Executive Summary
Current Market Needs
Recent Market Trends
Competitive Landscape
Best Prospects for U.S. Exporters
Market Entry
Regulations / Registration Process
Technical Barriers & Tariffs
Procurement & Tenders
Getting Paid / Trade Finance
Best Prospects for U.S. Exporters
Upcoming Trade Events
Local Industry Resources
U.S. Commercial Service Information:
Tab Options
Executive Summary
Current Market Needs
Recent Market Trends
Competitive Landscape
Best Prospects for U.S. Exporters
Market Entry
Regulations / Registration Process
Technical Barriers & Tariffs
Procurement & Tenders
Getting Paid / Trade Finance
Best Prospects for U.S. Exporters
Upcoming Trade Events
Local Industry Resources
U.S. Commercial Service Information:
Executive Summary:
According to the Oil & Gas Journal (OGJ), Kazakhstan had proved crude oil reserves of 30 billion barrels as of January 2018–the 2nd–largest endowment in Eurasia after Russia, and the 12–largest in the world, just behind the United States. Kazakhstan has the largest proven oil reserves in the Caspian Sea region. Kazakhstan’s crude and condensate output in 2019 was 1.965 million bpd. It increased by 4.8% in 2018 and reached 1.814 million bpd. In 2017, Kazakhstan produced 1.73 million bpd of crude oil. Kazakhstan will produce 2.03 million barrels of oil and other liquids per day in 2020, according to the February Short-term Energy Outlook (STEO) of US Energy Information Administration (EIA).According to Business Monitor International, Kazakhstan’s net exports of crude oil is forecast to fluctuate around 1.42 – 1.55mbpd through 2027 as production increases from the prolific Kashagan and Tengiz fields. Kazakhstan is rapidly expanding production at its three large refineries; it has completed upgrades of the Pavlodar plant, Atyrau and Shymkent refineries. The total refining capacity of the three plants is increase from 13.8 to 16.5 million tons. They all are operated by JSC KazMunaiGas – Processing and Marketing. The government has announced plans to construct a fourth refinery to further expand refining capacity and production of light oil products and fuels.
Kazakhstan also has significant natural gas potential. Its proven gas reserves stand at 3 trillion cubic meters and projected reserves at 5 trillion cubic meters. The country also expects a lot of oil-associated gas that will bring 1,000 cubic meters of gas for every new ton of oil (100 million tons of new oil will lead to 100 billion cubic meters of gas). Natural gas production is utilized for well re-injection, exports and to meet domestic consumption (liquefaction and development of internal gas pipeline infrastructure).The country’s gas output - which is mostly associated gas - is forecast to continue an upward trend, reaching 29.6bcm in 2027.
Recovering oil prices have helped to stimulate Kazakhstan’s oil & gas sector, which is the main driver of the economy. Large hydrocarbon resources and current investment in large production and transportation infrastructure projects in Kazakhstan provide significant commercial opportunities for U.S. companies.
Current Market Needs:
Kazakhstan continues to transform its economy to create a more transparent, less regulated, and more market-driven business environment.In 2015-2016, the government of Kazakhstan announced several measures to reform the economy, and remains engaged with U.S. and EU leadership, the AmCham, and other foreign investors in a dialogue on how to improve the investment climate. Nonetheless, this progress continues to be undermined by developments that cause concern for U.S. investors and other stakeholders.
The collapse of the global crude oil prices in 2014 has forced the Government of Kazakhstan to recalculate budgets and cut back on some ambitious infrastructure spending, while maintaining spending on social welfare and high visibility projects such as Astana Expo 2017.
In August of 2015 the Central Bank of Kazakhstan allowed the tenge to “float”. It immediately depreciated from a level of 187 tenge to the USD to its current level of 370s to the USD. While long overdue and welcomed by the foreign investment community, the sudden devaluation was a shock to the market. Throughout 2015 and the early part of 2016, importers saw a drop in large equipment purchases from the U.S. and EU. This is reflected in projected market figures for 2016. The tenge may now be at a “new normal”, closely tracking the Russian ruble and the price of oil. According to the June 2018 IMF Statement, the flexible exchange rate is serving Kazakhstan well by helping to absorb changes in the macroeconomic environment and supporting depolarization. Changes in the ER reflect fundamental factors, including oil prices and dynamics of the Russian ruble.
