Russia and Kazakhstan oil and gas quarterly review - EY Energy Center Central, Eastern and Southeastern Europe & Central Asia
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Energodigest subscription
Russia and
Kazakhstan
oil and gas
quarterly review
EY Energy Center
Central, Eastern and Southeastern
Europe & Central Asia
January 2022
Contents
1. Macroeconomy and markets 3
2. Russian economy 5
3. Kazakhstan economy 6
4. What are the market’s concerns? 7
5. Global oil and gas market 8
Crude oil prices 8
Gas prices 9
Drilling activity 10
6. Russia’s oil and gas sector 11
Upstream 11
Downstream 12
7. Kazakhstan’s oil and gas sector 13
8. In this issue 14
9. Hot topics for Russia’s oil and gas market 17
10. Contacts 18
https://www.ey.com/en_ru/energy-resources/energodigest
Macroeconomy and markets
Composite PMI Over the past five months, the global manufacturing PMI has
(manufacturing and services) remained virtually unchanged, while in Q4 2021 it held at
54.2. By December 2021, the PMI in the services sector had
08- 09- 10- 11- 12- slipped to a three-month low of 54.6 amid a new COVID-19
21 21 21 21 21 wave as well as the tightening of mandatory and voluntary
restrictions. This affected the composite PMI as it fell to
World 52.5 53.3 54.5 54.8 54.3
54.3 points from 56.6 in mid-2021. Preliminary data for
US 55.4 55.0 57.6 57.2 57.0 January signals a generally favorable outlook across all PMI
components, though most readings are below those
China 47.2 51.4 51.5 51.2 53.0
observed in the previous two months.
Eurozone 59.0 56.2 54.2 55.4 53.3
Omicron, a new variant of COVID-19 that has an extremely
Japan 45.5 47.9 50.7 53.3 52.5 high number of mutations, was detected in Botswana and
South Africa in early December 2021. By the end of January
India 55.4 55.3 58.7 59.2 56.4
2022, the seven-day moving average of new cases had risen
Russia 49.2 50.5 49.5 48.4 50.2 to 3.2 million. While spreading faster, Omicron is not as
lethal, causing fewer deaths than other variants (75% fewer
Brazil 54.6 54.7 53.4 52.0 52.0
at the end of December 2021), but its emergence has raised
the risk of re-infection.
New COVID-19 cases (million)
The UK, where Omicron infections were soaring the most
3.5 rapidly, is now easing restrictions after the number of new
cases fell substantially from the peak levels earlier this year.
3.0
Elsewhere, the coronavirus situation is going from bad to
worse, with the number of cases in January 2022 reaching
2.5
record highs in the US, Israel, Germany, Spain, France and
2.0 other countries.
Inflation continues to dominate the macroeconomic
1.5 headlines. It hit a 25-year high in the OECD area, having
surged to 5.8% in the 12 months to November 2021
1.0
(see What are the market’s concerns?).
0.5 With that, global GDP growth forecasts are now changing.
For example, Oxford Economics has trimmed its outlook for
0.0 2022 from 4.3% to 4.2% (for comparison, its 2021 growth
11/1/20
11/1/21
1/1/20
3/1/20
5/1/20
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9/1/20
1/1/21
3/1/21
5/1/21
7/1/21
9/1/21
1/1/22
3/1/22
forecast stood at 5.4%).
Sources: HSBC, IHS Markit, Bloomberg
3 Russia and Kazakhstan oil and gas quarterly review – January 2022
GDP of major economies, y-o-y The US economy expanded at an annualized rate of
2.3% in Q3 2021. Real GDP increased in 37 of the 50
states and 13 of the 21 industry groups, with the leading
US contributors being professional, scientific and technical
services (+12.3%), finance and insurance (+7.8%), and
20%
government and government enterprises (+5.1%). The
15% spread of the Delta variant affected economic growth in
July-September, while towards the end of the year the
10% prospects of sustained recovery were marred by Omicron.
At December 2021, 61.9% of the country’s population
5% were fully vaccinated against COVID-19.
0% According to the US Bureau of Labor Statistics, the
nation’s unemployment rate fell below 4% for the first
-5% time since the pandemic started: 3.9% in December 2021,
10.9 p.p. below its most recent peak in April 2020
-10%
(14.8%). The Fed intends to wrap up its stimulus
-15% programs faster and raise the key interest rate as the
number of jobless people declines gradually, while salaries
Q1-21
Q2-21
Q3-21
Q4-21
Q1-22
Q2-22
Q3-22
Q4-22
Q1-23
Q2-23
grow steadily and inflation remains high (7.0% in
December 2021).
Eurozone The US Department of the Treasury expects the national
economy to expand 3.3% y-o-y in 2022, down from
5.3% y-o-y in 2021.
20%
18% In Q3 2021, economic growth in the eurozone was only
16%
3.9% y-o-y, a marked drop from 14.4% a quarter earlier.
Austria recorded the highest increase in GDP (+3.8%),
14%
followed by France (+3.0%) and Portugal (+2.9%).
