Energy revenues make up some 40 percent of Kazakhstan's budget. Until recently, with the exception of the 2008-2009 recession, Kazakh GDP growth has exceeded 6 percent each year since the country's energy sector boom began in 2000. But the past two years have been tough on the Kazakh energy sector; the profits of state energy firm KazMunaiGas and its subsidiaries have declined as expenses have risen. The biggest blow to KazMunaiGas has been the low oil prices seen since mid-2014.
Low oil prices, however, are not the Kazakh energy sector's only problem. Oil and natural gas production in Kazakhstan have been flat for the past four years. Nearly 40 percent of Kazakhstan's energy production comes from two large fields, Tengiz and Karachaganak. The Western-led consortia for Tengiz and Karachaganak have refused to move forward with production expansion plans because of low energy prices and the Kazakh government's financial pressures on the projects.
Kazakhstan's third-largest Western-led project, Kashagan, was intended to be the country's beacon of hope for increasing production. Considered one of the five largest oil fields in the world with an estimated 35 billion barrels, Kashagan was initially scheduled to start production in 2005 but has been hampered by delays and problems ever since. Meanwhile, the cost of the project, which was initially set at $10 billion, has soared to $46 billion and could exceed $60 billion.
All of these issues led Kazakh GDP to grow by only just under 1 percent in 2015. Overall, the coming year will be bleak for Kazakhstan's energy sector and for the country more broadly. However, a series of projects that will be in development in 2016 could give Kazakhstan a boost in production and exports by the end of the year and into 2017, alleviating the financial pain caused by continued low energy prices.
