In Kazakhstan, the shortage of aviation fuel limits the development of air transportation. For many years, the missing volumes had to be covered by imports. The authorities promise to double domestic production to meet the country’s needs. However, how realizable are these plans? And what is the state of the aviation fuel market today?
Last year the country produced 643 thousand tons of jet fuel – 3.3% less than a year earlier. This year, the dynamics of production look more positive – over the past nine Kazakh plants produced 570 thousand tons of jet fuel, which is 26% more than in the same period last year.
In 2022-2023, the country’s aviation fuel needs were about 850 thousand tons per year. At the same time, last year’s jet fuel imports rose more than 33% year-on-year to 247,600 tons, the Energy Ministry said. According to the Civil Aviation Committee of the Republic of Kazakhstan, domestic production fluctuates around 600-650 thousand tons per year, while consumption reached 1 million tons last year, so the missing volumes (about 300-350 thousand tons) must be imported.
In the country more than 95% of jet fuel is produced by three domestic refineries – Atyrau Refinery (ANPZ), Pavlodar Petrochemical Plant (PNHZ), Shymkent Refinery of PetroKazakhstan Oil Products (PKOP). The total production capacity of the three plants is about 700 thousand tons per year.
The government intends to double the capacity of jet fuel production at major refineries in 2026-2030. ANPZ plans to increase fuel output by 22%, PNHZ – by 20%, PKOP – more than three times.
Production and consumption
Kazakhstan’s aviation fuel market has been dependent on imports for many years. As the country’s economy grew and air transportation increased in the 2000s, so did the demand for aviation kerosene. Thus, by 2014, its consumption exceeded 566 thousand tons, almost tripling compared to 2000. At the same time, domestic production remained at the level of about 300 thousand tons per year for a long time, so a third of the demand had to be imported, mainly from Russia.
After the completion of the modernization of three major refineries in 2018, parity in production and consumption was briefly achieved. But the air transportation sector is not standing still either – annual passenger transportation grew by 39% to 11 million over 2018-2022, while jet fuel output has again lagged and is not keeping pace with demand (Table #3,4).
The Ministry of Energy said that during 2026-2030, jet fuel production capacity at major refineries will double to 1.4 million tons per year. At ANPZ the fuel output will be increased due to improvement of operational efficiency of the plant, at PNHZ after construction of hydrogen production unit by 2026, at Shymkent refinery due to expansion – from 6 to 12 million tons – of the refining capacity of the enterprise, completion of which is scheduled for 2030.
However, it is not excluded that domestic consumption will also grow during this time. For example, the largest (about 67%) participant in the country’s air transportation market, Air Astana Group (Air Astana and Fly Arystan), plans to increase its fleet by 63% – from 49 to 80 aircraft – by 2028. It is planned to deliver 48 aircraft over the next four years. It has already signed 22 operating lease agreements by 2026: for 19 Airbus aircraft (11 A320neo and eight A321neo) and three Boeing 787-9 Dreamliner.
While in 2023 Air Astana operated 31 airplanes and Fly Arystan – 18, by the end of 2028 this figure will increase to 46 and 34, respectively, according to Samruk-Kazyna.
In addition to these two carriers, dozens of other air operators operate in the country. Last year, according to the Aviation Administration of Kazakhstan (AAK), there were 920 aircraft in the civil aircraft register, and the number of Kazakhstani operators totaled 53. Seven airlines had clearance to fly to European Union (EU) countries: Air Astana, Comlux, Prime Aviation, FlyJet.kz, KazAirJet, Jupiter Jet and SCAT; domestic flights were served by six operators: Air Astana, Fly Arystan, SCAT, Qazaq Air, Southern Sky and Zhetysu.
In 2021, the Ministry of Industry and Infrastructure Development announced that SCAT Airlines plans to acquire and deliver up to 20 Boeing aircraft by 2030.
In general, the country’s authorities intend to increase the number of international flights and continue to implement an open skies policy to attract new foreign carriers. Flights to Doha (Qatar), Ankara (Turkey), Medina (Saudi Arabia), Baku (Azerbaijan) and Dushanbe (Tajikistan) were added last spring and summer.
In addition, with the onset of Russia’s military invasion of Ukraine, several airlines changed their routes and now many of them fly via Kazakhstan. In March 2022, Talgat Lastayev, Chairman of the Civil Aviation Committee, reported that with the onset of these events, our air traffic intensity briefly increased 3.5-4 times.