12%
Household final consumption expenditure (+4.1%) made
10% a strong contribution to GDP growth.
8%
Spurred by higher energy and food prices – up 26.0% and
6%
3.2%, respectively – the annual inflation rate rose to
4%
5.0% in December 2021 from minus 0.3% a year earlier.
2%
Over the next two years, economic growth in the
0% eurozone is expected to be faster than in the US as
-2% COVID-19 eases its grip and the ECB takes a more
Q1-21
Q2-21
Q3-21
Q4-21
Q1-22
Q2-22
Q3-22
Q4-22
Q1-23
Q2-23
moderate stance in its monetary policy. Based on the
recent ECB forecast for the euro area, the economy will
grow 4.2% y-o-y in 2022.
China The Chinese economy expanded 4.9% y-o-y in July-
September 2021, down from 7.9% y-o-y in Q2 2021 and
20% 18.3% in Q1 2021. According to the National Bureau of
Statistics, this is the slowest pace in a year. Such a slump
15% was caused by many factors, including Beijing’s plans to
reduce last year’s pandemic stimulus measures, tighter
10% regulatory scrutiny on tech companies, private education
providers and the real estate market, as well as the
5%
energy crunch prompted by skyrocketing coal prices and
0% the government’s pursuit of ambitious targets to cut
carbon emissions. Economic growth was also held back by
-5% supply chain disruptions, semiconductor shortages and
a backlog in some of the country’s major ports.
-10%
Annual inflation was 1.5% in December 2021, with prices
-15% in urban and rural areas rising 1.6% and 1.2%,
Q1-21
Q2-21
Q3-21
Q4-21
Q1-22
Q2-22
Q3-22
Q4-22
Q1-23
Q2-23
respectively, from a year earlier.
Sources: US Federal Reserve, Bloomberg
4 Russia and Kazakhstan oil and gas quarterly review – January 2022
Russian economy
Russia’s GDP grew 4.3% y-o-y in Q3 2021, down from The ruble ended the year pretty much where it started,
10.5% a quarter earlier, with the main contributors being having weakened just 0.3% against the US dollar, from
hospitality and catering (+16.7%), other services (+10.7%), RUB 74.40 to RUB 74.65.
information and telecommunications (+11.7%), and extractive As of 1 January 2022, Russia’s sovereign wealth fund was
industries (+8.4%). In the first nine months of 2021, the worth RUB 13.57 trillion (11.7% of GDP projected for
Russian economy expanded 4.6% compared with the same 2021). The fund’s liquid assets reached RUB 8.43 trillion,
period the previous year. or $113.5 billion (7.3% of GDP). In December 2021, the
According to preliminary estimates by the Ministry for fund’s value decreased by $2.6 billion due to exchange
Economic Development, the nation’s GDP grew between rate fluctuations (just over 30% of the fund’s capital is
4.4% and 4.5% y-o-y for the full year 2021, while the growth invested in Ruble-denominated assets).
forecast for 2022 remains unchanged at 3%. As of 1 January 2022, Russia’s external debt stood at
For the first time since September 2021, Russia’s composite $478.2 billion, up $11.0 billion from a year earlier.
PMI was back on a growth track, rising to 50.2 in December
Russia’s GDP, y-o-y
2021 from 48.4 a month earlier.
Russia saw a massive increase in its current account surplus in 12%
2021: up 230% to an all-time high of $120 billion, almost 10%
identical to the CBR’s recent forecast of $121 billion. With 8%
$41.8 billion, Q4 2021 was also record-breaking in terms of 6%
the current account surplus. This standout performance came 4%
on the back of a high trade balance, which doubled since a 2%
year earlier to $185.9 billion as exports rose by as much as 0%
47% to $489.8 billion in response to favorable prices, while
-2%
imports showed only a moderate increase of 27% to $303.9
Q1-21
Q2-21
Q3-21
Q4-21
Q1-22
Q2-22
Q3-22
Q4-22
Q1-23
Q2-23
billion.
Russia’s labor market was generally back to the pre-pandemic Ruble rate against the US dollar and euro
level. The unemployment rate in October 2021 fell to 4.3%,
the lowest level in recent years, Rosstat data suggests. 100
RUB/USD RUB/EUR
95
According to Rosstat, consumer inflation in Russia accelerated
90
to 8.39% in 2021. On a monthly basis, prices rose 0.82% in
85
December 2021 vs. 0.96% in November 2021. The President
80
of Russia has repeatedly stated that annual inflation in 2022
75
should be brought back to the target level of 4%.
