The fuel crisis has passed, but an aftertaste remains. This month Energy Minister Kanat Bozumbaev said that petrol and diesel prices are unlikely to rise any further during the remaining weeks of 2017 but could increase again in 2018 as global oil prices gradually recover.

He and his deputies also cautioned against premature expectations of price falls linked to the forthcoming end of the modernisation of the three state-owned oil refineries.

Upgrade works should be complete in Pavlodar (north) and Atyrau (west) by January 2018, while modernisation at the Shymkent oil refinery could continue until September 2018.

The government recently suggested that the country would become self-sufficient in all brands of petrol and other oil products by July or August 2018 at the latest. The postponement of the re-commissioning date in Shymkent means that this could be delayed by another one or two months in a best-case scenario.

The impact of price differences

The three refineries produced a collective total of 2.3 million tonnes of petrol, including aviation fuel, in January–September 2017 but domestic consumption was 2.8 million tonnes in January–August.

Fuel imports have significantly declined, primarily because of wider price differentials with neighbouring Russia, where demand for petrol is rising each year. Kazakhstan imported 774,100 tonnes of petrol during the first nine months of 2017, compared to 832,000 tonnes in 2016 and over 1 million tonnes in 2015.

As total refining capacity increases from 14.5 million tonnes a year to 16.5 million tonnes, the retail price of petrol will catch up with those in Russia and Uzbekistan. Otherwise, according to a Ministry of Energy analysis, deficits could continue as more petrol is exported to adjacent markets with higher pump prices.

Supply and demand

Speaking at an investment summit in Astana earlier this month, Bozumbaev said that self sufficiency at 2018 refining levels would last only until 2025 because of parallel growth in demand from a variety of sources. To meet this demand, Kazakhstan will either have to double the capacity at one of the refineries or alternatively build a fourth refinery.

There has been a lot of talk about the latter project in the past few years, but so far nothing has materialised.

The cost of modernisation

The high cost of modernisation is a significant discouraging factor. Kazakhstan’s inability to offer lower prices has numerous causes, including the fact that the expansion of refining capabilities in both Atyrau and Shymkent was made possible by overseas borrowing.

A consortium of Japanese banks and the Exim Bank of China lent funds to the Pavlodar refining plant, while China National Petroleum Corporation (CNPC) – a 50% shareholder in the Shymkent facility – provided funding to its subsidiary alongside KazMunayGas (KMG), which is its second shareholder, and the Development Bank of Kazakhstan.

This article was taken from our monthly Caspian Focus publication. If you wish learn more about this topic or discuss the paper with us then please contact us.