1

IMPORTANCE OF INNOVATIONS IN OIL AND GAS SECTOR OF REPUBLIC OF

KAZAKHSTAN

by Students name

Code+ course name

Professors name
University name
City, State
Date

2
Table of Contents
Introduction3
1. Research Question..4
2. The aims and objectives of this research4
3. Literature Review...4
3.1 Economic Situation and the Potential Development of the Oil Industry in
Kazakhstan..4
3.2. Innovative Developments in Oil and Gas Sector of Kazakhstan6
4. Research Methodology.10
4.1. Research Methods.10
4.2. Research methodology for writing a literature review.12
5. Resources.15
5.1. Time Scale15
Reference List.16

3
Introduction
The oil and gas sector holds a great significance in Kazakhstans economy and has
become the most influential vehicle for sustainable socio-economic growth and integration of
the nation into the global economy. The nation has a tremendous opportunity to convert
natural resources such as gas, oil, electricity, coal and uranium into financial wealth but so far
has not been successful in adopting latest innovative methods and technology for oil and gas
extraction leading to higher costs, less output and dependency on IOCs for joint
collaborations and ventures.
After Kazakhstan achieved independence, global oil companies started their activities
in oil and gas industry of Kazakhstan; thus exploration of oil deposits became commercially
and technically feasible, these oil fields have laid the foundation of the nations oil
production. Despite being among top oil exporters, the country experiences seasonal and
regional shortages of oil products because of the fact that almost all nations oil and gas
production activities are carried in the west of Kazakhstan whereas industrialized regions are
situated in southern and northern belt, which lacks pipeline connections from western oil
fields. This leads to dependency on imports from Uzbekistan and Russia for refined oil and
other oil products.
Until recently, the Kazakhstan refining sector has not been able to draw significant
foreign direct investment because domestic prices of refined oil continues at a lower level
forcing IOCs to export crude oil rather than refining in Kazakhstan. Thus, there is a crucial
need to develop and modernize current infrastructure of oil and gas sector with those
strategies that suggest implementation of new innovative methods and technologies leading
to self reliance, increased output at lower costs and optimal exploration of oil and gas
resources in Kazakhstan. The objective of this research is to highlight these issues currently
encountered by oil and gas sector and recommend suggestive measures to adopt new

4
innovative technologies that has helped other oil producing nations in achieving self-reliance
and ability to increase their output and efficiency.
1. Research Question:
1. How Kazakhstan can improve competitiveness of the oil Companies on the basis of
technological developments in oil and gas sector?
2. What obstacles Kazakh Oil and Gas sector encounters to implement latest technological
developments?
2. The aims and objectives of this research are:
1. How new innovative methods and technologies can help in the modernization of oil and
gas industry of Kazakhstan?
2. How the growth in Kazakhstan oil and gas sector can become the wheels of nations
economic prosperity?
3. How did Kazakhstan perform in oil wealth management in the last two decades?
4. What possible recommendations could help to perform well in future?
From the literature review the research deduces two conceptual hypotheses;
1. Will oil be a blessing or a curse?
2. How new innovative methods will help to increase productivity in Gas and Oil Sector?
3. Literature Review
3.1 Economic Situation and the Potential Development of the Oil Industry in Kazakhstan
Long-term policy of the Kazakhstan is to achieve a sustainable development in the
national economy on the basis of effective economic growth and by introducing latest
technological developments in its all sectors. The oil and gas industry continues to be on top
priority of government agenda. The prime objective of the forced industrialization is the
introduction of large investment projects in the oil and gas industry with development of local

