Oil and Gas in Kazakhstan
Editorial
Kazakhstan’s Great Oil Reserves
Kazakhstan has 202 oil and gas fields. The expected recoverable reserves are estimated at 7.8 billion tonnes of oil, and 7.1 trillion cubic meters of gas, 70% of which is concentrated in the western regions of Kazakhstan. Most resources are confined to subsalt deposits at a depth of five and more thousand metres.
Oil is produced in 55 fields, the largest being: Tengiz (oil), Uzen (oil and gas), Karachaganak (oil and gas condensate), Zhanazhol (oil and gas condensate), and Kalamkas (oil and gas).
Expected hydrocarbon reserves in the continental part and the shelf of the Caspian Sea are estimated at 7-17 billion tonnes. Kazakhstan hopes that expected reserves will be classified as proven in the next decade. Based on the most conservative estimates by Western experts, the maximum oil export potential of the Caspian basin is around 100 million tonnes annually (2 million barrels per day).
The expected reserves in the Aral basin come to 2 billion tonnes of standard fuel. The high gas and oil potential and the favourable geographical situation along the main transportation routes make the Aral basin a priority region for prospecting.
The Kazakhstani market is quite limited, and therefore some 10 million tonnes (200,000 barrel per day) can be exported at present.
On the whole, the fuel and energy sector of the Republic of Kazakhstan was characterised by increased production during 1999 (Table 1).
The fall in world prices for oil at the end of 1998 was the main factor directly affecting all activities in the country’s oil and gas sector.
In this critical period, the Government of the Republic of Kazakhstan provided support to the industry through the optimisation of excises and road tax on oil and oil products. The Government also introduced new methods of calculating oil transit tariffs and tariff regulation in oil refining, and regulated VAT collection, etc. In this way, the leading sector of the economy managed to cope with the main task, i.e. avoiding a drop in production and maintaining a visible tendency towards growth.
Despite the serious difficulties to be overcome, it is evident that the Government’s plans to ensure the country’s energy independence are feasible in the near future. Materially, the conclusion is based on the condition of the source of minerals of the oil and gas sector (Table 2).
The decline in oil production in the Mangistau region can be explained by the classification of its reserves as ‘hard to recover’. Some 70% of its fields require large investment. In fact, Western Kazakhstan produces 25,560 million tonnes of oil, or 93% of the country’s overall oil production. The Mangistau and Atyrau regions account for 73% of the total recoverable oil reserves in Kazakhstan. The Atyrau region significantly increased oil production as compared to 1996 thanks to Tengizchevroil JV (Fig. 1).
Oil refineries in Kazakhstan
Experts agree that 1999 was a difficult year for the operation of refineries. As in previous years, the main problems were caused by the supply of raw materials to oil refineries, the Pavlodar refinery in particular. Irregular deliveries of Western-Siberian oil practically resulted in the refinery halting. The level of oil refining in Kazakhstan was reduced to 30.7% of the overall production capacities of enterprises (Table 3).
Only Shymkentnefteorgzsintez (ShNOS) managed to work smoothly. Hurricane-Kumkol, created in 1997, solved the problem of supplying oil to the Shymkent refinery.
In late 1999 world prices for oil began to grow, which resulted in an increase in Kazakhstani oil exports (Table 4).
With oil refineries encountering a deficit of raw materials, the Government of the Republic of Kazakhstan passed a resolution on setting quotas for crude oil exports. Kazakhstan’s oil producing companies might be able to increase export quotas to foreign countries by increasing their supplies of raw materials to the country’s refineries (Fig. 2).
Being interested in creating competitive oil refining production, the Government is willing to invest in this sector. At present, two projects are under development:
• Modernisation of the Atyrau Refinery. The project has been cost $412 million. The modernisation is planned to begin in 2003 and end in 2008.
• Construction of a catalytic cracking unit at ShNOS for a total value of $60 million. This project is to be implemented in 2001.
