in the early stages of development. However, the government appears to have been focusing more on the plan since refinery shutdowns last autumn sparked nationwide gasoline shortages.
In February, Energy Minister Kanat Bozumbayev said a working group had been set up to draw investment and prepare a feasibility study for the project. The ministry has suggested that construction of the facility could begin in 2019, with a view to launching production in 2022. It is likely to be sited in Shymkent, Aktau or Aktobe.
During a working visit to Beijing, Kazakh President Nursultan Nazarbayev suggested that Chinese investors could take a 50% stake in the project, which he estimated would cost US$2 billion. China’s state-owned CNPC already controls a majority share of the Shymkent refinery through a joint venture with Kazakh NOC KazMunaiGas (KMG).
Kazakhstan is also working on another downstream project with Russia’s Lukoil. The latter broke ground on a US$85 million plant capable of churning out 100,000 tpy of lubricants in Almaty last year. The facility is slated for commercial launch in 2019.