Bloomberg News

Kazakhstan Oil-Halt Threat Similar to Libya for JBC Energy

December 22, 2011

(Updates prices in last paragraph.)

Dec. 22 (Bloomberg) -- A halt to oil production in Kazakhstan, where riots left at least 14 people dead over the weekend, would have a similar impact on crude prices as the conflict in Libya, according to researchers at JBC Energy GmbH and Global Risk Management.

Kazakhstan, the second-biggest oil producer in the former Soviet Union following Russia, pumped 1.76 million barrels a day last year, compared with 1.66 million barrels in Libya, according to the BP Statistical Review of World Energy. Both countries’ crudes yield larger-than-average amounts of the more lucrative oil products such as diesel and gasoline.

Concern over disruption in the nation intensified this week as clashes in western Kazakhstan spread after police fired on oil workers who have been holding strikes since May. The 14 people who died were killed in rioting during Independence Day celebrations on Dec. 16, the worst violence since the country broke from the Soviet Union two decades ago.

If there is a complete shutdown of oil production, “the impact will be quite similar to Libya also in terms of regional market,” said David Wech, head of research at consultancy JBC Energy in Vienna. “It will mainly hit European markets and strengthen Brent sentiment.”

Brent crude surged more than 20 percent in the first two months of the rebellion against Libyan leader Muammar Qaddafi, rising to as high as $127.02 a barrel on April 11. It settled at $107.54 a barrel on London’s ICE Futures Europe exchange yesterday.

‘Unprecedented’ Violence

The violence in the western Mangistau region is “unprecedented in a country that has enjoyed one of the most stable political environments in the region,” Standard & Poor’s said in a Dec. 19 e-mailed statement, adding it may reassess the nation’s BBB+ credit rating “if the unrest escalated.”

There is the possibility that riots could turn the majority-Muslim Central Asian state into “the new Libya,” Michael Poulsen, an analyst at the Middelfart, Denmark-based consultant Global Risk Management, wrote in a report yesterday. “With tighter sanctions openly being discussed on Iran, unrest in other major oil-producing countries is, debt crisis or not, a potential powder keg for oil prices.”

Heightened Security

KazMunaiGas EP, the London-listed unit of Kazakhstan’s national energy company, heightened security at its production facilities, which it said weren’t harmed by the rioting, according to a statement Dec. 16. Company employees didn’t take part in the unrest, it said.

The oil producer has been hit by “illegal labor action” over wages since May, which contributed to a 7 percent drop in output in January through September from a year earlier, the company said last month. KazMunaiGas fired about 1,300 workers involved in the protests at two units in Mangistau, its biggest oil-production region, it said in August.

Kazakhstan had net exports of about 1.3 million barrels a day of crude in 2009, according to the U.S. Energy Information Agency. Oil is shipped through pipelines, rail and tankers to the Black sea, Mediterranean and China.

The pipeline operated by the Chevron Corp.-led Caspian Pipeline Consortium has the capacity to carry about 650,000 barrels a day from northwestern oilfields, namely Tengiz and Karachaganak, to its terminal close to Russia’s Novorossiysk port on the Black Sea, data on the company’s website showed.

Light, Sweet Crude

CPC Blend is a light, sweet or low-sulfur grade with a density of 44.2 degrees on the American Petroleum Institute scale and a sulfur content of 0.53 percent, according to Chevron. This compares with an API of 36 to 37 degrees and 0.4 percent sulfur in Libyan benchmark Es Sider crude.

The Uzen oil field in the Mangistau region pumped 134,000 barrels a day in 2008, while the Mangistau field produced 115,000 barrels in 2009, Energy Department data showed.

China, which shares a border with Kazakhstan, imported 10.5 million metric tons of crude in the first 11 months of the year, equivalent to 230,000 barrels a day, according to data from the General Administration of Customs.

Current protests have yet to have major impact on the oil market and the possibility to a nationwide demonstration remains low, according to Almaty, Kazakhstan-based Visor Capital.

“This is a tribal issue that is specific to the western part of the country,” Zhanar Nazkhanova, an equity analyst at Visor Capital, said yesterday by telephone.

“KazMunaiGas EP needs to resolve the issue as strikes have been happening every year,” she said. The protests were unlikely to widen to other parts of Kazakhstan, she said.

Brent crude traded at $107.85 a barrel as of 10:12 a.m. local time on the London-based ICE Futures Europe exchange.

--With assistance from Grant Smith in London, Nariman Gizitdinov in Almaty and Jake Rudnitsky in Moscow. Editors: Raj Rajendran, Randall Hackley.

To contact the reporter on this story: Sherry Su in London at lsu23@bloomberg.net

To contact the editor responsible for this story: Stephen Voss at sev@bloomberg.net


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