70
At its December meeting, the CBR decided to raise the key 65
interest rate by 100 b.p. to 8.5% in the face of growing
03/20
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09/20
11/20
01/21
03/21
05/21
07/21
09/21
11/21
01/22
03/22
inflationary pressures. On 11 February 2022, the Bank of
Russia Board of Directors decided to increase the key rate by
100 b.p. to 9.5% per annum
Sources: Bloomberg, Rosstat, Ministry for Economic Development, CBR, EY Energy Center (Central, Eastern and Southeastern Europe & Central Asia)
5 Russia and Kazakhstan oil and gas quarterly review – January 2022
Kazakhstan economy
Kazakhstan’s GDP, y-o-y In the first eleven months of 2021, Kazakhstan’s
8% economy expanded 3.8% y-o-y (for comparison,
+3.5% for January-October 2021). Over this period,
6%
growth in the services sector accelerated and the real
4% sector continued to pick up steam. Rising exports
contributed to a stronger trade balance, while
2% investment activity in non-extractive industries was
0% high.
The Eurasian Development Bank expects GDP growth in
-2%
Kazakhstan to be about 4% by the end of 2022.
Q1-21
Q2-21
Q3-21
Q4-21
Q1-22
Q2-22
Q3-22
Q4-22
Q1-23
Q2-23
According to the bank’s estimates, the slowdown of
economic activity in January 2022 will be neutralized
Inflation, y-o-y shortly. Nevertheless, the January political unrest in
Kazakhstan may affect the flow of foreign direct
9%
investment.
8%
The composite PMI rose to 51.6 in December 2021
7% from 49.1 a month earlier.
6% Last year, products and services appreciated by 8.4%,
with food and non-food prices rising 9.9% and 8.5%,
5%
respectively, and services becoming 6.5% more
4% expensive (December 2021 vs. December 2020).
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03-21
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12-21
Kazakhstan's central bank raised its main interest rate
to 10.25% from 9.75% in late January 2022, citing
Tenge rate against the US dollar and euro persistent inflationary pressure in the oil-rich Central
Asian nation's economy.
550
According to the National Bank, the tenge lost 2.6% of
500 its value against the US dollar despite growing oil prices.
450 The national currency weakened as imports increased
amid economic recovery driven by pent-up demand.
400
Kazakhstan’s foreign exchange reserves, including
350
KZT/USD KZT/EUR those of the National Bank and the National Fund, were
300 worth $90.5 billion at the end of November 2021, down
$435 million from a month earlier.
01/20
03/20
05/20
07/20
09/20
11/20
01/21
03/21
05/21
07/21
09/21
11/21
01/22
Sources: Agency for Strategic planning and reforms of the Republic of Kazakhstan Bureau of National statistics, National Bank of Kazakhstan, Bloomberg
6 Russia and Kazakhstan oil and gas quarterly review – January 2022
What are the market’s concerns?
Inflation in some countries in December 2021 (%, As we noted earlier, inflation continues to dominate the
y-o-y) macroeconomic headlines, while labor shortages across a
50% number of economies are already driving up wages. Amid
a new wave of COVID-19 infections caused by Omicron,
40% concerns are mounting about supply-side inflationary
pressures.
30%
Inflation in the OECD area rose to 6.6% in the 12 months
20% to December 2021, compared with 5.9% in November,
and just 1.2% in December 2020, reaching its highest rate
10% since July 1991. Annual inflation rate in the Euro Area
accelerated for the sixth straight month to a record high
0% of 5.3% in December of 2021 from 4.9% a month earlier.
In the US, prices were 7.0% higher in the last month of
-10%
Japan France Germany UK Italy US Turkey 2021 (the highest level since 1982) after rising in
November by 6.8%.
Inflation was driven primarily by energy prices. In
Rise in energy prices Rise in other prices
December, they rose 19.5% y-o-y in France, 24.5% y-o-y
in the UK, 29.3% y-o-y in the US, and nearly 50% y-o-y in
Rise in food prices Overall inflation
Turkey. For comparison, food prices in these countries
increased 1.4%, 4.2%, 6.5% and 44% y-o-y, respectively.
Forecast of the upper level of the Fed’s key rate These concerning statistics have prompted action from
regulators. The UK was the first of the G7 countries to
1.6%
react. The Bank of England raised the benchmark interest
rate by 15 b.p. to 0.25% in December and is likely to
1.2% tighten its monetary policy further.
The ECB, while it considers inflation to be too high, has so
0.8%
far kept interest rates at rock bottom. However, some
analysts expect a 10 b.p. hike as early as this autumn.
0.4%
The Fed has already indicated that it will tighten its
monetary policy, while investors are watching out for the
0.0%
Q1-22 Q2-22 Q3-22 Q4-22 Q1-23 Q2-23 Q3-23 Q4-23 first increase (of four possible in 2022) of the near-zero
rate in March so they can start disposing of risky assets.
Forecast of 20 May 2021 According to the IMF, faster Fed rate increases could
Forecast of 6 September 2021
rattle financial markets and tighten financial conditions
globally.
Forecast of 10 January 2022
Sources: Bloomberg, OECD
7 Russia and Kazakhstan oil and gas quarterly review – January 2022
Global oil and gas market
Crude oil prices
Brent oil price, $/bbl Oil prices rose nearly 60% in 2021, with a barrel of Brent crude trading
from just above $50 at the beginning of the year to $79 at the end of
the year, while in the last week of January 2022 its price approached
90 $90.
