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Kazakhstan is the second worst country for investors, says Yergin

Award winning author of The Prize, Daniel Yergin, says Kazakhstan needs to change what they're offering to secure investments

Kazakhstan's energy sector has accomplished a lot since the central Asian state gained independence from the Soviet Union, with oil output at 1.6m b/d. But the easier oil has gone and investors need better terms now to expand the current projects, according to award-winning author of The Prize, Daniel Yergin.

Speaking at the Kazenergy conference in the capital, Astana, Yergin said that oil output has quadrupled since 1991. But the present low oil price makes further investment upstream unattractive and the government also needs to improve the terms it offers investors. And the fields that are producing need more investment in order to grow – money that might not be forthcoming in today’s climate.

Summarising the findings of this year's IHS Cera/Kazenergy report on the country, Daniel Yergin said that Kazakhstan was in a better position to weather the storm than other resource-holding nations. It has $70bn in its sovereign wealth fund, compared for example with Nigeria's $4bn, and with a much smaller population to be provided for. It has also engaged with the world economy and was more competitive and resilient than some of its peers which have been in denial, he said.

But he said that Kazakhstan was the second worst country from an investor's point of view, just beating Russia but coming behind Angola in an IHS-Cera table which had Norway in first place. The new era needs fresh perspectives, he said.

The country needs to offer better fiscal terms, to have better regulations, to offer more stable terms, to reach decisions more quickly and its local content laws must be balanced with the needs of the industry in order to avoid adding costs or delaying projects, Yergin said.

He characterised the new era as being one of rivalries, as countries would now have to compete for the scarce amount of upstream investments that companies were planning to make over the coming few years. Given that Kazakhstan receives half its budget receipts from revenues from oil sales, the country's growth will be closely tied to that sector.

The low oil price followed a decade of booming economic growth from the emerging economies of Brazil, Russia, India and China. In the context of tight supply and strong demand, there were fears of resources running out. Costs were also very high. Prices rose to stabilize at $100+/barrel until the summer of 2014, with China accounting for some 40% of the worldwide growth in demand. But demand from China is slowing down, as the country switches its attention to domestic development.

So even during a period when the geopolitical situation is worse than it has ever been in the Middle East for a century, supply still exceeds demand -- and that is before Iranian oil returns to the market, an event that could happen early next year. Its arrival is unlikely to lead other Opec members to trim back their output, as Saudi Arabia has so far given no indication of a change of policy. 

Vitol’s chief executive Ian Taylor said however that there were signs that the price of oil was doing its job, with demand growing by about 1.6m b/d this year compared with last year’s 650,000 b/d. There was better gasoline demand from China, India and the US on the demand side; while supply was falling as capital was leaving the market. It has been very hard for the industry, he said, but we could be at the turning point. 

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