Of course, some of these carriers use our territory only for air travel, but there are also those who are ready to land here for refueling and maintenance. However, Kazakhstan’s longstanding ambitious plans to become a Central Asian transit hub may be hindered by problems with the shortage and quality of aviation fuel.
By international standards
One of the factors that international airlines pay attention to when choosing routes is the availability of Jet A-1 – a standard type of aviation fuel for most countries in the world, say experts from S&P Global. In Kazakhstan, the most common type of aviation fuel is TS-1. According to experts, it is approved by most aircraft manufacturers but has slightly higher volatility than Jet A-1 because of its lower flash point. The minimum flash point for TS-1 is 28°C, while the minimum flash point for Jet A-1 is 38°C.
According to the Ministry of Energy, the RT and TS-1 fuels currently produced in the country comply with the state standard (GOST) and the technical regulations of the Customs Union (TR CU).
The national company KazMunaiGas (KMG), which almost fully controls the Atyrau and Pavlodar refineries and owns half of the Shymkent refinery, reported back in 2018 that thanks to modernization, Kazakhstan’s refineries can produce jet fuel of the international Jet-A1 standard, which was officially introduced in the country from May 22. It was expected that in the future independent consultants would assess the readiness of refineries and airports to accept and refuel jet fuel according to the new standard, and all three refineries would switch to Jet-A1 production in 2020. But this did not happen.
In February this year, KMG again reported that domestic refineries are ready to produce Jet A-1. At the same time, it seems that the Ministry of Transportation insists on it, which has decided to switch to this type of fuel, though with a reservation: “taking into account the capabilities and needs of airports”.
At the same time, it turns out that Jet A-1 production implies a complete reconfiguration of the relevant plant facilities, and they will not be able to produce TS-1 fuel in parallel.
Also, to switch to the use of jet fuel that meets IATA (International Air Transport Association) standards, it is necessary to prepare the entire aviation infrastructure: from the plant to the aircraft wing (storage, transportation, refueling process). Once this work is done, KMG is ready to switch one of the plants to Jet A-1 production within two weeks.
The Ministry of Energy noted that three major refineries are ready to produce Jet – A1 in the amount of 50-55 thousand tons per month, that is, approximately as much as currently produced TS-1 and RT – 600-660 thousand tons per year.
Increasing the production of aviation kerosene and transition to international standards for fuel types are only part of the tasks to be solved by the country’s producers and authorities. There is another task on the horizon – setting up production of SAF (Sustainable aviation fuel), which, according to experts, reduces carbon dioxide emissions by 75-80% compared to fossil fuel. The production of SAF utilizes waste oils of biological origin such as cooking fats, etc.
As part of the global agenda to decarbonize and switch to greener energy sources, many developed countries, including the US and the EU, have already set targets to increase the use of new fuels. For example, the European Parliament has obliged EU airports and suppliers to ensure that at least 2% of aviation fuel is cleaner from 2025 onwards. And this share should increase every five years. This means that Kazakhstani airlines flying to the EU should also be concerned about this “problem”.
In September 2023, KMG together with Air Astana, with the support of the European Bank for Reconstruction and Development (EBRD), launched a feasibility study of the SAF market. Based on the results of the working meeting of the study participants held in November, the production technologies for this brand were determined. And on October 8 of this year, KazMunaiGas-Aero (a subsidiary of KMG) and the Italian NextChem signed an agreement on cooperation in the development of SAF. The parties intend to cooperate in the production of environmentally friendly jet fuel and hydrogen by capturing carbon dioxide. However, neither KMG nor its subsidiary do not report on the timing, capacity and cost of the planned project.
Meanwhile, Air Astana wants to achieve a 5% blending rate of clean fuel with conventional fuel by 2030.
Market or distribution?
Another unresolved issue in the jet fuel market is how it is marketed, i.e. how it is delivered from the producer to the end consumer. As of today, airlines receive part of the volumes through the government’s targeted distribution, and part is purchased on the market.
For example, in 2023, KMG sold 165,000 tons of jet fuel on the wholesale domestic market. At the same time, through KMG-Aero and exchange trading platforms, it also sold fuel to the aviation services of the Ministry of Defense, KNB and National Guard of the Republic of Kazakhstan, airports and airlines of the country.
