The latest Kazakhstan Oil & Gas Report from BMI forecasts that the country will account for 5.31% of Central and Eastern European (CEE) regional oil demand by 2012, while providing 16.25% of supply. CEE regional oil demand rose to an estimated 5.46mn barrels per day (b/d) in 2007 and should average 5.61mn b/d in 2008, before reaching 6.25mn b/d by 2012. Production of an estimated 12.74mn b/d in 2007 is forecast to reach 15.38mn b/d by 2012. CEE gas consumption in 2007 was an estimated 632bn cubic metres (bcm), with demand of 772bcm targeted for 2012. Production in 2007 of an estimated 802bcm should reach 961bcm by the end of the period. Kazakhstan’s estimated share of gas consumption in 2007 was 3.76%, while its share of production was 4.14%. By 2012 its share of demand is forecast to be 4.53%, with the country accounting for 8.22% of supply.

In Q108 we estimate that the OPEC basket price averaged US$92.64 per barrel, up around 9% from the Q407 level. The OPEC basket price had exceeded US$102 by the middle of March, slipping back towards US$96/bbl later in the month. The estimated Q108 average prices for the main marker blends are now US$96.54 for Brent, US$97.31 for WTI and US$93.44/bbl for Russian Urals (Mediterranean delivery). Our projections for 2008 as a whole are revised upwards from BMI’s last quarterly report. We are now assuming an OPEC basket price average of US$81 per barrel for 2008, compared with the US$74 estimate provided by our last quarterly report. Based on recent price differentials, this implies Brent at US$84.71, WTI averaging US$85.63/bbl and Urals at US$81.88/bbl.

Kazakhstan’s real GDP growth is estimated by BMI at 6.7% for 2008, down from an estimated 8.5% in 2007. We are assuming 7.9% growth in 2009, followed by 8.6% in 2010, 9.8% in 2011 and 9.4% in 2012. Consumption growth should accelerate with the improving economy, but it is unlikely to have much negative impact on export potential. We are forecasting domestic oil demand reaching 332,000b/d by 2012. State-owned KazMunaiGaz accounts for 12% of oil production and participates in joint venture (JV) projects with international oil companies (IOCs), which should deliver rapid volume growth after the Karachaganak field builds up to full output in excess of 200,000b/d. Expansion of the Tengiz field and activation of the offshore Kashagan project should push Kazakh production towards 2.5mn b/d by 2012. This implies that oil exports should rise from an estimated 1.20mn b/d in 2007 to at least 2.17mn b/d by the end of the forecast period.

Between 2007 and 2018 we are forecasting an increase in Kazakh oil and gas liquids production of 59.7%, with volumes reaching a plateau of 2.6mn b/d in 2013-2014, before falling to 2.3mn b/d by the end of the 10-year forecast period. Oil consumption between 2007 and 2018 is set to increase by 88.0%, with growth slowing to an assumed 5.0% per annum towards the end of the period and the country using 444,000b/d by 2018. Gas production should rise from the estimated 2007 level of 29bcm to 95bcm by 2018, providing export potential increasing to 48bcm. Details of the new BMI 10-year forecasts can be found in the Appendix of this report, which provides global, regional and country-specific projections. Kazakhstan occupies second place in BMI’s newly revised Upstream Business Environment rating, behind only neighbour Azerbaijan. Its oil and gas production growth outlook, asset immaturity, high reserves to production ratios (RPR) and competitive landscape work in the country’s favour, but are undermined by a relatively unappealing risk environment. Long-term scope exists for Kazakhstan to close the gap on Azerbaijan. The country is in the upper half of the league table in BMI’s updated Downstream Business Environment rating, although there are few particularly high scores and progress further up the rankings from fifth place seems unlikely. The low level of retail site intensity represents a strong suit, along with region-leading oil demand growth prospects. The Czech Republic is just one point below it in the regional rankings, but there is little chance of it challenging for Kazakhstan’s fifth place over the medium term.