5
oil producer companies to achieve multiplicative impact for encouraging small and medium
industry rather than depending on foreign alliances (Auty, 2009).
Kaz Munai Gas, KMG, the Nations Oil and Gas Company, was incorporated in 2002
to create the nations interests in the energy sector. Kazakhstan oil sector has seen increased
oil production because of influx of FDI since 1992. However, KMG has become locomotive
in development of oil and gas sector as the state now holds a majority share for KMG in all
joint projects and ventures. KMG owns a large number of organizations, which includes
KMG Production and Exploration, KazTrans Oil, KazTransGas, and KazMuaniTeniz. KMG
owns equity participation in Karachaganak (11%), Kashagan (17.5%), and Tengiz (25%), and
equity holding between 12% and 98% in several onshore oil projects. It owns minimum 50%
participation in almost offshore projects (World Bank. 2010).
The oil and gas sector is complex sector, which needs intensive development with
modernized drilling and extraction equipment as well as implementation of innovative and
industrial strategy. Kazakhstan economy is largely dependent on oil and gas extraction
determining the economic independence of the state. The country is among the top ten
nations in global ranking of hydrocarbon reserves and one of the largest producer of crude oil
in the Eastern and Central Asia. Today the oil and gas industry performs a pivotal role in
driving the economy of the Kazakhstan to self-reliance: in 2010 the contribution of the oil
and gas industry to GDP stood at nearly 21%.This sector contributed payments to the Nation
Fund totaled at 1.4371.5 billion US$, or in other words 37.5% of total government revenue
(Lucke, 2010).
The proven oil reserves have been estimated 2.7% of the worlds total oil reserves or
35 billion barrels by OPEC journal in 2013. The nations prime oil reservoirs are saturated in
the west region of the nation, which includes the five biggest onshore fields such as Tengiz,
Aktobe, Karachaganak, Uzen, and Mangistau. These onshore reserves account for half of the

6
nations oil reserves, whereas the offshore fields in Kurmangazy Kashagan, situated in the
vicinity of the Caspian sea estimates to contain more than 15 billion barrels and Kashagan
accounting nearly 9.5 billion barrels. The nations pipeline system is controlled by
KazTransOil, which covers nearly 3400 miles. With the expansion of current pipeline KMG
would remove dependence on Russia as well as the expansion would enable Kazakhstan to
increase its oil production. Besides, there are nearly 170 oilfields on stream, but the two
major oilfields in Karachaganak and Tengiz contributed more than 32% of the nations total
output in 2012. The OPEC journal, in 2012, estimated natural gas reserves nearly 88tcf. Most
of the nations natural gas reservoirs are situated in the west belt which accounts 76% of total
natural gas reservoirs. The natural gas reserves in Karachaganak accounts (46%), Kashagan
(11%), Imashevskoye (8%), and Tengiz (11%) according to report of oil and extraction
ministry (Elubayev, 2012).
3.2. Innovative Developments in Oil and Gas Sector of Kazakhstan
Despite the abundance of oil and gas reserves, and being one of the top ten oilproducing nations, however, Kazakhstan continues to remain outside of the major
international oil business. The reason being high cost of oil due to inherited old technology
and infrastructure in drilling operations restricts Kazakhstan to compete in the international
markets. These factors have initiated the state government to develop strategic innovative
directions for the oil and gas sector, which would lead to increased output and reduced costs
in the international market (Baitelesov & Saule,2009).
In this respect, the strategic goals of Kazakhstan includes the implementation of the
development and exploration of new offshore and onshore oil and gas fields, modernization
and expansion of the pipeline infrastructure, development of new oil refineries for refining
crude oil, the implementation of latest technology, to develop the regulatory and legal
framework in order to attract foreign direct investments. The government realized the