Recent Market Trends:
Kazakhstan attracts significant investment in its vast upstream oil and gas resources, and it is more crucial than ever that the Government multiplies its efforts to increase the attractiveness of its investment climate. For example, by the time the huge offshore Kashagan project started commercial production in October 2016 after years of delays, investment in the project was estimated at $50 billion.Despite this large project, overall investment in Kazakhstan’s oil and gas industry declined to $12 million in 2016, from $18 million in 2013. Kazakhstan plans to increase investment in the oil and gas sector through innovation development and investment stimulation measures that will be set forth in the new Subsoil Use Code and in the Tax Code.
Oil production at the Kashagan field started in October 2016 and reached 380,000 bpd in 2019. Oil and gas from the Kashagan field is processed at the onshore Bolashak plant. Kashagan is Kazakhstan’s first offshore oil and gas field in the Caspian Sea and is the largest international investment project in the country. Kashagan is being developed by North Caspian Operating Company (NCOC) owned by KazMunaiGas Kashagan B.V. (16.9 percent), Shell Kazakhstan Development B.V. (16.8 percent), Total E&P Kazakhstan (16.8 percent), Agip Caspian Sea B.V. (16.8 percent), ExxonMobil Kazakhstan Inc. (16.8 percent), CNPC Kazakhstan B.V. (8.3 percent) and Inpex North Caspian Sea Ltd. (7.6 percent). The consortium is considering further investment of around USD2.0bn into the project, which would lift the output to around 450,000b/d.
Tengizchevroil (TCO) develops the Tengiz and Korolyov oil and gas fields in the Atyrau Region (west Kazakhstan). Tengizchevroil was formed between the Republic of Kazakhstan and Chevron Corporation in April 1993. Current partners are: Chevron, 50 percent; KazMunaiGas, 20 percent;ExxonMobil, 25 percent and LukArco, 5 percent.
Major projects include Tengiz, Karachaganak, CNPC-Aktobemunaigas, Uzenmunaigas, Mangistaumunaigas, and Kumkol, all of which account for 1 million bpd. The major end-users of oil and gas filed equipment and services are international consortia such as TengizChevrOil (TCO), the North Caspian Operating Company (NCOC) and Karachaganak Petroleum Operating B.V. (KPO). TCO’s Future Growth Project and the Wellhead Pressure Management Project (FGP-WPMP) has increased up to $45.2 billion from $36.8 billion after a detailed cost and schedule reviews. This TCO expansion project being developed primarily to increase the production capacity from the Tengiz oil field and the adjacent Korolev field. The project hit peak spending in 2018 and 2019 and engineering, fabrication, procurement, logistics, drilling and completion, and Tengiz infrastructure is 75% complete. The project will increase crude oil production at the Tengiz oil field by 260,000 bpd, gas production capacity by an additional 960 million standard cubic feet a day, and the field’s overall production capacity to approximately 850,000 bpd by 2022. NCOCO projects of Kashagan field expansion worth $2 billion being implemented since 2017 are aimed to reach oil output at the level of 420,000 barrels a day in 2022 and 500,000 barrels a day in 2027.
Competitive Landscape:
Local production of oil and gas field equipment is not significant, but currently growing. Kazakhstan does not have much experience in oil and gas equipment manufacturing, especially for offshore work, and the country depends on imports (a fact the GOK would very much like to change).
Since the domestic oil and gas field equipment industry is still in the early stages of development, companies from the U.S., Western Europe, Russia, Japan and recently China, have been able to secure market share, securing much of the 90% of oil and gas field equipment Kazakhstan now imports. The UK and Russia are the most active equipment suppliers and service providers, while U.S. firms seem to be concentrating on markets in the western hemisphere.
