Kazakhstan warned of potential fuel shortages

By bne IntelliNews February 26, 2014

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With the recent devaluation of the tenge set to slash imports from Russia, Kazakhstan is facing likely fuel shortages the head of state oil and gas company KazMunaiGas warned on February 25.

Fuel deliveries from Russia to Kazakhstan will reduce this year ... Devaluation made fuel imports from Russia more expensive," Sauat Mynbayev said, according to Kazinform. While domestic refineries will benefit from the fall in exports of Russian fuel, a shortage of oil products may follow, he added.

The National Bank of Kazakhstan announced on February 11 that it would allow the tenge to depreciate by around 19%. Among the justifications for the move, the central bank pointed out the ongoing pressure on emerging market currencies. While Kazakhstan had previously been intervening to support the tenge, Moscow has been allowing a gradual fall for the ruble.

The jolt has provoked unrest that, while tame by most standards, has been notable in tightly controlled Kazakhstan. Protests have focused on large price rises in shops, leading the government to order salary increases for public employees, and pressure for major state corporations to follow suit.

The likelihood of fuel shortages is only likely to stoke discontent over the devaluation. However, the potential shortage reflects longer-term issues surrounding Kazakhstan's economic development model, with the government struggling to convert from a raw materials exporter to a producer of higher added value.

Kazakhstan's three major oil refineries at Atyrau, Pavlodar and Shymkent are currently being modernised and expanded, to increase capacity, expand the range of products, and boost output to comply with Euro 4 and Euro 5 standards. However, shortages of some fuels are expected while the programme is being carried out. In September, the Kazakhstan Fuel Association (KFA) claimed that the domestic gasoline market was in crisis in advance of the temporary closure of the Shymkent refinery.

Kazakhstan's President Nursultan Nazarbayev raised the issue once again in his annual address to the nation on January 17, saying that the country needs a new oil refinery to address potential fuel shortages. "The country needs more gasoline, diesel fuel and jet fuel. It is ridiculous, Kazakhstan is an oil producing country. We should immediately construct a new oil refinery," the president insisted.

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