Russian military units enter Kazakhstan: Update 2

Adds detail and background from paragraph 6

Russian military units have entered Kazakhstan at the government's request after fuel price protests turned violent.

Russian airborne units are on the ground, according to state-owned news agency Tass, as part of a "peacekeeping force" sent in for a limited time by the Collective Security Treaty Organisation (CSTO), a grouping of former Soviet Union countries. Argus understands this to be the first time the CSTO has mobilised in this way since it was founded in 1999.

The CSTO said the situation is viewed as an external threat, "an invasion of bandit formations trained from abroad". But the origin of the protests appears to be more domestic, erupting after an increase in the price of LPG that is widely used as motor fuel in Kazakhstan. Market participants told Argus yesterday that higher wholesale prices in November were now being passed through at a retail level.

The Kazakhstan government's immediate actions in the face of the protests bear this out. It ordered the prices of LPG, gasoline and diesel to be regulated for six months and the government resigned, having, in the words of President Kasym-Zhomart Tokayev, failed to carry out "one of its main tasks - keeping inflation in check".

The extent and apparent intensity of the protests led the government to declare a state of emergency. Verifying facts on the ground in Kazakhstan is difficult, with internet coverage patchy again today, according to monitoring watchdog NetBlocks, and telephone communication problematic. Unverified video footage has shown large protests, buildings on fire and soldiers on the streets.

Public unrest is rare in Kazakhstan. For most of the three decades since independence the country appeared largely stable, under the iron rule of first president Nursultan Nazarbayev, who stepped down in 2019 to be replaced by hand-picked successor Kasym-Zhomart Tokayev. Nazarbayev, now 81, retained significant power behind the scenes as head of the security council, a role assumed by Tokayev yesterday.

Under Nazarbayev, Kazakhstan attracted tens of billions of dollars' of energy sector investment. Much of this went into the country's three largest oilfields, Tengiz, Kashagan, and Karachaganak, which are being developed with international investors under production sharing agreements. This turned Kazakhstan into the former Soviet Union's second largest producer and exporter of crude and condensate.

There is no indication the unrest is having any noticeable effect on these operations. Output at Tengiz has been temporarily adjusted, according to operating consortium leader Chevron, which said production continues. The operator of the CPC pipeline, which transports crude from fields in Kazakhstan to an export terminal on the Black Sea, said all facilities are operating normally.

January-loading exports of light sour Caspian CPC Blend crude are scheduled at 1.425mn b/d. Kazakhstan's crude is also exported through Russia's Transneft pipeline network and by pipeline to China.

The country's crude output quota under the Opec+ agreement is 1.57mn b/d this month and will be 1.59mn b/d in February. Argus assessed it has been producing above its target recently, with output in December of around 1.65mn b/d. The country's energy ministry attributed this overproduction to seasonal needs.

A project to add 260,000 b/d of production capacity at Tengiz, which produced around 565,000 b/d in the first 11 months of last year, is due to be completed in 2023, and there are plans to further develop another of its key assets, Kashagan. Kazakhstan also plans an initial public offering - originally scheduled for 2020 - of shares in state-controlled oil and gas company Kazmunaigaz this year.

By Ben Winkley and John Gawthrop