Best Prospects for U.S. Exporters:
Opportunities remain for U.S. companies in virtually every sub-sector associated with oil and gas extraction, processing, and transportation.Best prospects include drilling, research and data management, laboratory studies, oil spill cleanup technologies, and pipeline equipment and services. About 80% of the equipment used in the oil and gas sector and the mining industry is imported; most it produced in Russia and China.
To date, Kazakhstan has limited technical expertise in offshore production and operations.experience gap offers many opportunities for U.S. service companies in rig work, support infrastructure, and environmentally sensitive technologies.
There are significant opportunities for companies producing oil and gas field equipment and machinery such as drilling and wellhead equipment, Christmas trees, valves, pumps, motors, compressors, electrical submersible and jet pumps, underwater repair equipment, and oil spill containment equipment. Good prospects also exist for firms offering downstream engineering and services such as fabrication, welding, engineering services and testing in accordance with API and ASME standards.
Market Entry:
The best way to enter the Kazakhstani market is to establish a local presence, which is a crucial component of doing business in Kazakhstan for contacts or after-sales service. At a minimum, you should establish a representative office in country. Representatives in the oil and gas sector emphasize that it is not enough to work through a local distributor. Finding a reliable, credit-worthy partner in Kazakhstan requires due diligence, caution, and attention to a potential partner’s achievements and reputation. U.S. firms are advised to verify trade references offered by potential partners, check banking records and correspondent account capability with Western banks, and verify the personal bona fides of key company officers.
Local companies in Kazakhstan are sensitive to pricing and contract financing terms. That is why when entering the market, it is necessary to balance sales opportunities with the risk of non-payment. It is advisable to start transactions on a full prepayment basis. (Generally, payment terms for equipment and materials are between 30-60 days.) A trading relationship should be developed over time. Project financing opportunities offered by a U.S. company will increase the likelihood and potential amount of transactions.
U.S. companies in Kazakhstan use a combination of marketing methods including distribution or direct sales, working through a countrywide distributor or agent, working through more than one local-area distributor or agent, and/or distributing or selling products directly from a warehouse. Distribution channels require extensive training/service support, and project financing such as leasing schemes for equipment.
U.S. equipment suppliers should work closely with local and foreign engineering and service companies involved in detailed engineering and design of oil field projects and pipeline development and maintenance, in order to ensure that their equipment is considered and, hopefully, specified in this sector. Close contact with end users is also critical in obtaining timely information to quote on new projects. The availability of technical service also plays an important role. Any new product coming into the market must have a support system.
Regulations / Registration Process
According to provisions in the Subsurface Legislation and Petroleum law, Kazakh local content requirements for Kazakhstan goods and services is mandatory for all companies. In accordance with the import substitution policy and local content requirement, the GOK approved new rules on purchasing goods and hiring subcontractors for oil operations in 2017. The Ministry of Energy has been assigned to oversee compliance with the new purchase rules for goods and service for oil operations.
U.S. companies interested in selling oil and gas field equipment to Kazakhstan should try as much as possible to meet Kazakh local content requirements. The major operators have offices that oversee local content provisions and are an asset for firms entering the market. A typical entry strategy includes the establishment of a joint venture with a local partner and local registration as a vendor. It should be noted that there is no exact legal definition for ”local” content, and it can vary from PSA to PSA. Often it means those companies domiciled in Kazakhstan. Many “local” companies are, in fact, wholly owned subsidiaries of foreign companies or joint ventures between Kazakhstani and overseas companies. This avenue, a joint venture or the establishment of a subsidiary company for sales, should be considered. The appointment of an exclusive agent/distributor is also favored for imported equipment.
