Energy industry: reserves, production, investments
Efficient use of energy resources and their export infrastructure development are still the key to sustainable economic growth and prosperity of our country. This review shows dynamics in key indicators of fuel and energy sector over the past 16 years, as well as the main trends and problems in this field.
Kazakhstan takes the leading positions in the global ranking of energy reserves: oil - 12th place (3% of the world reserves), coal - 7th place (4%), uranium - 2nd place (19%). The forecast resources are: oil - up to 17 bln.tons, free and dissolved gas - 11 tln. m3, coal - 105 bln. tons, and uranium - 625 thous.tons. All this makes our country a major player in the energy market. We took the 18th place in the world in terms of oil production, 10th place in coal production , and 1st place - in uranium reserves.
As of January 1, 2016, the commercial oil reserves in Kazakhstan (А+В+С1 and С2 categories) are amounted to 4.8 bln. tons, codensate - 441 mln. tons, free gas - 1.8 bln. m3 and dissolved gas - 2.3 bln. m3. As a result of geological exploration works, carried out during the period of 2000-2015, an incremental value of recoverable oil reserves reached almost 2.2 bln. tons (including 83.4 mln. tons in the last year) and 290 bln.m3 of gas (18.8 bln. m3). At the same time, nearly 1 bln. tons (79.5 mln. tons in 2015) of oil and 464 bln.m3 (45.7 bln. m3) of gas were produced. Generally, replenishment of oil reserves outstrips its depletion in the subsoils more than in 2 times, but there is an inverse trend in gas industry - it suffers from the lack of resource base replenishment.
Subsoil use and investments. At the moment, Kazakhstan has 271 objects of hydrocarbon subsoil use, including 64 - under exploration, 92- in process of production, and 115- with combined exploration and production.
The total volume of investments, allocated to the hydrocarbon subsoil use for the last 16 years, amounted to $179.8 bln., including about $19 bln. spent for exploration works. During this period their annual volume increased in more than 5 times and at the last year end, it amounted to $14.1 bln., including $491.1 mln or 3.5% spent for exploration. Investments in amount of $15.8 bln. are planned for 2016, including $551 mln. - for exploration works.
As for the investment and production indicators in terms of individual companies, currently, 87.5% of their total value is accounted for 11 major hydrocarbon subsoil users. Among them, Tengizchevroil LLP (28% of all investments and 48% of oil production volume), Mangystaumunaigas JSC(11% each), a Branch of the North Caspian Operating Company B.V. in the Republic of Kazakhstan (30% on investment, no production), Ozenmunaigas JSC (8% and 10% respectively), CNPC-Aktobemunaigaz JSC (4% and 8%), Karachaganak Petroleum Operating B.V. (10% and 14%), EmbaMunaiGas JSC (3% and 5%), Karazhanbasmunai JSC(3% and 4%), Zhaikmunai LLP ( 3% each), "Maersk Oil Kazakhstan GmbH (2% and 1%) and PetroKazakhstan Kumkol Resources JSC (2% and 3%). Karachaganak Petroleum Operating B.V. (44% on gas and 78% on condensate), Tengizchevroil LLP (40% on gas),CNPC-Aktobemunaigaz JSC (13% on gas and 9% on condensate), and Zhaikmunai LLP (13% condensate) take the leading positions in oil and condensate production.
Social and economic indicators. High investment activity of companies in the oil and gas sector contributes to social and economic development of the country. For the 16-year period, they have allotted $2.5 bln. for the development of social sphere and local infrastructure, $ 1.23 bln - for the professional training of the staff, involved under the contracts for hydrocarbon subsoil use. The number of employees in the oil and gas industry increased from 32 thous. people in 2000 to 55 thous. in 2015.
Proven coal reserves (more than 60% of hard coal and about 40% of brown coal) amount to more than 34 bln. tons. Kazakhstan produces annually more than 100 mln. tons of coal, while 90% of this amount is accounted for Karaganda and Pavlodar regions. The main share of produced forge coal (more than 50%) is consumed by the power industry of the country, about 15% accounts for the public utilities for population, 5% - for the industrial enterprises. The remaining 30% of the coal is exported.
According to the results of the exploration works carried out in 2003-2015, anincremental value of coal reserves amounted to 51.7 mln. tons (while over the past 2 years there was no increase). Production during the same period reached 1.3 bln. tons, including 100.3 mln. tons at the last year end. It should be noted that the depletion of coal reserves significantly exceeds its reserve growth; however, the industrywide reserve/production ratio is more than 100 years.
Subsoil use and investments. As of January 1 of the current year, the coal subsoil use was carried out at 47 sites, including 37 under the production, 8 sites with combined exploration and production, and 2 sites in process of exploration.
During the period of 2000-2015, the total volume of investments, allocated to the coal industry, amounted to $11 bln., $40.2 mln. of which were spent for exploration works. During this time, the amount of annual investments increased almost in 5 times and at the last year end, it amounted to $833.8 mln., including $100 thous. spent for exploration works.
