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.
(This article first appeared in The Jamestown Foundation. Used with permission.)
(Copyright 2012 The Jamestown Foundation.)