7
necessity of transition to active industrial policy because majority of oil and extractions were
carried by the third and fourth technological way, i.e. the technologies that were used in the
middle of last century. At the same time, other oil producing countries had already entered
into the sixth technological way leading to capture of international oil markets. It is essential
to realize that the modern industrial oil policy should be oriented one rather than reproduction
of developed economies (Esekyna, 2005).
During initial years of oil and gas production, Kazakhstan recoverable reserves
increased due to research and development. Many breakthroughs and hundreds of
incremental methods in production and exploration increased recovery levels of oil in Tengiz,
Karachaganak, Aktobe oil fields from less than ten percent to more than seventy percent.
IOCs established in Kazakhstan are motivated to invest heavily in R&D so as to stay ahead in
completion, for example, Chevron has developed the 945 mile crude oil pipeline that begins
from the Tengiz oil reserves to the port of Novorossiysk, Russia. A strong domestic oil policy
needs a robust research and development component. Hence, it is essential for Kazakhstan
government to support research in oil and gas sector, and help in training the next generation
of engineers, geologists, and scientists. Kazakh government, being the largest owner of oil
and gas reserves, should be highly encouraged to invest highly in R&D. Besides direct
royalty on its oil resources, Kazakhstan government also receive benefits from a property and
production taxes from IOCs as well as economic benefits created by industries associated
with oil and gas production activities. Effective policy that includes components of
innovation and implementation of latest technology would ensure that oil resources are not
abandoned and exploited to its maximum. At some level, implementation of new technology
can be regarded as an economical risk. The operating cost could be higher and the outcome
certainly less than current technology. However, the payoff with implementation of new
technology could be huge, both for the nations oil security and the individual oil company. It

8
is widely recognized within oil and gas sector that technology and innovation has minimized
the risk of exploration and reduce the time needed to drill a well. Such benefits alone are
crucial factors in deciding to adopt latest technology. Although new technologies demand
substantial investments but their outcome is much faster, more effective in resource recovery
as well as a net economic advantage for the country (Gray, 2009).
Considering the complexity of the oil and gas sector in Kazakhstan, IOCs have to
encounter a number of technological and economic challenges to ensure and abide by the
laws of national energy security. The investment feature in this industry is one of the biggest
barriers for the companies to survive and earn profits. Besides these barriers, there are
strategic challenges such as additional investments in infrastructure, equipment and
technology, the level of production with available resources and the nature of long-term
contracts with other parties. From an economic perspective, companies in the mining sector
encounter the risk of heavy investment, which could be diluted due to insufficient or nonavailability of mineral reserves during extraction whereas in oil and gas sector, this risk
extends beyond the fact that project could prove to be futile in wake of poor quality of oil that
would enhance cost of production, transportation, and processing (Kalyuzhnova, 2006).
Besides, there is a potential risk that price policy, rules and production quotas for the drilling
oil resources can reduce output and revenues. These risks can render serious impacts on the
financial strength of an oil producing companies as well as damage the socio-economic and
ecological balance of the particular region. Equipments and technologies for oil exploration,
usually determine the operational strategy of the oil company involved in the drilling
operations. Generally the technological aspect for the exploration of oil fields determines the
future earnings of oil producing companies. This factor encourages oil companies to develop
and implement the latest technology for optimum oil production, to focus on R&D, introduce

9
advanced oil field equipment and machinery for enhanced oil recovery (Egert & Carol,
2007).
The technological requirements are mandatory for the development of oil fields
because they minimize environmental risks and enhance security and safety of the possible
force majeure and accidents and establish favorable conditions for the companies to survive
in extreme difficult conditions and; thus enables to carry out systematic work of exploration
and production in oil fields. The present state of the oil sector is characterized by abundance
of unexplored oil fields, possible increase of recoverable oil, an increase in drilling and
exploration, and also closure of large number of inactive wells. In order to achieve long-term
sustainable growth of the oil sector, Kazakhstan should emphasize on the technological
balance in production, low cost transportation through pipelines and development of oil
refineries to compete in the global oil market (Makhmutova, 2008).
So far, the nation has been successful in attracting a large volume of FDI. After
independence Kazakhstan managed to attract investment from British, American, French,
Italian, Chinese, and German oil companies for the exploration and refining of oil. In fact,
Kazakhstan did not possess sufficient technology and financial structure, these international
oil companies played a pivotal role in developing nations vast resources and introduced
latest technology; without their co-operation it was impossible for Kazakhstan to include its
position among top ten oil producing countries of the world. In 1993, the country entered into
its first joint venture with an international company, creating a long-term partnership between
KMG and Chevron for developing the Tengiz oil field. This partnership enabled Kazakhstan
to become first former Soviet Republic having the largest share of FDI in relation to its GDP
(Nurmakov, 2009).

