A ban on LPG exports owing to a domestic supply shortage has resulted in a rise in regulated prices that the government is eager to contain
The Kazakh government is to raise regulated wholesale and retail LPG prices at the start of 2024 and then every six months until local producers are not selling at a loss after exports were banned because of a domestic supply shortage.
Wholesale prices will rise by 12pc and retail prices by 10pc from 1 January 2024. Wholesale LPG prices in the country stood at 40,320 tenge/t ($88/t) excluding value-added tax (VAT) since 1 July. The government plans to raise wholesale and retail prices by another 10pc from mid-2024 and then every six months until the former reaches 70,000 tenge/t excluding VAT, which is the current breakeven levels for producers, industry sources say.
A rise in Kazakh LPG demand from the petrochemical and autogas sectors has led to supply shortages. This prompted the government to introduce a ban on LPG exports for six months from 15 November. Initially, the ban did not apply to firms that operate under a production sharing agreement (PSA) or a subsoil use contract approved by Kazakh president Kassym-Jomart Tokayev, and that have a stable tax regime. The document named four such companies — the Chevron-led Tengizchevroil (TCO) consortium, Zhaikmunai, Karachaganak Petroleum Operating (KPO) and North Caspian Operating (NCOC). But the energy ministry on 21 November expanded the ban to LPG produced at the Karachaganak gas and condensate field owned by KPO — a consortium of Eni, Shell, Chevron, Lukoil and Kazmunaigas.
The Kazakh energy ministry has been preparing to raise LPG prices since the beginning of autumn. It is eager to avoid the violent protests that occurred in January 2022 when a jump in autogas prices triggered a furious backlash from consumers. To prevent possible unrest, energy minster Almasadam Satkaliev on 27 October called on motorists to not switch to autogas because fuel prices will rise.
TCO has agreed to increase its domestic sales to 20,000 t/month from 10,000 t/month under a supply contract with the government signed in 2011, market participants say. This additional supply will come from Kazmunaigas, a major shareholder in TCO, under a two-year deal that will be signed soon, they say. The ministry is also in talks with Russia's Gazprom about importing LPG from the firm's Orenburg gas processing complex, which processes gas and condensate from the Karachaganak field in Kazakhstan under an intergovernmental agreement. The operator of the field is the Kazrosgaz joint venture between Gazprom and Kazmunaigas, which could supply up to 70,000 t/yr of LPG for the Kazakhstan market from 2024.
Informal recommendation
Kazakh LPG producers were already limiting exports on the informal recommendation of the energy ministry before the export ban was announced. The country's LPG exports fell to 213,800t in January-October compared with 748,700t a year earlier. TCO cut its shipments by 157,200t to 626,700t over the 10-month period as it directed more propane to the KPI petrochemical plant in Atyrau. The export decline also contrasts with domestic output rising by 3.4pc to 2.4mn t.
The government introduced regulated autogas, gasoline and diesel retail prices from 6 January 2022 following mass protests that originated from the doubling of autogas prices in the western regions of the country after it allowed prices to be dictated by domestic exchanges. The old government was ousted and a new administration immediately fixed autogas rates at 50-75 tenge/litre depending on the region. But prices increased by 10 tenge/l to 70 tenge/l and 75 tenge/l in east Kazakhstan and Almaty, respectively, in April, and by 5 tenge/l to 75 tenge/l in north Kazakhstan and 5 tenge/l to 65 tenge/l in the Abay region.
The energy industry approves domestic supplies for each region every month, and has set maximum wholesale LPG prices on a quarterly basis since July 2012. No objections have been voiced yet to the planned price hikes from next year.
