Kazakhstan, US sign new energy
plan By Richard Weitz
The latest meeting of the Kazakhstani-US
Energy Partnership Commission took place in
Washington on October 15-16, 2012. The two
delegation heads, Kazakhstan's Minister of Oil and
Gas Sauat Mynbayev and the US Deputy Secretary of
Energy Daniel Poneman, signed a Joint Action Plan
for 2012 - 2013 that promotes cooperation in four
broad categories: nuclear security and nuclear
power, hydrocarbon resources, renewable energy and
energy efficiency, and electric power.
With respect to nuclear energy, the two
governments will collaborate to strengthen
international safeguards, curtail nuclear weapons
proliferation and trafficking, enhance the
security of radiological sources, establish a
nuclear security training center, assist the
conversion of Kazakhstan's research reactors from
using highly enriched uranium to low-enriched
uranium, and
cooperate on developing a
new international framework for civil nuclear
energy cooperation.
In the area of energy
efficiency and renewable energy, the two
governments will support joint training and
capacity building projects to promote energy
management systems, industrial energy audits, as
well as the mapping of Kazakhstan's geothermal
energy resources.
In the hydrocarbon
sector, the United States will help Kazakhstan
make wider use of clean coal technologies, develop
its shale gas and coal bed methane, adopt the
Extractive Industries Transparency Initiative
(EITI), and introduce transportation technologies
based on compressed natural gas and clean coal.
Finally, the United States and Kazakhstan
will continue to expand cooperation to improve
regional energy exchanges, promote electricity
market competition, and strengthen the reliability
of electric power transmission systems.
In
its energy partnership with Washington, Astana
seeks US assistance to diversify its energy
sources and oil and gas export routes, improve its
laws and regulations to encourage foreign direct
investment (FDI), strengthen the safety and
security of its nuclear energy sector, promote
energy-saving and renewable-energy technologies,
enhance regional electricity cooperation, and
reduce methane emissions and other environmental
problems.
The US-Kazakhstani energy
relationship has also been influenced by both
countries' strategic concerns. US support for
multiple oil and gas pipelines has dovetailed
nicely with Kazakhstan's own goals. The two
governments broadly agree on the importance of
pipeline diversity in Central Asia, though
Washington has been pressing Astana to avoid
exporting energy through Iranian territory,
instead encouraging exports westward through
Turkey.
Meanwhile, Kazakhstan has taken
care to reassure Russia about its energy and
economic interests while also seeking to develop
additional export routes eastward to China. A
source of tension, however, has been Kazakhstani
efforts to modify the production-sharing
agreements negotiated with US firms shortly after
Kazakhstan's independence.
The energy
sector has been a major dimension of the bilateral
partnership since Kazakhstan became an independent
country. US corporations took a bold gamble in the
1990s and conducted pioneering investments in
Kazakhstan's oil and gas sectors. In 1992, Chevron
and Kazakhstan signed an agreement on creating a
joint venture to develop the Tengiz oil field in
northwestern Kazakhstan, along the northeast
shores of the Caspian Sea.
Kazakhstan
continues to rely heavily on Western energy
companies for the advanced technologies needed to
develop some of the country's most challenging
energy deposits, though these relations have
sometimes been strained. During the early 1990s,
when energy prices were low and Kazakhstan
desperately needed revenue, the government offered
generous terms in a successful effort to attract
Western capital and technology.
Since oil
prices rebounded starting in 1999, the governments
of Kazakhstan and other energy-exporting countries
have sought more favorable terms for their
national companies. Like their foreign
counterparts, Kazakhstan's leaders are depending
on increased oil and gas revenue to fund their
country's ambitious development plans.
US
companies argue that without a favorable and
predictable tax regime no international company
would invest the billions of dollars needed to
develop a large oil field. In contrast, the
Kazakhstani authorities believe that some US
companies secured an overly favorable deal from
their new and inexperienced government in the
early 1990s and now they were seeking to make the
arrangement more equitable (authors interviews in
Kazakhstan, January 2012).
President
Nursultan Nazarbayev has generally supported these
revisions as a "restoration of justice" because
the foreign companies involved had "failed to meet
the outlined deadlines, and Kazakhstan has been
losing its share of profits", according to Embassy
of Kazakhstan News Bulletin, January 18, 2008.
More recently, on September 3, 2012, President
Nazarbayev tasked the government with striking a
balance between state interest and that of
extraction companies when it comes to natural gas.
Despite the prominence of these disputes,
the magnitude of the commercial opportunities in
Kazakhstan's oil and gas sectors as well as the
fact that its treatment of foreign investors was
better than that of many other energy-rich newly
independent countries has not generally
discouraged cooperation between Kazakhstan's
government and US corporations.
For
instance, when he met with Nazarbayev in April
2011, Chevron CEO John Watson reaffirmed his
company's commitment to developing Kazakhstan's
oil deposits despite his firm's past conflicts
with its regulators. Watson also mentioned plans
to invest in the construction of a wind farm,
thereby helping develop Kazakhstan's renewable
energy sources.
As of October 2011, US
foreign direct investment (FDI) in Kazakhstan
amounted to more than US$36 billion, or 16.4% of
the country's total FDI. The major US energy
companies active in Kazakhstan include ExxonMobil
Corporation (the world's largest private oil
company, which owns 7.5% of the shares of the
Caspian Pipeline Consortium, 16.81% of the
Kashagan oil field and 25% of the Tengiz oil
field); Chevron (the second-largest US oil
company, which owns 15% of the Caspian Pipeline
Consortium, 50% of Tengiz and 20% of the
Karachaganak hydrocarbon field); and
ConocoPhillips (which owns 8.4% of the shares of
Kashagan and is a leading explorer for new Caspian
Basin oil).
From another perspective, US
investors have a major stake in Kazakhstan's
Kashagan field (5.4 trillion tonnes of oil, with
1.7 trillion recoverable tonnes); Tengiz (3.1
billion tonnes of oil, of which 0.75 billion - 1.1
billion are recoverable); the Royal Field (188
million tonnes of total reserves); and
Karachaganak (initial reserves of more than one
billion tonnes of oil, condensate, and natural
gas).
The economic and political stakes of
maintaining robust bilateral US-Kazakhstani
relations are thus high. The proceedings of the
two countries' most recent intergovernmental
Energy Partnership Commission, the ninth since its
creation, only underscore this point.
As
Kazakhstan matures as a state and gains
self-confidence as a regional economic powerhouse,
opportunities in the Central Asian republic for
Western energy companies will likely become less
lucrative. But investment prospects will remain
profitable, and Kazakhstan will maintain its
strategic importance - on account of its location
and rich resource base - to the United States for
many decades to come.
Richard
Weitz, PhD, is a Senior Fellow and Director of
the Center for Political-Military Analysis at the
Hudson Institute in Washington, DC.
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