Currently, 10 major subsoil users receive 94% of total investments and have the leading positions in the development of coal deposits Among them - Coal Production Unit of ArcelorMittal Temirtau JSC (38% of all investments and 11% of coal production), Eurasian Energy Corporation JSC (16% and 19% respectively), Bogatyr Komir LLP (17% and 35%), Shubarkol Komir JSC (9% and 10%), Karazhyra Ltd.(6% each) LLP, Razrez Molodezhnyi LLP (3% and 7%), Angrensor Energo LLP (4% and 6%), Gamma LLP (3% and 2%), Maykuben-West LLP (3% each) and Saryarka ENERGY LLP(2% on investment, no production).
Social and economic indicators. In the period of 2000-2015, the coal subsoil users sent $61 mln. to the development of social sphere and local infrastructure, $70.8 bln - to the professional training of the staff, involved in the contractual sites. The number of industry employees increased from 29 thous. to 30 thous. people.
Explored uranium reserves in Kazakhstan exceed 900 thous. ton. About 80% of this volume is concentrated in two geological provinces - Chu-Sarysu (south-eastern part of Karaganda and Kyzylorda regions, South Kazakhstan and Zhambyl regions, as well as the western part of Almaty region) and Syrdarya area (Kyzylorda and south-western part of Karaganda region). The rest is concentrated in North Kazakhstan geological province, which includes the deposits in Akmola and North Kazakhstan regions. Kazakhstani reserves are found mostly in sandstone-type deposits, developed by drillhole in situ leaching.
As a result of the exploration works, carried out in 2003-2015, the recoverable uranium reserves grew for 271.2 thous. tons, including 3.3 thous. tons of the last year. However, over the past 16 years, 177.4 thous. tons were produced in Kazakhstan, including 23 thousand. tons, produced at the last year end. Thus, the reserve growth exceeds depletion in almost two times, ensuring a stable functioning of the industry for many years, taking into account the discovered reserves and the forecast resources.
Subsoil use and investments. As of January 1 of the current year, the uranium subsoil use was carried out at 24 sites, including 11 under production, 2 - in process of exploration, and 11 - with combined exploration and production.
In the period of 2000-2015 years, $9.5 bln.were invested to the uranium subsoil use, including $729.9 mln. spent for the exploration works. At the same time, the annual volume of investments increased in almost 5 times and, according to the results of the last year, it amounted to $729.9 mln., $50.8 mln. of which are accounted for exploration works.
A key player of the industry is NAC Kazatomprom JSC, developing the uranium deposits through joint ventures, as well as ensuring the uranium import and export operations. The company accounts for nearly 2/3 of total uranium production volumes in Kazakhstan. NAC Kazatomprom JSC (37% of all investments and 36% of the total uranium production volume), JV Katko (19% and 18%), BAIKEN-U LLP(6% and 7%), JV Inkai (8% and 11%), Semizbay-U LLP (6% and 5%), JV Khorasan-U LLP (7% and 5%), KRK JV Zarechnoe JSC (5% and 4%), Karatau LLP(5% and 9%), JV Akbastau JSC (4% and 7%) and Appak LLP (4% and 0%) take the leading positions in the ranking of 10 largest subsoil users.
Social and economic indicators. Over the past 16 years, the uranium subsoil users have invested $181 mln. (including $16.44 mln. in the last year) to the development of social sphere and local infrastructure, $87.5 bln. ($3.6 mln.) - to the professional training of the staff, involved under the contracts. During this time the number of workers of the industry increased from 2, 643 to 5, 294 people.
Prospects of energy sector
One of the strategic directions of domestic and foreign state policy is an efficient use of energy resources and further development of export infrastructure. The revenue part of the budget and, consequently, economic growth and welfare of the country depend on this factor as a whole. Transition to the international standards of the reserves calculation and the transparency of the extractive sector will ensure the major foreign investments into exploration and discovery of new deposits, which will contribute to the sustainable development of Kazakhstani economy and strengthening our positions in the global market.
Further development of Kazakhstani oil and gas industry depends on implementation of three flagship projects. Let’s remind us that the Kashagan field is developed in the frameworks of the North Caspian Sea Production Sharing Agreement. According to the Memorandum of understanding, concluded between KAZENERGY, North Caspian Company B.V. and PSA LLP on May 19, 2015, the operator continues to work on implementation of early tenders for the North Caspian project.
Development of Karachaganak field: the project is implemented within the framework of the Final production sharing agreement. KPO company started the implementation of the Project on Future Development (PFD), related to increasing volumes of gas injection, allowing an increase in recoverable reserves of liquid hydrocarbons.