10
4. Research Methodology
This research seeks to determine the current state of oil and gas sector in Kazakhstan
by analyzing its past achievements, current advancements and implementation of new
technology in the last two decades. The researcher intends to conduct thorough research by
extracting various literatures, data available on the Internet to determine current position of
Kazakhstans oil and gas sector in the global market as well as to find out what forces are
encouraging the nation to sustain competitive advantage in the oil sector. Besides, this
research will also analyze if new innovative methods and technologies are helpful in the
modernization of oil and gas industry of Kazakhstan?
4.1. Research Methods
The first state of this research is to determine the competitiveness of Kazakhstan oil
companies on the basis of its technological developments in oil and gas sector and challenges
that Kazakh Oil and Gas sector encounters to implement latest technological developments,
by covering first three aims of research, based on historical finding. Further, main stream of
this work deal with the next two prime issues: How the growth in Kazakhstan oil and gas
sector can become the wheels of nations economic prosperity and its performance in oil
wealth management in the last two decades.
Hence, the research primarily focus on the current state of infrastructure,
collaborations, joint ventures and achievements of Kazakhstan in oil and gas sector with need
to implement new innovative methods of modern technology for self-reliance, reduced costs,
increased output of refined and crude oil through research based survey and analysis of the
primary data. At this stage this research may encounter certain drawbacks during data
collection as some of the state officials may not disclose nations future industrial strategy of
oil sector in order to maintain confidentiality. But finally this research study will recommend
necessity of innovations and implementation of modern technology that oil and gas sector of

11
Kazakhstan should implement thereby providing a deep and focused outlook of the oil sector,
and the reasons to increase foreign investments. Some of the restrictions of this method are
more and less the strength since it is specific to a situation thus becomes difficult to make
loose statements. This section dedicates to selection of research method in this work. It is
possible to research methods in several ways, but the simplest difference is between
quantitative and qualitative approaches. Qualitative research is a method that produces
findings, which are not obtainable by means statistical methods or other means of
quantification. In contrast, quantitative research deals with measurable characteristics by
applying structured questions and a formal method of data collection.
Qualitative Research Methods
Saunders (2007) explained that the development of qualitative research method in the
social science that enabled researchers to examine the cultural and social phenomenon.
Moreover, it also assists individuals to understand and explain the outcomes from the
perspectives of respondents. Qualitative research includes a collection of information,
observing and interpreting data, and it is possible to use data sources from documents,
interviews, texts, observation of participants, and the researchers reactions and impressions.
Implementation of qualitative research methods can be observed in several fields and
disciplines. The motivation to conduct qualitative research is if there is something that
identifies humans from the natural world. The key reason for conducting qualitative research
is the prime aim to understand a phenomenon from the perspective of the participants as there
is a likelihood of losing its social context, when there is a quantification of textual data
(Saunders 2007, p. 26).
Quantitative Research Methods
In opposite to qualitative research, the creation of the quantitative methods originally
was to research natural phenomenon for natural sciences. The quantitative research

12
incorporates the survey methods, numerical methods, for example, mathematical modeling,
and formal methods e.g. econometrics. It demonstrates that after the collection of the data
from questionnaire, and then the data will undergo transformation into statistics based figures
that computed by software such as Microsoft Office Excel, and also develop several tables
with numbers that have unique meanings. The difference between the quantitative and
qualitative research methods is not only those points in conception, but there are some other
prominent distinctions commonly observed. For example, classification of research methods
is on the basis of objective versus subjective, concerning with the discovery of common laws
being concern with the uniqueness of each situation as aimed at control and prediction versus
aimed at understanding and explanation, as taking an insider perspective versus an outsider
perspective. Each of research methods possesses negative and positive aspects, and it is not
justifiable to say that which one is certainly much better than the other. Undoubtedly, most
researchers adopt either quantitative or qualitative research approach for their findings, but
still some research suggests that researchers use one or more research methods in their work
(Myers, 1997). In the literature review stage, after considering the distinction and aspects of
these two methods of research, the research uses the quantitative and qualitative data. The
review of literature assisted developing understanding the significance of the previous
research, and hence some decisions have been possible to arrive in terms of data. The
research intends to conduct a survey in order to examine the latest technology adopted by oil
and gas sector of Kazakhstan to enhance its production of crude oil and future strategy for
increasing the oil reserves.
4.2. Research methodology for writing a literature review
The appropriate way of planning a literature review is to find whether the proposed
literature review fits into Coopers (1991) Taxonomy of review of literature. Cooper suggests