85
80 In the first month of the New Year, geopolitical risks took center stage
75 over other risks, such as tightening of monetary policy in the US. While
70 the political crisis in Kazakhstan barely had an impact on the country’s
65 oil sector (only minor and short-term production cuts at Tengiz
60
reported by the Energy Ministry), investors perceived it as a threat.
55
50 Later, a similar reaction was caused by an attack on a fuel depot in
Abu Dhabi, which sent oil prices to their highest level since October
10/1/21
11/1/21
12/1/21
1/1/21
2/1/21
3/1/21
4/1/21
5/1/21
6/1/21
7/1/21
8/1/21
9/1/21
1/1/22
2/1/22
2014.
Another challenge facing the global oil market along with geopolitical
Oil output cuts by OPEC+ in 2021-22, tensions is anemic growth in US crude output. In its Monthly Oil Market
million barrels per day Report for January, OPEC kept the forecast for world oil demand in
5.0 2022 unchanged, with demand expected to grow 4.15 mbd y-o-y to
4.0 reach 100.79 mbd. Broken down by quarter, demand is forecast at
99.13 mbd in Q1, 99.75 mbd in Q2, 101.28 mbd in Q3 and
3.0
102.90 mbd in Q4.
2.0 A leading Wall Street bank has revised its Brent oil price forecasts
1.0 upward from с $81 to $96 a barrel for 2022 and from $85 to $105
a barrel for 2023, while the Bloomberg median forecast at the end of
0.0
January 2022 is more conservative: $75/bbl for 2022 and $74 for
01-21
02-21
03-21
04-21
05-21
06-21
07-21
08-21
09-21
10-21
11-21
12-21
01-22
2023.
OECD commercial inventories of liquid Brent price forecast, 25 January 2022 ($/bbl)
hydrocarbons, billion barrels
3.1 90
85
3.0
80
2.9 75
70
2.8 65
60
2.7
55
2.6 50
Spot Q1-22 Q2-22 Q3-22 Q4-22 Q1-23 Q2-23
01-21
03-21
05-21
07-21
09-21
11-21
01-22
03-22
05-22
07-22
09-22
11-22
01-23
03-23
05-23
07-23
09-23
11-23
Forward curve Median forecast
Sources: Bloomberg, EIA, Reuters, OPEC
8 Russia and Kazakhstan oil and gas quarterly review – January 2022
Global oil and gas market
Gas prices
The gas market remained in the limelight as average spot According to experts, demand for natural gas in the region
prices at the Dutch TTF jumped to $38/million BTU in will remain high throughout 2022, as Europeans will need
the last month of 2021, which was 28.7% above October’s to top up their inventories after the heating season. Until
peak levels and 450% higher than in January. Gas prices April 2023, natural gas in Europe is estimated to cost
in Europe have never been so persistently high since between $10 and $30 per million BTU.
1996, when gas hubs began to operate. At the turn of While LNG spot prices in Asia were also on the rise at the
2022, prices started to go down gradually, landing at an end of 2021, having more than doubled in the previous
average of $27/million BTU in January as more LNG 12 months (around $39/million BTU in northeastern Asia),
tankers headed to Europe from the US. the Asian market premium to the TTF shrank from $5 per
From September 2021 to January 2022, LNG supplies million BTU in November 2021 to $1 per million BTU in
to Europe soared 81%, an average of 22% per month. By December.
contrast, natural gas imports by pipeline declined After a brief setback in October, LNG supplies to Asia
(21.1% y-o-y in Q4 2021), pinched, in particular, by the continued on the growth track, having increased 23% in
closure of the Maghreb-Europe pipeline, which runs to December from the October levels.
Spain via Morocco, starting 1 November.
In the US, the average price at the Henry Hub in
Adding to the challenge was a low level of gas inventories December 2021, albeit falling 25% from the previous
in Europe, with underground storage facilities at the month, remained fairly high at $3.8 per million BTU, which
beginning of the year being less than 55% full, compared is 45.4% above the average level observed in January
with 88% in the same period of 2020 and around 75% last 2021.
year.
Gas prices, $/million BTU LNG imports in Europe and Asia, Gas storage levels in Europe
billion cubic meters (beginning of the month)
45 35 Europe NE Asia 90%
40 TTF (Europe) 80%
30
35 LNG Asia 70%
25
30 Henry Hub (US) 60%
25 20 50%
20 15 40%
15 30%
10
10 20%
5 5 10%
0 0 0%
01-21
02-21
03-21
04-21
05-21
06-21
07-21
08-21
09-21
10-21
11-21
12-21
01-22
03-18
06-18
09-18
12-18
03-19
06-19
09-19
12-19
03-20
06-20
09-20
12-20
03-21
06-21
09-21
12-21
01-11
01-12
01-13
01-14
01-15
01-16
01-17
01-18
01-19
01-20
01-21
01-22
Sources: Bloomberg, Reuters, EY Energy Center (Central, Eastern and Southeastern Europe & Central Asia)
9 Russia and Kazakhstan oil and gas quarterly review – January 2022
Global oil and gas market
Drilling activity
Drilling activity globally continued on a recovery path in Global rig count
Q4 2021 as market conditions improved and
2,400
production curbs under the OPEC+ deal eased. By the
2,200
end of December 2021, the active rig count had
reached 1,563, its highest since April 2020 2,000
(+115 from the September level and +380 since the 1,800
beginning of the year). Overall, the average number of 1,600
active drilling rigs worldwide did not increase markedly 1,400
from a year earlier (+0.7%). 1,200
Around 60% of the rise last year came from North 1,000
America, with the active rig count there soaring to 800
729 by the end of 2021, its highest since March 2020 600
(+66% y-o-y), while in the first month of 2022 it grew
400
even further to reach 816.
