How much have Kazakhstan’s oil revenues decreased?

The decline in oil prices led to a reduction in Kazakhstan’s income. Tax payments to the National Fund fell by almost 30%. The state budget was fulfilled by 97% including due to high expectations for oil prices.

Finance Minister Yerulan Zhamaubayev said on October 10 that low oil prices affect revenues to the republican budget.

The minister stated: ‘At the beginning of the year we predicted the price of oil at $85 per barrel. We are at this level now. For eight months the oil price was at a low level, so we had shortfalls in the republican budget. $85 is the normal price that will allow us to make certain payments by the end of the year’.

According to the Ministry of Finance, from January to September the state budget received more than 13.8 trillion tenge or 3% less than planned. The figures increased by more than 23% or 2.6 trillion tenge compared to the same period last year.

It could be concluded that the statistics suffered only because of a bad forecast and in fact more taxes were collected. It should be considered that tax revenues to the National Fund have also decreased. In January-August of this year, oil and gas sector companies transferred over 3.2 trillion tenge to the fund – 29% less than a year earlier. Thus, for corporate income tax (CIT) payments decreased by 25%, for excess profit tax – 38%, for mineral extraction – 22%, for rent tax – 41%, for the republic’s share of production sharing – 35%. Only the paid bonuses increased by three times (to 15.6 billion tenge).

The volume of oil and condensate exports from increased. Over the first 9 months of 2023, 52.7 million tons were exported abroad which is 12% more than in the same period last year.

Oil share

Payments from the oil industry form about a third of the state budget and implementation directly depends on world oil prices. Most of the oil export comes from private and foreign companies. For example, in 2022, the national company KazMunayGas (KMG) accounted for just over 21% of all oil and gas condensate exports (13.7 million out of 64.3 million tons).

A significant part of the budget revenue comes from various types of taxes and payments that Kazakhstan imposes on subsoil users as well.

Oil and gas operators in Kazakhstan pay dozens of types of taxes annually as transfer bonuses to the National Fund that they pay for the acquisition of subsoil use rights, taxes on mineral extraction and excess profits, CIT; Export customs duty (ECD) goes to the republican budget, social and individual income taxes, property tax, etc. go to the regional budget. In addition, subsoil users are obliged to fund the local budget for the implementation of social and infrastructure projects in the region.

Thus, in 2021, oil and gas industry transferred 4.4 trillion tenge to the Kazakh budget: over 2.6 trillion tenge to the National Fund, 1.5 trillion to the republican budget and 278 billion tenge to the regional budget. In total, about 15 trillion tenge was collected into the country’s consolidated budget which includes all state revenues including non-tax ones.

At the same time, 65.5 million tons of oil were exported, and revenue exceeded $31 billion.

Considering payments from various oilfield service companies as well as other Kazakh companies that earn through the provision of services and supplies to oil and gas operators, the contribution of the oil and gas sector to the budget will be much higher. But it cannot be compared with how much the country would get if all the exported oil belonged to it.

Another interesting point to note is that ECD for oil accounts for the largest payments compared to other types of taxes. The duties are not constant, and they are charged per ton at rates linked to world oil prices. If a barrel costs below $25, the rate is zero. But the higher the price of oil, the more the exporter pays the country.

War over prices

The Ministry of Finance keeps its records of the cost of oil. According to the State Revenue Committee, from January to August of this year the average market price of crude oil was below $85 per barrel. For example, the highest price was in March – $82.43 per barrel, and the lowest in February – $65.74. In September the average cost rose to $86, and in October – to $90 (see table #1). Last year, on the contrary, oil prices remained above $85 per barrel for most of the year. Probably, the government decided to set the budget based on the cost of $85 per barrel. But the expectations were not met.

This year, a kind of war over oil prices is happened between oil-exporting countries that are part of the OPEC+ alliance and consuming countries, mainly representing the states of the Organization for Economic Cooperation and Development (OECD). Exporting countries are trying to increase them by reducing the production and supply on the market, while importing countries are doing everything to prevent this: they are raising base rates which reduces inflation, but slows down economic growth and consumption, increase their own hydrocarbon production, etc.

