Russia's cheap gas may shut down Kazakhstani oil refineries: Minister of Energy

Cheap gas from Russia can put a stop to Kazakhstan’s oil refineries, Tengrinews reports.

“It is going to be a problem when cheap Russian gasoline starts flowing here. And Russian gasoline is cheap now. Here in Kazakhstan it is a little bit more expensive. The cheap Russian gasoline is already at our threshold. We have established the ceiling price to 109 tenge ($0.59) (per litre of AI-92/93), but in some areas of Kazakhstan the price is lower at fuelling stations already. This will cause our own refineries to stop, cause job cuts,” Kazakhstan's Minister of Energy Vladimir Shkolnik said during the government meeting at the Majilis, the lower chamber of Kazakhstan's Parliament.

According to Shkolnik the situation with the pricing policies has to be balanced. “We are working on this, every day. Today a delegation from the Russian Ministry of Energy is arriving. We have to balance the situation to keep our refineries working and yet provide a sufficient amount of cheap gasoline,” the Minister said.

Finding a balance is very important for Kazakhstan, because its refineries are unable to produce enough fuel to meet the demand of the Kazakh market. Being a leading oil producer in the region, the Central Asian country lacks the capacity to refine its own crude. It is working to address the problem, but it will take at least until 2016 before its refineries are modernized to improve the refining depth and the output volumes. 

In September 2014 Vice-Minister of Energy Uzakbai Karabalin said that Kazakhstani oil refineries could produced 250 thousand tons of gasoline per month when fully loaded. But the demand for top-selling AI-92 in Kazakhstan constituted 280 thousand tons and Kazakhstan could only produce 186 thousand tons of that type of gasoline. “But as you know, one-third is imported from Russia,” Karabalin said.

The 'cheap Russian gasoline' problem is a new swing of the Kazakh gasoline market that emerged after a tangible fuel deficit in Kazakhstan late last year that created kilometre-long queues throughout the country and caused gasoline prices to spike. All these generated a lot of public discontent in Kazakhstan and got the government working hard to straighten out the situation.

Shkolnik assured earlier today that no further shortages would be experienced in Kazakhstan: “In December we lowered the prices for AI-92/93 gasoline and diesel twice (in two steps),” the Minister said. “At the moment our storages hold around 350 thousand tons of diesel fuel and 250 thousand tons of AI-92 gasoline. We are accumulating gasoline for the summer period,” the Minister said.

However, the pricing balance that Kazakhstan needs to find now is very different from the one it had to maintain before. Russian gasoline has alway been more expensive than the Kazakh one and, according to Karabalin, "a sizeable difference" in the prices of the Kazakh and Russian AI-92/93 fuel made imports from Russia very unprofitable.

But now the situation is visa versa. Russian gasoline is cheaper and is threatening to flood the Kazakh market. 

To control the flows Kazakhstan has been maintaining a ban on export of its fuel for some time already and reintroduced the 6 months ban on export outside the Customs Union on January 1, 2015 to prevent shortages in fuel that had taken place in the second half of 2014 from repeating themselves. However this ban does little to regulate flows inside the Customs Union of Russian, Kazakhstan and Belarus. The three have an open market and nonexistent customs borders among themselves.  

So the only hope for Kazakhstan's refineries in this situation is that the country's Energy Ministry manages to find common ground with Russian gasoline producers and strike an acceptable deal on prices.

Common people who are not really concerned where their car fuel is coming from, in the meanwhile, are holding their fingers crossing in hopes that gasoline will finely become cheaper in the oil-producing country.   

By Tatyana Kuzmina (Gyuzel Kamalova and Renat Tashkinbayev contributed to the story)