All goods entering the customs territory of Kazakhstan are subject to declaration and customs clearance at approved customs clearance points. A declaration must be filed within thirty days of arrival of the goods to Kazakhstan, but a brief declaration and notification on arrival of goods shall be submitted to the customs body within 24 hours after the goods cross the border and are placed at a temporary storage warehouse.With the exception of private persons permitted to transfer goods under a simplified procedure, a customs declaration must be filed by a Kazakhstani entity - that is, a business organization registered under Kazakhstani law or its affiliate or representative located in Kazakhstan, an individual entrepreneur registered in Kazakhstan, or a permanent resident of Kazakhstan. Foreign entities cannot deal directly with customs officials in Kazakhstan and are legally required to use services provided by licensed customs brokers having the right to operate in Kazakhstan. A party declaring commercial goods at a customs office in Kazakhstan for their release for free circulation is responsible for submitting the paper and electronic copies of customs declarations (one copy of each per shipment), as well as accompanying documents.Customs Cargo Declaration (5 copies) must be completed in either the Kazakh or Russian language.documents may be submitted in a foreign language.
Certification and/or conformity assessment procedures are part of the national system of technical regulation. In November 2015, Kazakhstan joined the WTO. To bring Kazakhstan standards more in line with international standards, in 2007 Kazakhstan adopted a number of laws and amendments to the existing Law on Technical Regulations including such laws as Safety of Chemical Products, Safety of Food Products, Safety of Toys, and Safety of Equipment and Machinery.The national file of standards now includes 70,500 rules and norms, including 16,110 representing international standards (International Organization for Standardization) and 2,295 American national standards (American National Standards Institute).These standards are applied in all economic sectors.
Under the current regulations, safety standards acquire the status of normative documents, mandatory for consideration, while quality standards will gradually become voluntary.The functions of governmental bodies will be limited to dealing with safety control issues.Technical regulations will acquire the status of laws and will be intended to ensure the safety of life and health of consumers.Other standards relating to quality of goods will be given a voluntary status, and manufacturers will no longer be forced to follow outdated requirements dictating a shape, or color of goods as it was under previous legislation.
Technical Barriers & Tariffs:
From January 2015, the Customs Union (CU) between Russia, Kazakhstan and Belarus was further Integrated into the Eurasian Economic Union’s (EEU) legal framework and was enlarged to include Kyrgyzstan and Armenia. As a result, the average import tariff rate almost doubled and has reached 9.2%. Member countries opened their markets to each other, exposing domestic producers to more competition and forcing Kazakhstan to raise their customs duties to non-CU members, which led to price hikes on goods coming from outside of the union.
Currently, about 85% of tariffs are harmonized, although all tariff lines must be harmonized by 2025. The tariff lines cover pharmaceuticals, medical equipment, aluminum foil, rail wagons, and prefabricated buildings.In addition, a CU Party can increase tariffs for up to six months on selected goods without the consent of the other CU Parties.Agricultural combines and tractors will be exempt from customs duties if the import is financed through state programs.
Kazakhstan charges a 12% value-added tax (VAT) which is paid on top of all customs duties and excise taxes at the time of customs clearance.Taxpayers need to have a VAT registration in Kazakhstan if their turnover during the calendar year exceeds $320,000.Penalties for non-payment on VAT are up to 50% of turnover.The country also provides a refund of import duties and taxes when the imported goods are processed in Kazakhstan and exported within two years after importation.The processing operations that qualify for drawback include manufacturing and assembly operations and repairs.
Include the barriers (tariff and non-tariff) U.S. companies face when exporting to this country, such as:
Particularly high tariffs for certain products.
Restrictions on selling to the government of the country.
Import licensing requirements.
Anti-dumping and countervailing duty measures.
Products bans.
Any quarantine measures for agricultural products.
Procurement & Tenders:
State procurement is regulated by the 2015 Law on State Procurement and several amendments, and applies to ministries, state agencies, and companies and enterprises in which the state holds more than 50% of the shares.In 2014 the law was amended to allow vendors from member countries of the Eurasian Economic Union to participate in public procurement tenders on equal terms with domestic suppliers.