S&P Global experts believe that a wider use of market mechanisms through exchange trading would help to eliminate the chronic shortage of jet fuel. Major suppliers-distributors sell kerosene to consumers in accordance with official plans, but airports and airlines systematically complain about fuel shortages and delays in deliveries. Only a small share of jet fuel is sold through exchanges – about 10% of the total volume. The existing system forces airlines that need more fuel to purchase additional volumes on an urgent basis at higher prices.
At the same time, airports also contribute to the rise in fuel prices. According to the Agency for Protection and Development of Competition, Kazakhstan’s airports generate revenue by acting as intermediaries and adding their markups when selling fuel to airlines. They also restrict access to the infrastructure for storing aviation fuel to other market participants. All this negatively affects price competition in jet fuel sales and interest in the development of port services. As of today, 17 airports of the country located in regional centers, whose aviation fuel storage volumes in 2023 were above 1 million tons, are recognized as owners of the key capacity in the market for storage of oil products at airports.
The Concept of Development of Transport and Logistics Potential of the Republic of Kazakhstan until 2030 states that in the air transport industry the strategic objective is to create favorable conditions for the development of transit of passengers and cargo, as well as to attract the world’s leading aviation and logistics companies to create permanent business units in Kazakhstan’s airports. One of the conditions for achieving this goal is the uninterrupted supply of aviation fuel with a transparent pricing mechanism. But now the high cost of fuel and the lack of a transparent mechanism for its distribution reduces the competitiveness of domestic airlines. These and other factors ultimately lead to an increase in costs and the final cost of air transportation services for the population and businesses.
Petrocouncil.kz learned the opinion of an expert in the field of oil refining and petrochemicals regarding the government’s plans to increase the capacity of Kazakh refineries to produce jet fuel, as well as the production of new types of fuel.
Director of analytical company PACE Analytics Askar Ismailov:
“Unfortunately, all these plans are based on information provided by the quasi-governmental sector represented by the Samruk-Kazyna Fund, KazMunaiGas and its subsidiaries. Therefore, it is difficult to say that these are specifically the plans of the government. The share of participation of the Ministry of Energy there is minimal. As for increasing production at Atyrau Refinery and Pavlodar Refinery, they are feasible, as the increase is insignificant and does not require significant resources – financial and human. If in Pavlodar the increase is tied to the increase in hydrogen production, which is realized by Air Liquide, then at ANPZ the question is open for me. As for PKOP in Shymkent, in general, modernization up to the capacity of 12 million tons per year is an unrealizable step. There are many factors that the Ministry of Energy and KMG do not want to consider. As for the increase in transportation, I agree here. We already see this growth. And we have the mishap of the first large-scale modernization of Kazakhstan’s refineries, when after its completion, the levels of oil refining increased by 30%, and transportation also increased, which in the end did not solve the issue of fuel and lubricants shortage in the country. I have said before and I will say again that we need to build a large refinery with a capacity of about 10 million tons per year, including petrochemicals. Therefore, the government risks stepping on the same rake again.
Transfer of the refinery from production of TS-1 to Jet A-1. These two fuels have differences in many technical and process parameters. Increased operating costs for quality control and safety compliance must also be considered. Therefore, reconfiguration can cost from tens to hundreds of millions of dollars depending on the state of the plants. And most importantly time – such a reconfiguration will take time. A very complicated bureaucratic procedure of the quasi-governmental sector will require up to two years of paper approvals. Further search for partners, I believe KMG itself will not want to implement such a project.
The SAF production project in Kazakhstan is quite realistic. As far as I know, in KMG the project is now being approved by the investment committee. In simple words, this is the final stage. There is already a base for production, it is planned to produce SAF at PNHZ, which significantly reduces capital costs. Pavlodar is conditionally equidistant from Astana and Almaty, where SAF can be used most of all. Karaganda is in prospect, which can become a transit point. The raw material at this plant will be ethanol. But there is also a possibility to produce SAF from used vegetable oil. We know the successful option of the Spanish company Iberia. Only in Astana and Almaty can the public catering become the main supplier. This is a huge volume, which may interest a private investor. Moreover, soon, airport expansion will not be possible without the use of SAF. Such requirements are imposed by IATA, which regulates all air travel in the world. Therefore, the prospect of this SAF project in Kazakhstan is very good”.