Tengizchevroil LLP operates within the frameworks of the Agreement on exploration, production and sales of hydrocarbons from Tengiz and Korolevskoe fields in Atyrau region. The company plans to implement the “Wellhead Pressure Management project”/ “Future Expansion Project” (WHPMP/FEP). It stipulates the construction of new well gathering system, pressure boosting facilities, infrastructure and auxiliary structures, as well as a new oil treatment facility.
The “Expansion of the Caspian Pipeline Consortium’s oil pipeline” project is being implemented with the purpose to increase its flowrate from 28.2 mln. tons to 67 mln. tons per year, including Kazakhstani site – to 52.5 mln. tons per year, with the aim of further export increase. Even today the flowrate volumes of the CPC pipeline amount to 57.5 mln. tons, including 39.4 mln. tons of oil from Kazakhstan. The expansion project is planned to be completed by December 2016.
Last year, on October 15, the first meeting of working group on flowrate monitoring of Kazakhstan-China oil pipeline was held with the participation of the representatives of KazTransOil JSC, NWTC Munaitas JSC (North-Western Transportation Company), Kazakhstan-China Pipeline LLP, as well as the Chinese side representatives. Its tasks include harmonization of the resource base for the pipeline expansion and adjustment of the oil price formula at the Kazakh-Chinese border, as well as the introduction of a single network tariff, which implies reduction of oil transportation costs.
In order to provide an adequate tax burden for the oil and gas enterprises, it is planned to amend the application of export customs duty rates, based on the global market price (progressive rate).
As to the oil refining, further supplies of combustive and lubricating materials to the internal fuel market depends on upgrading the capacity of domestic refineries. By 2020, the projects on modernization and reconstruction of the Pavlodar refinery, Atyrau and Shymkent oil refineries shall be completed.
The coal industry of Kazakhstan supplies consistently its domestic consumers with the relevant products. In recent years, the coal exports to Russia are declining due to Russian import substitution policies. In this connection, the high-tech development of coal processing and seeking new apical points become critical for the industry future. Implementation of several pilot projects has already begun: construction of coal-to-liquids fcilities, as well as exploration and production of coal bed methane.
As to the nuclear energy, in 2015 the works are continued on the establishment of a vertically integrated nuclear fuel cycle, through the participation of the government in all missing NFC parts - conversion and enrichment of uranium, fuel assembly production (FA). Kazakhstan is interested in production and supplies of natural uranium, as well as in the production and sales of uranium products with deeper processing degree and a higher added value. In December of the last year, the NAC Kazatomprom JSC and Chinese CGNPC established Ulba-TVS LLP, with the purpose of joint production of nuclear fuel for Chinese atomic power station on the basis of the Ulba metallurgical plant. The enterprise will starts its operation in 2018, and release its first products, and will ensure the deliveries of fuel assembly to China in 2019.
Extractive Industries Transparency Initiative (EITI)
Currently, the extractive industries transparency initiative was joined by 51 country, 31 of which are fully compliant with the EITI (Kazakhstan, Norway, Albania, Peru, Indonesia, Iraq, Mongolia, Kyrgyzstan, etc.), while another 20 have the status of candidates (USA, Great Britain, Colombia, etc.). Introduction of EITI standards is coordinated by the International Board, the working body of which is the International Secretariat, based in Oslo. The EITI implementation in Kazakhstan began in 2005, and in 2013 the country gained the status of "Country-follower of the EITI”.
The EITI activities are coordinated by the National Council of Stakeholders under the leadership of Zhenis Kasymbek, the Minister of Investment and Development. It consists of the Mazhilis deputies, the representatives of MID, Ministry of Economy and Ministry of Finances, petroleum and mining companies, as well as the civil society (three main members and 3 deputies). The working body, the Secretariat, is based in RGIC Kazgeoinform of the Committee of Geology and Subsoil Use at the MID of the RoK.
During the implementation period, 10 national EITI reports were issued. In accordance with the international requirements of the EITI Board (Standart 2013), more extended data shall be provided in the reports along with the fiscal reconciliation of tax and non-tax revenues. It includes the budget revenues, dividend stream from the state shares in the private companies, sub-national payments and social investments, and local content, revenues from transportation, production and export volumes of major and priority mineral resources, extractive sector share in GDP, description of the fiscal regime, exploration data, maps of the main deposits, etc.
A popular version of EITI report is ready to date with its graphics and analytics. It includes the data, collected for the last 5 years on the revenues from the oil and gas and mining sectors separately, the dividends from state shares in the property, the main macroeconomic indicators, income and expenditure of the budget, accruals to the National Fund, the share of the extractive sector, as well as the social investments.
In 2017, Kazakhstan will have to pass another validation procedure and confirm its status. In October of this year within the frameworks of the 8th National Conference of the EITI, a visit of the International Board representatives to Astana is expected. Moreover, according to new EITI standards, the decision should be made in 2016 to include a mandatory requirement for the disclosure of the beneficial rights in the EITI reports (the ultimate owners of the mining companies).