Oil and Gas Problems in Kazakhstan

Topics: Petroleum, Peak oil, Caspian Sea Pages: 12 (3620 words) Published: March 23, 2013
Kazakhstan's Oil Supply Chain Management Challenges
Kazakhstan is endowed with rich oil reserves, which provide an important source of revenues for stable economic growth and improvement of the country's living standard. This paper addresses the challenge the Republic of Kazakhstan faces in managing its oil supply chain. The country's capacity for refining crude oil is minimal and a substantial portion of that refining capacity is outside the Republic; added to that, most of the pipelines and refineries to export oil to international markets are jointly managed by the Republic and multinational corporations (MNCs). Thus there are political, technological and financial risks for the republic's oil supply chain.


Jay Nathan, The Peter J. Tobin College of Business, St. John's University

As in other oil producing nations, Kazakhstan's oil industry revenues directly depend on the worldwide prices for oil and oil products, based on supply and demand; and revenues depend on the cost of production and transporting the final product to customers (Rasizade, 1999). For Kazakhstan's oil supply chain, the physical distribution infrastructure connecting supplies of crude oil to refineries and to the world markets through pipelines, has been challenging and costly. Moreover, currently Kazakhstan is equipped with only a few ; refineries and therefore the major portion of Kazakhstan's crude oil is being refined in Russia. Recently, China has invested heavily in the construction of pipelines across the Republic of Kazakhstan to supply the increased demand for oil in China. Thus Kazakhstan has to manage political, technical and financial risks in the integration of her oil supply chain (Gaudenzi and Borghesi, 2006; Lockamy and McCormack, 2004). In the era of rapid technological development and globalization. It is imperative that every nation adapts to such an environment. Supply chain management has become an important means for sustaining competitive advantage for all successful industries and businesses (Magretta, 1998). The objective of every supply chain, including the global oil industry, is to maximize the overall value generated. The value a supply chain generates [to an organization, or to a nation] is the difference between what the final product is worth to the customer and the effort the

Kazakhstan has considerable deposits of oil; however, the country faces a serious disadvantage of not having any direct access to the open sea, as the Caspian Sea is landlocked. While her oil industry's upstream cost, i.e., the cost for exploration, development and production of crude oil, may be similar to that of most other oil producing nations, its downstream cost, i.e., transportation of crude oil to the refinery, refining and transportation to markets in particular, is more costly (Sridharan, Canines and Patterson; 2005). For Kazakhstan to transport the oil to world markets, the industry has to depend on pipelines (Cavenagh, 1999) through other countries. Also, maintaining such an operation requires a large number of skilled workers, but Kazakhstan does not have enough of them.

Kazakhstan's Oil Supply Chain Management Challenges

15 supply chain expends in filling the customer's request. For most commercial supply chains, value will be strongly correlated with supply chain profitability, the difference between the revenue generated from the customer and the overall cost across the supply chain (Chopra and Meindl, 2003; Lee, 2002; Cavinato, 2002). The Republic of Kazakhstan will do well to monitor—especially to sustain growth — the overall value of her oil supply chain in the coming years. because of refinery gain {www.gravmag.com, 2006). It is important to note that greater economic rewards can be gained only with well-integrated global oil supply chain management.

Oil Production Sharing Agreement and Risks in Kazakhstan
The Ministry of Energy and Mineral Resources of Kazakhstan and the Ministry of Fuel...

References: 1. Birol, F. (2006). "World Energy Prospects and Challenges." The Australian Economic Review, vol. 39, no. 2, pp. 190-195. 2. Bud La Londe. (2006). "Energy Problem Cries for Decisive Action." Supply Chain Management Review, Vol. 10, Issue 6, pp. 6. 3. Cavenagh, A. (1999, February 24). "Caspian Oil Project Has a Slov^ Road to Syndication." Project Finance International, pp. 50-51. 4. Cavinato, J. (2002, May June). "What 's Your Supply Chain Type?" Supply Chain Management Review, pp. 60-66. 5. Chopra, S. and Meindl, P. (2004). SupplyChain Management (Second Edition). New Jersey: Prentice-Hall. 6. Doing Business with Kazakhstan. (2004). Edited by Marat Terterov. London, England: Kogan Page Publishers.
12. Rasizade, A. (1999). "Azerbaijan, the U.S. and Oil Prospects On The Caspian Sea." Journal of Third World Studies, vol. XVI, No. 1, pp. 29-48. 13. Report of Baker and McKenzie. (2002, November). CIS Energy Notes. 14. Report of KazakhOil (2005). 15. Sridharan, U., Caines, R. and C. Patterson. | (2005). "Implementation Of Supply Chain Management and its Impact on the Value Of Firms." Supply Chain Management, Vol. 10, pp. 313-318. 16. Yergin, D. (2007). "Oil Market Fever as Prices Near $100." Pipeline & Gas Journal, Issue II, pp. 97-97.
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