Introduction

Oil industry one of the biggest and most developed types of industry in Kazakhstan. Kazakhstan ranked 11th place in oil reserves the total amount of oil resources is 3.9 billion tons (30 billion barrels). In 2012 Kazakhstan produced 79.211 million tons of crude oil, which is 1.1% less than in 2011. With these indicators Kazakhstan ranks 17th place in oil production over the world.

Almost all oil produced in Kazakhstan is exported. Kazakhstan in January-December 2012 exported 68.139 million tons of oil and condensate, which is 2.1% less than in the same period in 2011. In monetary terms, exports oil and gas condensate totaled 56.442 billion dollars, which is 2.3% more than in the same period in 2011. (NewsKaz, 2013).

Tengizchevroil the biggest oil and gas Company in Kazakhstan. It was created in 1993 be agreement between the Government of Kazakhstan and the corporation "Chevron" for the development of the Tengiz field. The main products of Tengizchevroil are oil, gas and sulfur. In 2012 the company produced 24.2 million tons of oil, this is 36.6% of all oil produced in Kazakhstan. (Tengizchevroil, 2013).

Analyze belong showing some economic concepts, theories for the Tengizchevroil company. All analyze has been made for oil (petroleum).

Market structure (Oligopoly)

The oil industry in Kazakhstan is oligopoly. Oligopoly - it's such a market structure in which there are few sellers and the share of each of them in total sales in the market is so large that the change in the number of products offered each salesperson leads to changes in prices. Today Kazakhstan’s oil market presented by several large firms such as; Tengizchevroil, Karachaganak Petroleum Operating, PetroKazakhstan, AktobeMunaiGaz, MangiztauMunaiGaz, Kazgermunai and etc. Each of these companies have a large enough share of the industry-wide issue, it provides a significant degree of market control. For example in 2012 Tengizchevroil produced 24.2 million tons of oil, Karachaganak Petroleum Operating 12.2 million tons, PetroKazakhstan 5.8 million tons, Mangiztaumunaigaz 5.9 million tons , Kazgermunai 7.1 million tons AktobeMunaiGaz 6.5 million tons. These companies produced more than half of crude oil produced by Kazakhstan in 2012. Enter in an oligopoly market very difficult or almost impossible because of very high barriers of entry.  

Barriers of entry

One of the most fundamental barriers to entry is resource ownership. Oil is not a thing that can be easily to find. Almost all resources of oil in Kazakhstan controlled the government or large companies. For example one of the largest oil fields in Kazakhstan belongs to the Tengizchevroil oil company. To enter this industry, new firm must acquire ownership over petroleum resources. This could be accomplished in a couple of ways. Firstly it can buying the existing resources from any firms that already in the industry but if the firms unwilling to sell the company faces a sizeable enter barriers. The second way it could seek out as of yet undiscovered petroleum resources through exploration and drilling. The expense of such an endeavor also imposes a significant barrier to entry for new companies.

The next main barrier it is startup cost. One is the cost of acquiring productive capital. The big company like Tengizchevroil uses a large amount of expensive capital, such as a factory. To be competitive with Tengizchevroil, a new entrant needs this capital. Another start-up cost involves advertising and brand-name recognition. An industry with several well-established brand names forces a new entrant to spend a great deal on advertising just to reach an equal footing. Once again, this is a significant start-up cost that can limit the entry of new firms. The more capital that is needed and the more expensive the capital is, then the higher the entry barrier (AmosWeb, 2013).

The last but not list barrier of entry is economies of scale. We know that economies of scale appear when a firm’s long-run average costs fall as it increases output. The highest economies of scale, the lower number of companies in industry. Figure 1 illustrates these points.

If economies of scale are significant like in oil industry, the typical firm will not reach the minimum point on its long-run average cost curve (Q0 in Figure 1) until it has produced a large fraction of industry sales. Then the industry will have room for only a few firms and will be an oligopoly (Inkling, 2012).