200
According to Baker Hughes, the US rig count at the end
0
of January 2022 rose to 604, which is nearly 50%
03-18
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06-19
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12-21
higher than last year and 6.2% above the level recorded
at the beginning of January.
US rig count, month-end
Canada’s active rig count stood at 212 at the end of
January 2022, which is four times higher than the 1,100
lowest count recorded in April 2021 and 23.1% more 1,000
than last year.
900
800
Baker Hughes rig count by region, December 700
2021 600
500
400
37% 18% 12% 10% 10% 7% 6% 300
200
100
US Asia Pacific Latin America Africa 0
03-18
06-18
09-18
12-18
03-19
06-19
09-19
12-19
03-20
06-20
09-20
12-20
03-21
06-21
09-21
12-21
Middle East Canada Europe
Sources: Baker Hughes
10 Russia and Kazakhstan oil and gas quarterly review – January 2022Russia’s oil and gas sector
Upstream
Average daily output – Oil, million barrels per day Russia’s average daily output of oil and gas condensate in
2021 increased 2.5% y-o-y to 10.52 million barrels, or
12.0 15%
Oil output %, y-o-y 524.05 million tons (adjusted for the previous year’s leap
11.5 10% year effect). During 2021, OPEC+ was gradually unwinding
11.0
5% output cuts introduced in May 2020.
0% Daily production quotas for Russia continued to increase in
10.5
-5% Q4 2021, from 9.809 mbd in October to 9.914 mbd in
10.0
-10%
November and 10.018 mbd in December. In the last month
9.5
of the year, however, Russia pumped 4% below its quota,
-15%
partly due to lower demand for Russian crude amid the
9.0 -20% pandemic, as well as because of restrictions imposed in
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some European countries ahead of the Christmas and New
Year holidays.
Average daily output – Gas*, billion cubic meters per
Russia’s production of natural and associated gas in 2021
day
2.5 20% reportedly rose 10% y-o-y to 762.3 billion cubic meters, or
Gas output %, y-o-y 2.08 billion cubic meters in daily terms. The output in
15%
December was 69.03 billion cubic meters, +3.3% y-o-y and
10% +4.4% m-o-m. The rise was driven by growing demand both
5% locally and from importing nations as their economies
2.0
0% reopened from COVID-19 lockdowns, as well as by supply
-5%
and demand imbalances on international markets
(see page 10).
-10%
According to Russia’s balance of payments, exports of
1.5 -15%
hydrocarbons (i.e., oil, natural gas, petroleum products and
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LNG) rose 60% to $241 billion in 2021 (13.3% of GDP). In
particular, export revenues from natural gas sales totaled
*Including natural and associated gas and condensate $54 billion.
Lifting costs by company, $/bbl
4
3
2
1
0
Rosneft LUKOIL Gazprom Neft Tatneft
Q1-20 Q2-20 Q3-20 Q4-20 Q1-21 Q2-21 Q3-21
Sources: companies, InfoTEK, EY Energy Center (Central, Eastern and Southeastern Europe & Central Asia)
11 Russia and Kazakhstan oil and gas quarterly review – January 2022Russia’s oil and gas sector
Downstream
Crack spreads on key oil products in According to our estimates, the average indicative margin of a typical
Northwestern Europe, $/t refinery in European Russia was close to RUB 3,500/t in Q4 2021, compared
with minus RUB 1,500/t in the same period a year earlier, while for the full
2021 it stood at RUB 1,800/t vs. minus nearly RUB 1,000/t in the previous
Gasoline year.
250
Oil product prices in Europe continued on the recovery track during the last
200 three months of 2021: the price differential between gasoline and crude oil
150 was almost 80% higher than the average for the same period in the four years
100 preceding the crisis, while the naphtha crack spread widened 128%. While
50 middle distillates strengthened after the energy crunch hit Europe and more
0 energy generation companies turned to oil products as coal and gas prices
went up, their average crack spreads were holding below the level observed
Diesel fuel
in the last three months of 2016-19 (minus 9.5% on kerosene and minus
150 9.9% on diesel fuel).
125
In Q4 2021, both gasoline and diesel were trading on the domestic market
100
75
at a higher discount than a quarter earlier: ~RUB 18,000 per ton (55.8%) and
50 RUB 5,200 per ton (1.5%), respectively. Pressure on refining margins was
25 eased by compensation payments under the damping mechanism throughout
0 2021.