Getting Paid / Trade Finance:
Discusses the most common methods of payment, such as open account, letter of credit, cash in advance, documentary collections, factoring, etc. Includes credit-rating and collection agencies in this country. Includes primary credit or charge cards used in this country. As in other markets, payment methods and terms vary depending upon the U.S. company’s business model and relationship with its trading partners. For companies that are new to this market, requesting advance payment for goods and services from a Kazakhstani customer may be prudent until both parties establish a positive record of payment.Exporters should also keep in mind that Kazakhstani firms are finding it increasingly difficult to gain access to credit from local banks due to the decreased access to international financing available to these banks following the global economic crisis. The safest method to receive payment for a U.S. export is through an irrevocable letter of credit (L/C) confirmed by a major Western bank.In general, importers must deposit enough funds to cover the payment before applying for a letter of credit.Local companies may apply at any of several major local commercial banks to obtain an L/C, which, according to Kazakhstani banking legislation, must usually be confirmed by a reputable Western bank.
Kazakhstan made the use of International Bank Account Numbers (IBANs) and Bank Identification Codes (BICs) mandatory in June 2010. If a U.S. company is paying a beneficiary in Kazakhstan or initiating a payment from an account in Kazakhstan, you must provide the beneficiary’s IBAN and the beneficiary bank’s SWIFT BIC in the payment instructions. Failure to provide an IBAN may result in that payment being rejected, delayed or incurring additional charges.
Best Prospects for U.S. Exporters:
There are many opportunities for U.S. companies producing oil and gas field equipment and machinery such as a drilling equipment, drilling services both onshore and offshore, valves, motors and compressors.
Best prospects also include: angular and frontal crane trucks, drilling and pumping machines, solid carbon steel bars, crowns and trepans, drill bits, drilling and extraction ground machinery, large drills and reamers, no repulse drilling machines, stainless steel globe valves, reducer pressure valves, gas valves and parts, safety valves, measurement and controllers, gas reducers and regulators and centrifugal pumps.
There are plenty of opportunities in the services areas, specifically for firms active in design engineering, project management, and construction: regional basin studies, geophysical and seismic survey, geo-modeling, well logging and formation evaluation, exploration and appraisal drilling, 3D seismic works, drilling and well completion technology, well and extraction facility installation including production facilities and pipelines, development drilling, process equipment, offshore drilling technologies and development systems, drilling operations, well completions, oil recovery processes and production enhancement, innovative drilling and harsh environment drilling technology, reservoir engineering, monitoring and testing, offshore platforms and export facilities, tanker loading, pipelines and receiving terminals, production operations, reservoir maintenance, well system maintenance, logistics support and supply chain management, refurbishment and upgrading of facilities, project management, oil spill preparedness, environmental control, oil spill technologies and response, facilities and pipeline maintenance, drilling and production waste management and treatment, employee safety training programs and occupational health, certification/licensing for scientific research and design works in Kazakhstan, adoption of international standards.
Based on current purchasing trends, the following sub-sectors offer good sales opportunities for U.S. exporters:
Onshore Drilling equipment and appliances:
Drilling rigs, bits, electric motors, winch rollers, rotary tables, sheds, hoisting blocks, monkey boards, crown blocks, gin holes, shackles, cutting bits, roller bits, diamond bits, and casing sleeves
Horizontal-drilling equipment
Rock-blasting tools and equipment
Drilling technology/processes for horizontal, slant and directional drilling
Technology and equipment for the construction and operation of horizontal wells
Drilling fluids, oilfield chemicals
Drainage pumps
Oilfield tubes and pipes
Well safety protection equipment
Ground control stations for monitoring of production pumps
Tools, materials and equipment for well cementing
Gas well machinery and equipment
Rock drill bits
Offshore Drilling equipment and appliances:
Offshore Oil and Gas Exploration/Exploitation equipment
Floating-rig equipment
Offshore drilling rig equipment and platforms
Shelf development equipment
Pontoons supported on columns, derrick drilling rigs
Hoisting cranes, gravimeters and seismic monitors
Water well drilling machinery
TengizChevrOil’s Future Growth Project and the Wellhead Pressure Management Project
Local Industry Resources:
U.S. Commercial Service Information:
Azhar Kadrzhanova, Commercial Specialistazhar.kazdrzhanova@trade.gov https://www.trade.gov/kazakhstan