Investment in the oil and gas sector
The largest investment was made in hydrocarbon production (Fig. 3). Huge explored reserves of oil, gas and condensate in Kazakhstan are the most important and promising area for the activity of foreign investors. Nevertheless, only one third of the reserves in previously developed large oil and gas fields are now being used.
During the 1996-1999 period, some $6.7 billion was attracted to oil and gas production and processing in Kazakhstan. This is 60% of the overall investment in the mineral sector. Most of this is made by large companies, such as Tengizchevroil, co-operators of the Karachaganak gas condensate field, OKIOC, Mangistaumunaigaz, Japan National Oil Corporation, Uzenmunaigaz, Aktobemunaigaz, Kazakhoil-Emba, TEPCO, Kumkol-Lukoil, Kazakhturkmunai, Hurricane Kumkol Munai and others. These mining operators account for 89% of the overall investment, 91% of the overall production, 73% of the reserves (explored and blocked-out reserves, prospected reserves and extrapolated reserves), 75% of tax payments, 96% of expenditures in the social sphere and local infrastructure, 89% of the number of staff, 84% of expenses for training, and 84% of expenditures for environmental protection.
These companies’ intensive activity undoubtedly has a positive effect on the social and economic situation in the country, creates new jobs, improves infrastructure, and fills the deficit of budget by taxes and other payments (Fig. 4). However, increased production rates and low hydrocarbon reserves increment in 1995 resulted in a replenishment deficit of reserves, which may make a threat to Kazakhstan’s economic security in the future (Table 5).
The main trends of development of the oil and gas sector
Sound investment is needed for the prospects discovered during the development of off-shore fields in the Caspian Sea. Based on estimates by Kazakhstani and foreign experts, the aggregate investment will reach $160 billion, of which $10 billion is to be invested at the initial stage of prospecting and evaluation of fields.
This is, however, only the up her part of «the Caspian iceberg». The huge hydrocarbon reserves in Kazakhstan’s continental part and shelf of the Caspian Sea will form the foundation of investment in oil equipment construction, the development of service companies, the production and social infrastructure, and oil refining and petrochemistry.
The utilisation of associated gases in the oil fields is one potential direction. At present, non-renewable natural resources are inefficiently used, and the environment is badly polluted. Moreover, the use of associated gas for power generation or technical processes may bring additional revenue to oil companies.
The necessity for joint comprehensive development and use of the communication systems, the elements of production, and the social infrastructure is evident. Today, a number of engineering and mining enterprises produce various equipment and materials for oil and gas companies. A further extension of this range of products will depend on the available financial resources, licences and certificates.
Most service companies are in a difficult financial situation. Their equipment does not meet modern requirements. However, their favourable geographical situation, the availability of production facilities and qualified staff, who require minimum retraining, make them attractive for creating joint ventures. Foreign investors should thoroughly consider the possibility of joint ventures and service companies based on Kazakhstani companies.
Investment in projects for developing machine engineering companies is practically free from risks. The scale and long duration of on-shore and off-shore projects give obvious advantages to investors over importers. Nowadays, we can observe a steady demand for high-strength oil pipes, and special equipment and machines with high reliability.
In addition to these projects, investment in oil refining and petrochemistry is of great importance. The development of these sectors is means of guaranteeing more revenues tomorrow. The creation of technologically interrelated petrochemical productions will be undoubtedly supported by both the Government and private capital of Kazakhstan.
Kazakhstan has the potential for developing the aforementioned projects, including highly qualified staff. The Law On State Support to Direct Investment provides many advantages to investors through privileges and preferences granted for projects creating new productions and jobs, and increasing the level of technologies.
Table of contents
Economic Development of Kazakhstan and Policy of the National Bank at the Current Stage Grigory Marchenko
Kazakhstan - Resource Management Boris Zilbermints, Ian Dunderdale
Changes in Kazakh Legislation and the Interests of Foreign Investors in the Oil Sector Alexander Lesser