Kerosene However, higher freight costs, which climbed 50-100% (depending on the fuel
type and export destination), wiped out the positive effects of rebounding
200
export prices and compensation payments in the last quarter of 2021.
150
According to the Energy Ministry, crude supplies to domestic refineries rose
100
7.1% y-o-y in Q4 2021 to 5.77 million barrels a day, or 72.4 million tons.
50 In 2021, primary processing increased 4.2% y-o-y to 5.6 million barrels a day,
0 or 280.5 million tons.
-50
Crude refined domestically vs. exported, million barrels per day
Naphtha
6.5
175
6.0
150
125 5.5
100
75 5.0
50 4.5
25
0 4.0
1 2 3 4 5 6 7 8 9 10 11 12 Q1-20 Q2-20 Q3-20 Q4-20 Q1-21 Q2-21 Q3-21 Q4-21
2020 2021 Average for 2016-19 Refined Exported
Sources: InfoTEK, Reuters, EY Energy Center (Central, Eastern and Southeastern Europe & Central Asia)
12 Russia and Kazakhstan oil and gas quarterly review – January 2022Kazakhstan’s oil and gas sector
According to the Energy Ministry, daily oil output in 2021 rose 0.2% from the previous year to 1.72 million barrels,
or 85.7 million tons in total for the year.
Kazakhstan’s production quotas under the OPEC+ deal for October, November and December 2021 were set at
1.524 mbd, 1.540 mbd and 1.556 mbd, respectively.
Overall in 2021, 17.1 million tons of crude oil are estimated to have been refined (0.34 million barrels daily, up 8.7% from
a year earlier), with petroleum product output estimated to total 13.1 million tons.
According to the full-year 2021 forecasts, Kazakhstan will produce 4.8 million tons of diesel fuel, 4.7 million tons of
gasoline, 2.4 million tons of fuel oil, 933,000 tons of bitumen and 600,000 tons of jet fuel.
Oil exports are set to reach 67.6 million tons in 2021 (~1.36 mbd, down 1.16% from the previous year), estimates by the
Energy Ministry suggest.
According to available data, natural gas production in Kazakhstan declined 4.7% y-o-y in the first 10 months of 2021
to 43.7 billion cubic meters, or 143.8 million cubic meters per day.
Oil and gas output at Kashagan is estimated to reach 15.9 million tons and 9.7 billion cubic meters in 2021, respectively,
while at Karachaganak it will total 11.6 million tons and 18.7 billion cubic meters, respectively.
Average daily output – Oil, million barrels per day Average daily output – Gas, million cubic meters per day
2.0
170
165
1.9 160
155
150
1.8
145
140
1.7 135
130
1.6 125
120
115
1.5
110
105
1.4 100
01-20
02-20
03-20
04-20
05-20
06-20
07-20
08-20
09-20
10-20
11-20
12-20
01-21
02-21
03-21
04-21
05-21
06-21
07-21
08-21
09-21
10-21
11-21
12-21
01-20
02-20
03-20
04-20
05-20
06-20
07-20
08-20
09-20
10-20
11-20
12-20
01-21
02-21
03-21
04-21
05-21
06-21
07-21
08-21
09-21
10-21
Source: InfoTEK
13 Russia and Kazakhstan oil and gas quarterly review – January 2022In this issue
Global electricity sector: first results of 2021
fall short of climate goals
Global electricity demand by region, 2021 was a trying year for the global electricity sector, as it
TWh brought with it a bunch of problems, including the energy crisis,
increased environmental scrutiny amid a push for
30,000 6.2% decarbonization, and many others. Yet the sector weathered
these storms, having recovered from the impact of the
25,000 pandemic a year earlier (-0.5% y-o-y). According to the latest
IEA Electricity Market Report,1 global electricity demand in
20,000 2021 soared 6.2% y-o-y. The largest ever annual increase in
absolute terms (over 1,500 TWh) came on the back of a rapid
15,000
recovery in key economies as they transition to a new normal,
10,000 combined with more extreme weather conditions (a colder than
average winter and a warm summer). Electricity demand
5,000 returned to pre-COVID levels in Europe and the Americas
(+4.4% and +3.8% y-o-y, respectively), while in Asia Pacific it
0 was even higher (+8.1% y-o-y), driven mostly by China and
2019 2020 2021 2022 2023 2024
India.
Africa Europe Paradoxically, coal-fired generation reached an all-time peak in
Middle East Americas 2021, growing 8.6% from the previous year despite the climate
Eurasia (other) Asia Pacific agenda (more than half of the increase in global demand).
Gas-fired generation rose only 2.1%, with the growth held back
Electricity generation by energy source, by high feedstock prices, while renewables-based generation
TWh grew 6.2%, the same rate as a year earlier. However, the
sudden surge in coal consumption is perceived as temporary.