Table No. 1 Production and import of jet fuel in Kazakhstan for 2022-2023, as well as for January-September 2023-2024, thousand tons
| Production | |||||
| 2022 | 2023 | Change in % | 9М 2023 | 9М 2024 | Change in % |
| 665 | 643 | – 3,3 | 452,5 | 570 | +26 |
| Import | |||||
| 2022 | 2023 | Change in % | 9М 2023 | 9М 2024 | Change in % |
| 185,5 | 247,6 | +33 | – | 167 | – |
| Source: Ministry of Energy of RK | |||||
Table No.2 Production capacities of large refineries of RK, and planned increase during 2026-2030, thousand tons
| Refinery | На 2024 год | Планируемая мощность | Рост в % |
| ANPZ | 135 | 165 | 22,2 |
| PNHZ | 170 | 205 | 20,6 |
| PKOP | 300 | 1000 | 233 |
| Total | 605 | 1370 | 126 |
| Source: Ministry of Energy of RK | |||
Table No. 3 Volume of jet fuel output at three major refineries in 2013-2022, mln tons
| Refinery | 2013 | 2014 | 2015 | 2016 | 2017 | 2018 | 2019 | 2020 | 2021 | 2022 |
| ANPZ | 0,04 | 0,02 | 0,02 | 0,02 | 0,02 | 0,04 | 0,1 | 0,1 | 0,1 | 0,1 |
| PNHZ | 0,1 | 0,1 | 0,01 | 0 | 0 | 0,1 | 0,2 | 0,1 | 0,2 | 0,2 |
| PKOP | 0,2 | 0,3 | 0,3 | 0,2 | 0,3 | 0,3 | 0,3 | 0,2 | 0,3 | 0,3 |
| Total | 0,3 | 0,3 | 0,3 | 0,2 | 0,3 | 0,4 | 0,6 | 0,4 | 0,6 | 0,6 |
| Source: S&P Global Commodity Insights, KMG, Ministry of Energy of RK | ||||||||||
Table No. 4 Main indicators of air transportation of RK for 2018-2023.
| Transportation Segment | 2018 | 2019 | 2020 | 2021 | 2022 | 2023 |
| Passengers transported (mln people) | 7,9 | 8,6 | 5,5 | 9,4 | 11 | 13,3 |
| Passengers served (mln people) | 15,8 | 17,7 | 10,7 | 18,2 | 21,1 | 26,1 |
| Cargo and baggage transported (thousand tons) | 26,6 | 26,2 | 24 | 34 | 24,5 | 23,8 |
| Transit passengers (thousand people) | 900 | 1000 | 125 | 65 | 242 | 324 |
| Source: Ministry of Trasportation of RK | ||||||
Table No.5 Main indicators of air transportation of the RK for January-May 2023-2024.
| Transportation Segment | 5М 2023 | 5М 2024 |
| Passengers transported (mln people) | 4,6 | 5,4 |
| Passengers served (mln people) | 9,3 | 11,3 |
| Cargo and baggage transported (thousand tons) | 9,6 | 10,2 |
| Transit passengers (thousand people) | 121 | 119 |
| Source: Ministry of Trasportation of RK | ||
Table No.6 Revenue of Samruk-Kazyna JSC * from air transportation for 2021-2023.
| Time period | 2021 | 2022 | 2023 |
| Bln KZT | 332 | 492 | 549 |
* In 2023, Samruk-Kazyna JSC partially or fully owned three air carriers: Air Astana, FlyArystan and Qazaq Air.
As a result of IPO, held in February this year, the fund’s stake in Air Astana Group, which fully owns FlyArystan, decreased from 51% to 41%. The fund earned $370 mln on the sale of its shares.
In May, Samruk-Kazyna announced the sale of Qazaq Air to Vietnam’s Aviation Holdings Company, part of Sovico Group, which has businesses in the aviation, energy, construction and financial sectors. The amount of the deal, which is expected to be closed “soon”, is unknown. However, Transportation Minister Marat Karabayev said that the new owner of the airline undertakes to fully cover the debt of Qazaq Air in the amount of 38 billion tenge, as well as to buy 20 aircraft, which will be registered in Kazakhstan. Earlier the fund tried to sell the airline (together with debts) for 10 billion tenge. In 2023, Qazaq Air had 5 modern turboprop airplanes De Havilland Dash-8-Q400NG manufactured in Canada.