13
that literature can be classified according to five prime components such as aim, perspective,
focus, coverage of audience and, organization of topics.
If we look at the list below it informs a step by step guidance on how to conduct a
primary research, but, actually, it explains the methods of conducting a literature review.
a) Problem formulation
b) Collection of data
c) Evaluation of data
d) Data analysis and interpretation
Problem formulation for the Literature Review
The procedure starts by focusing on the problem formulation after identification of the
suitable literature review. In this step, the researcher determines what issues the literature
review will answer to establish precisely and clearly expressed criteria for the inclusion or
exclusion, of an article included in the literature review. At this moment, it is essential to
make a differentiation between empirical research questions and review questions. The
literature review is a primary source of the empirical research question. The problem
formation begins with deciding the research questions, which will serve as a guide in the
literature review (Laws, 1995).
Data collection
The objective of the data collection is to collect exhaustive, semi exhaustive, and
critical set of related articles and journals. In case of primary research, the data of a
researcher not only determine a systematic way for data collection, here the researcher also
precisely documents how he will collect the data. The data collection technique should be
comprehensive so that other researchers following the same techniques can find similar set of
articles. The data collection process usually starts with an electronic search of academic
databases on the Internet. When researcher completes these searches, accurate records need to

14
be stored in each data base with the key words used and also the records stemming out from
each search. Researcher should also make sure that these electronic results lead to only
twenty percent of the articles, which will formulate an exhaustive review. There are other
approaches to access the remaining 80%. The most effective technique is by hunting the
references of the articles accessed, then determining which of them are relevant, locate and
study their references, and continue the search until a point of saturation is reached. On
completion of reference searches, the researcher should discuss the list of references with
supervisor to ascertain if any of articles are missing. The process of data collection is over at
the point of saturation, and finally the researcher has collected enough evidence to ensure
readers that in all aspects related articles collected would be helpful for conducting research
(Karathwohl, 1988).
Data evaluation
In the data evaluation, the researcher starts with evaluation and extraction of the
information in the articles, which satisfy the inclusion criteria. The reviewer begins with
formulating a system of data extraction from the articles. The aim and focus of the review
decides the quality of data gathered. For example, if the research focuses on the result and the
objective is integration, the researcher will collect outcomes of data from each article and
ascertain how to include those outcomes. After data evaluation, the researcher should
document all variety of data collected and process adopted. Since it needs comprehensive
detail, the recording of documents is done by using a coding book and in separate coding
forms, which makes dissertation appendices, or even the researcher can store the
documentation in the main body of the dissertation. Whether the researcher records methods
for data extraction in a separate coding book, the description level should be in such a way
that, a second person can arrives at similar conclusion with the recorded procedure (Gall,
Borg & Gall, 1996).

15
Data analysis
Finally, the reviewer attempts to find a sense in the retrieved data. Data Analysis is
the systematic process of applying logical and statistical techniques to explain and illustrate,
recap and evaluate, and evaluate data. A quantitative, qualitative or synthesis of both takes
place depending upon the nature of data gathered.
5. Resources
The researcher intends to use both the quantitative and qualitative data for this work
after analyzing the distinctive characteristics of two research techniques while undergoing
through literature review of the research. The quantitative research will be by studying
extensive literature from various journals, articles, reports as well as information from media,
which helps to establish understanding the purpose of study, and thus it would be possible to
arrive at some decisions. In respect of qualitative research, the researcher prefers to conduct a
survey and gathers data by distributing a questionnaire to selected representatives of domestic
and international oil companies. The data gathered will help the researcher to find the current
situation of latest developments in oil and gas sector thereby offering suggestions and
recommendations for future growth of oil and gas sector.
5.1. Time Scale
February 15th -28, 2014: Submit the research proposal.
March 1st to 15th March, 2014: Expand the in-depth study of the topic by focusing on the
primary sources such as literatures journals and reports.
March 16th to 30th March, 2014: Interviews with the representatives of international and
domestic oil companies
April 2014: Develop findings for the first draft of the thesis.
April 2014: To further conduct interviews if still remain doubtful issues.