According to the IEA, by 2024 growth in coal-fired generation
11,000
will stabilize at the level close to that observed last year.
10,000
So far, only 21 countries accounting for 12% of global coal-fired
9,000
electricity consumption have committed to ending the use of
8,000
7,000
coal, but no earlier than 2040.
6,000 With that in mind, the IEA assumes that the global electricity
5,000 sector’s emissions, which leaped to a new all-time high of
4,000 13 billion tons of CO2 equivalent in 2021 (+6.8% y-o-y), will not
3,000 rise markedly in the next three years, growing at a CAGR of
2,000 0.2%, although they should now begin to plummet, considering
1,000 the net-zero emissions target set for 2050. In this situation,
0 the best solution would be to tighten existing climate laws or
2019 2020 2021 2022 2023 2024
adopt them in those countries where they are still pending.
At the end of 2021, there were 65 carbon pricing instruments
Gas Other non-renewables
in place, six of which, including China’s national ETS, were
Coal Renewables launched in the last 12 months.
Nuclear
Source: IEA
14 Russia and Kazakhstan oil and gas quarterly review – January 2022In this issue
Big hopes for small modular reactors
The EU has long been engaged in debate over the Indeed, most of the 72 SMR designs at various stages of
peaceful use of nuclear energy, which accounted for development6 enjoy some sort of support from the
around 27% of the bloc’s electricity generation in government, whether in the form of private-public
2021. Yet over the past months, the official stance has partnership, subsidies or tax credits, as leaders in many
changed dramatically. While in early November 2021, countries, such as the US, China, Canada and the UK,
the call by some member states to label nuclear power believe that decarbonization is not achievable without
as green energy was not widely supported across nuclear energy. Should these technologies gain the footing
the EU, by the end of the month the European and scale needed for power from an SMR to be delivered at
Commission proposed to consider some gas and US$65/MWh,7 nuclear-produced hydrogen could compete
nuclear energy projects to be included in the EU with green hydrogen produced from wind and solar energy.
Taxonomy, albeit as a temporary measure in a move EU’s electricity mix in January-October 2021
that could help the shift to net-zero emissions.
France, Poland, the Czech Republic, the UK and other
27% 35% 38%
European countries advancing nuclear energy are
pinning their hopes on small modular reactors (SMR)
with a power capacity of up to 300 MW, which may Nuclear Fossil fuels Renewables (incl. hydropower)
serve as a backup supply source alongside unstable
renewables. At least 70 companies around the world Levelized cost of electricity (global median), $/MWh
are now working on these projects. The interest in
SMRs is driven by multiple factors: thanks to their
Nuclear
modular design and scalability, they are more flexible
than larger nuclear plants and can therefore serve SMR
as an ideal power source in sparsely populated and
remote areas, while their low carbon footprint means Hydro small
that they can be sited in close proximity to carbon-
Wind offshore
intensive facilities. In addition, SMRs have reduced fuel
requirements: power plants based on SMRs may CCGT
require less frequent refueling, every 3 to 7 years,
compared with between 1 and 2 years for conventional Coal
plants.
PV non tracking
The total levelized cost of electricity (LCOE) for a new
SMR is currently $120/MWh, which is higher than that Wind onshore
generated from natural gas and most of the alternative
0 20 40 60 80 100 120 140 160
energy sources. However, according to Wood
Mackenzie, SMR costs may fall below US$80/MWh mid-2021 2030
in the 2030s owing to government support.
Sources: Ember Сlimate, Wood Mackenzie, BloombergNEF
15 Russia and Kazakhstan oil and gas quarterly review – January 2022In this issue
CCUS is gaining traction
Pressure to reduce GHG emissions is growing as the world Since 10% of the announced projects can only handle less
moves towards decarbonization. In the IEA Sustainable than 0.5 mtpa, companies implementing these projects
Development Scenario, nearly 15% of the world’s emissions are planning to deliver them on a cluster basis in order to
reductions between now and 2050 will be delivered by carbon split costs and save money through the use of shared
capture and storage (CCS). According to estimates by transportation and storage systems (while historically,
the Global CCS Institute, this equates to 2,000 large-scale CCS projects tended to be vertically integrated due to
facilities to be deployed by mid-century, which would require their larger scale).
from $650 billion to $1,300 billion in funding, depending
Yet despite all efforts to reduce costs, including through
on the rate at which CCS costs decline as more capacity is
economies of scale, projects like these need a helping
installed. Investors are now putting more money in CCS.
hand from the government. This practice is now becoming
The capacity of projects in development grew 48%, from
increasingly popular around the globe. For example, as
75 million tons per year (mtpa) at the end of 2020 to
part of its annual allocations the US government
111 mtpa in September 2021. The US leads the global league
appropriated $228.3 million for carbon capture, utilization
table, hosting 36 facilities, followed by Belgium, the
and storage (CCUS) in 2021 and, along with tax credits,
Netherlands and the UK, with a total of 17 facilities to be
it is planning to invest $6 billion in CCUS research,
deployed there.