In 2022, prices rose to a record level, partly due to Russia’s military invasion of Ukraine. Most EU countries banned Russian oil and introduced a price ceiling. The Russian Federation had to urgently redirect the released volumes to the Asian market. A change in suppliers and geography of supplies led to a boom in the market which was followed by a sharp rise in oil prices. There are many intermediaries in the oil sales market who take advantage of such high demand to quickly earn more.

The market instantly reacts to all events related to the production, supply, and consumption of oil. Last year, prices went up as there was a danger of a decline in Russian oil supplies. Russia did not reduce exports but even increased them by 7.6% by redirecting oil export from Europe to Asia. Other suppliers have taken the place of the Russian Federation on the European market.

At the end of last year and the beginning of this year, many energy industry experts expected further growth in oil demand, mainly due to the opening of the Chinese economy after a three-year quarantine. However, the forecasts were not confirmed, the recovery of the Chinese economy was not as rapid as expected.

OPEC+ had to significantly cut oil production to achieve an increase in prices to $85 per barrel. Saudi Arabia (which now ranks third in the world in terms of production after the United States and Russia) cut production by 1 million barrels per day in July.

This year prices are not as high as last year but when compared with post-pandemic 2021 they are much higher. At the beginning of the year crude oil was sold at $48 per barrel and the highest price of $82 was reached only in December.

Table #1. Average market price of crude oil, 2021-2023 $/barrel

February        52,62        80,0665,74

Export to Europe

But high prices have not lasted long. If one country reduces production and exports, another immediately increases them, no matter whether it is part of OPEC+ or not. Even within the alliance, countries compete. In May, The Wall Street Journal reported that Saudi Arabia had expressed complaints to Russia of not fully fulfilling promise to reduce production. From time-to-time certain countries try to withdraw from the deal.

At the beginning of the year, the Ministry of Energy of Kazakhstan predicted that in 2023, oil exports would increase to 71 million tons which is 10% more than in 2022. Production should increase from 84.2 million to 90.5 million tons.

The main volume of Kazakh oil exports goes to European countries. Traditionally, Kazakhstan was among the top 5 largest oil suppliers to the European Union. In 2021, the EU imported 446.5 million tons of oil. According to Eurostat, imports came from Russia (112.3 million tons) and Norway (43.6 million), USA (37.4 million), Kazakhstan (35.7 million) and Libya (35.6 million).

After the outbreak of the military conflict in Ukraine, the EU reduced purchases of Russian oil by more than 90%. Other exporters took the place of the Russian Federation. OPEC reports that in June the largest importer to the European Union was the United States, supplying 1.5 million barrels per day. Kazakhstan and Iraq became second and third with an average of about 1 million barrels each. Thus, compared to 2021, Kazakh oil exports to the EU increased by almost 40%. The European Union imported about 8.3 million barrels per day in June. According to the International Energy Agency, in Kazakhstan daily production was 1.6 million barrels during this period.

The main delivery route for Kazakh oil remains the Caspian Pipeline Consortium (CPC) – 81% of the 35.7 million tons of crude exported in the first half of the year. Export increased by 6.6% compared to last year.

Another 12.4% or 4.4 million tons of export oil went through the Atyrau-Samara pipeline (through the Russian Federation).

However, this year there has been an increase in export via the alternative route. According to Argus, in the first half of the year, 660 thousand tons of crude were shipped via the Baku-Tbilisi-Ceyhan pipeline towards Azerbaijani ports including 366.4 thousand tons of Tengiz oil. The Azerbaijan State Oil Company (SOCAR) purchased part of the volume independently from Kazakh subsoil users including supplies from the Dunga, Buzachi, Kashagan fields and gas condensate from the Chinarevskoye field. These shipments were delivered to Sangachali for pumping via the BTC as well as for loading the Baku Oil Refinery.

Oil transportation along this route resumed at the beginning of 2023. KMG agreed with SOCAR to pump a test 1.5 million tons via the BTC. This direction has potential to grow due to the planned increase in production at Kashagan and Tengiz as well as the increasingly unpredictable situation in the Black Sea.