Demand and Supply

Tengiz oil is in high demand on the world market due to its high quality. Trading oil TCO is very "easy" oil consists of light hydrocarbon molecules, thereby facilitating the task of refining oil into gasoline, diesel and other products for refineries. The main export market of TCO is the European and American market. In the 2012 demand for Tengizchevroil oil in European market decreased. The main reason of this situation is seasonal maintenance at oil refineries in Europe and oversupply of competitors from Azerbaijan and North Africa. The decrease in demand, shifted the demand curve to the left which led to the change in price and quantity demanded (Figure 2). The new price in European market become 70$ for barrel, while in the same period in 2011 the price was 120$ for barrel of oil. Therefore fall in demand of tengiz oil negativity impact on supply of the company. As a quantity demanded for the Tengizchevroil oil in European market declined, the supply of the oil produced by the company dropped. The decreasing in supply shifted supply curve in to the right that lead to falls in quantity supplied and price In 2011 the quantity supplied by company totaled 25.8 million tons of crude oil. As a price of oil has decreased the total amount of supplied oil of Tengiz in 2012 decreased to 24.2 million tons (Tengizchevroil, 2013) (Figure 2).

Price Elasticity

The supply and demand of TCO in the short run are relativity inelastic (Figure 3). In the sense that large increases percentage change in price will lead to small percentage change in quantity demanded. If the price for oil in the world increases the Tengizchevroil cannot immediately increase their supply of oil twice. Even though if there are no political obstacles, weather and geographical problems, to delay exploration and production, it still typically takes many years to develop a new oil field. From the graph 4 we can see that increasing in the price of oil over the world from P0 to P1 lead to a small rise in the quantity supplied by the Tengizchevroil from Q0 to Q1 (Figure 4).

The demand for the oil in the short-run is also relatively inelastic (Figure 3). It means the chance in Tengizchevroil oil price will not bring the big change in the quantity demanded. Lower price will not bring higher purchase of oil. On the other hand consumers willing to pay higher price to continue buying what they need. In the short run consumers spend almost no effort in trying to adjust our habits to consume less. The graph below (Figure 5) shows the differences between changing in price and quantity demanded. The high rise in price from P0 to P1 lead to small decreasing in quantity demanded from Q0 to Q1.

For the long run term the situation is opposite. The demand and supply of Tengizchevroil are relatively elastic in long-run (Figure 6). It means a small percentage change in price lead to big percentage change in quantity demanded and supplied. For example if the price for oil in the world increases permanent  in the long run from P0 to P1 Tengizchevroil have enough time to develop new oil fields and increase the quantity supplied by the company from Q0 to Q1 (Figure 7).

In the long run consumers are very sensitive to price changing. If Tengizchevroil increase a price for their oil it negatively affected to the demand of the company. When the consumers realize that price increasing is constant they will spend more time which they have in long run in looking for alternatives. So over time, people are more likely to find alternatives. This leads to fall in demand of the TCO (Figure 8). If the Tengizchevroil increase the price of oil in long runs it is lead to big fall in demand of the company. In Figere 8 we can see the small rise in price form P0 to P1 lead to great fall in quantity demanded for Q0 to Q2  (Figure 6).

Conclusion

Tengiz is one of the main producers of oil in Kazakhstan. Year 2012 went down in history as Tengizchevroil another year of successful work. Fifth consecutive year of declining rate the overall coefficient of reportable cases. The company achieved record annual amount of expenditure under the local content, mastering $ 1.8 billion. We have provided a safe and trouble-free implementation of the first large-scale overhaul of plant equipment facilities. In terms of operating costs, the company has kept the target figures of the business plan, as well as complying with the requirements and conditions of the permit for emissions and gas flaring ( Tengizcevroil, 2012). As a demand for Tengiz oil falls in European market the company is looking for an opportunity to sell oil to the Asia-Pacific region. In 2013 Petral - trader Indonesian Pertamina - bought 600 thousand barrels varieties Tengiz ( Nefttrans, 2012). New market opens many opportunities for the Tengizchevroil Company.

References

AmosWeb. (2013). Barriers to entry in oligopoly. Available: http://www.amosweb.com/cgi-bin/awb_nav.pl?s=wpd&c=dsp&k=barriers+to+entry

Inkling. (2012). Microeconomics- Oligopoly and Barriers to Entry, Available: https://www.inkling.com/read/microeconomics-glenn-hubbard-patrick-obrien-4th/chapter-14/oligopoly-and-barriers-to-entry

Newskaz. (2013). Exports of crude oil and gas condensate in Kazakhstan in 2012. Available. http://newskaz.ru/economy/20130213/4762804.html

Nefttrans. (2012). "TCO" seeking access to markets ATP, Available: http://www.nefttrans.ru/news/tengizshevroyl-ishchet-vykhod-na-rynki-atr.html

Tengizchevroil. (2013). The final report of Tengizchevroil for 2012. Available: http://tengizchevroil.com/ru/news/2013/review_2012.asp