development and demonstration in the period from 2021
CCS projects are becoming more diverse: while most of them and 2025.3 On the other side of the Atlantic in Europe,
now deal with natural gas processing and the production support comes from public funds. In particular, the EU
of mineral fertilizers, hydrogen and ethanol, they are set to Innovation Fund aims to allocate €25 billion towards
expand into new niches, such as coal- and gas-powered low-carbon technologies by 2030. The EU is investing
generation, waste-to-energy and iron and steel production. €1.1 billion in seven large-scale projects, including four
This is not surprising, as carbon capture is expected to involving CCS, which were selected after the first call.
become economically viable in the long run. Now that the European Commission has launched the
second call for proposals with a deadline in March 2022,
For example, the levelized cost of CO2 capture in the power
more projects are likely to get government support.
and metals sectors, which is now close to $100 per ton,
is likely to drop markedly by 2030, pushed down by
technology advancements and surging carbon prices (e.g.,
€100 per ton in the EU).
CCS facilities in development, million tons per year Levelized cost of CO2 capture by sector, $/t CO2-eq
120
Direct air capture
100 Power generation
80 Cement
60 Steel
Hydrogen
40 In construction
Bioethanol
20 Advanced development
Ammonia
Early development
0 Gas processing
2020 Sep-21
0 50 100 150 200 250 300 350
Sources: IEA, Global CCS Institute
16 Russia and Kazakhstan oil and gas quarterly review – January 2022Hot topics for Russia’s oil and gas market
Decarbonization Downstream
• Strategy revisions to address changes in the global • Profitability of oil refining as demand for motor fuels
market model picks up and crude prices rise
• Looking for solutions to reduce carbon footprint • Adjustments to the damping mechanism
• Companies emitting more than 150,000 tons of • Supply chain and sales optimization in the face of tighter
CO2 per year to file mandatory reports starting climate laws, including stricter energy efficiency targets
2022 (Law on Limitation of Greenhouse Gas adopted by the IMO
Emissions) • Revision of growth strategies for the downstream
• Framing business cases for hydrogen segment (including petrochemicals and biofuels) amid
energy transition
• Improving ESG ratings with a view to getting access
to foreign capital and adopting environmental KPIs Oilfield services
Taxation in the oil and gas sector • Growing competition among independent players as
integrated oil companies seek to develop oilfield services
• Adjustments to the AIT regime
of their own
• Implementing the tax expense assessment in
• Need for the sector’s revamp as customers become more
accordance with Government Decree No. 439 of 12
demanding, challenged by tighter margins, heavier debt
April 2019
burden, a lack of readily available cash and an
• EU’s Carbon Border Adjustment Mechanism: a increasingly harder task of turning reserves into
potential scope expansion to add more products production
after 2026
• Strategy revisions and diversification of service offerings
• Creating a national carbon pricing mechanism: in response to decarbonization
looking for the best solution
Natural gas
Upstream
• Energy crisis and meeting the global demand for
• A new look at investment opportunities and current sustainable supplies
operating costs
• Adapting to new external challenges, such as energy
• Innovative development and digitalization (smart transition, growing competition between fuels, expansion
fields, improved oil recovery, etc.) of LNG supply and hydrogen generation.
• Technological and financial challenges; import
substitution
• R&D
17 Russia and Kazakhstan oil and gas quarterly review – January 2022Contacts
Alexey Loza Olga Beloglazova
Partner, Energy Leader — Central, Eastern Energy Center Leader — Central, Eastern and
and Southeastern Europe & Central Asia Southeastern Europe & Central Asia (CESA)
(CESA) Tel.: +7 (495) 755 9700
Tel.: +7 (495) 641 2945 Olga.Beloglazova@ru.ey.com
Alexey.Loza@ru.ey.com
Ekaterina Malygina Grigory Arutunyan
Partner, CESA Oil & Gas Leader Partner, Transaction Advisory Services Energy
Leader — Central, Eastern and Southeastern
Europe & Central Asia (CESA)
Tel..: +7 495 755 9700 Tel.: +7 (495) 641 2941
Ekaterina.Malygina@ru.ey.com Grigory.S.Arutunyan@ru.ey.com
Petr Medvedev Dmitry Lobachev
Partner, Oil & Gas Leader — Global Accounts Partner, Oil & Gas Leader — Global Accounts
Tel.: +7 (495) 755 9877 Tel.: +7 (495) 228 3677
Petr.V.Medvedev@ru.ey.com Dmitry.Lobachev@ru.ey.com
Alexei Ryabov Artiom Kozlovski
Partner, Oil & Gas Leader — Global Accounts Partner, Advisory Oil & Gas Leader — Central,
Eastern and Southeastern Europe & Central
Asia (CESA)
Tel.: +7 (495) 641 2913 Tel.: +7 (495) 705 9731
Alexei.Ryabov@ru.ey.com Artiom.Kozlovski@ru.ey.com
Marina Belyakova
Partner, CIS Tax Energy Leader
Tel: +7 495 755 9948
Marina.Belyakova@ru.ey.com
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