16
May 2014: Analysis of findings, arguments development and proceed with the final
dissertation.
Reference List
Auty, Richard, M 2009, Reforming Resource-Abundant Transition Economies: Kazakhstan
and Uzbekistan. In Resource Abundance and Economic Development, ed. Richard Auty, pp.
263-276. Oxford, UK: Oxford University Press.
Baitelesov, Zhiger and Saule Bapakova. 2009, Press release of Mazhilis of the Parliament.
Parlam.kz, viewed 9 February 2014, <http://www.parlam.kz/NewsPrev.aspx?
page=2&lan=ru RU&idloc=1&idkom=1&uid=2113>
Cooper, H 1989, Organizing knowledge synthesis: A taxonomy of literature reviews.
Knowledge in Society, 1, pp. 103-121.
Devlin, Julia and Michael Lewin 2004, Managing Oil Booms and Busts in Developing
Countries. Draft Chapter for Managing Volatility and Crises: A Practitioner's Guide
Egert, Balazs and Carol S. Leonard 2007, Dutch Disease Scare in Kazakhstan: Is it real?
BOFIT Discussion Papers. Helsinki, Finland: Bank of Finland
Esekyna, B 2005, Sustainable development of the economic system in the context of
globalization. Almaty.
Elubayev, Z 2012, Topical issues and analysis of the practice of law in the oil and gas
industry of Kazakhstan. XInternational Atiraulegal conference, pp. 57-61.
Gall, M. D., Borg, W. R., & Gall, J 1996, Education research: An introduction (6th ed.).
White Plains, NY: Longman.
Gray, J 2009, Kazakhstan: A Review of Farm Restructuring, World Bank Technical Paper
.458, Washington, DC, World Bank.
Kalyuzhnova, Y 2006, Overcoming the Curse of Hydrocarbon: Goals and Governance
in the Oil Funds of Kazakhstan and Azerbaijan. Comparative Economic Studies 48,

17
(December), pp. 582-614.
Karathwohl, D 1988, How to prepare a research proposal. Guidelines for funding and
dissertations in the social and behavioural sciences. 3rd Ed. New York, Syracuse
Laws, K 1995, Preparing a Thesis or Dissertation Proposal. University of Sydney.
Lucke, M 2010, Stabilization and Savings funds to Manage Natural Resource Revenues:
Kazakhstan and Azerbaijan vs. Norway. Kiel WP No, 1652, Kiel Instituite for the
World Economy, pp. 24-30.
Makhmutova, M 2008, Oil Revenue Management: Concept of the National Fund.
Almaty, Kazakhstan: Fund Soros Kazakhstan, Kazakhstan Revenue Watch.
Myers, M 1997a, Critical Ethnography in Information Systems, in A.S. Lee, J. Liebenau,
and J. I. DeGross (Eds.) Information Systems and Qualitative Research, London:
Chapman and Hall, pp. 276-300
Nurmakov, A 2009, Resource Nationalism in Kazakhstan's Petroleum Sector: Curse
or Blessing? In Caspian Energy Politics: Azerbaijan, Kazakhstan and Turkmenistan,
ed. IndraOverland, Heidi Kjaernet and Andrea Kendall-Taylor, pp. 21-37. New York,
NY: Routledge
Saunders, M., Lewis, P. and Thornhill, A 2007, Research methods for business
Students,4th ed. London: Prentice Hall, pp. 23-67.
World Bank 2010, Republic of Kazakhstan Country Economic Memorandum; Getting
Competitive, Staying Competitive: The Challenge of Managing Kazakhstan's Oil
Boom. Report No.30852-KZ. Washington, DC: World Bank.

18