Oil and Gas Complex in Kazakhstan: Status and Development Trends
Bolat Uzhkenov, Chairman of the Committee on Geology and Mineral Resources Protection at the Ministry of Energy and Mineral Resources of Kazakhstan
Domestic and foreign investors are paying close attention to the Kazakh mineral sector and especially to its oil and gas industry. Kazakhstan, with its vast hydrocarbon reserves, is one of the ten largest oil powers, just behind some Middle Eastern and Latin American countries, Russia and the USA. Kazakhstan possesses 3.2% of the world’s explored oil and 1.5% of the explored gas reserves (4.6bn tonnes and 2.2 trillion cubic meters respectively). The forecast resources reach 8% (17bn tonnes) of oil and 3.4% (146.4 trillion cubic meters) of gas.
At present, Kazakhstan is the 18th largest oil producer in the world (the second largest in the CIS), after the Middle East, Russia, Venezuela, China, Norway, Canada, Great Britain, Indonesia, Brazil and a number of African states. It should be noted that the USA, Japan, China, Korea, India and Europe are the major hydrocarbon consumers (60% of global consumption).
Oil exporting countries have become leaders in the global energy market because of the disparity between production and consumption. For this reason domestic oil and gas should be considered as a major industry over the next 30 years, because it will determine the development of the national economy.
The discovery of the unique Kashagan field by OKIOC has greatly influenced the distribution of hydrocarbon reserves among the large international corporations. These companies produce more than 90% of the recoverable hydrocarbon reserves in Kazakhstan, most of which is being exported.
Hydrocarbon Production Outlooks
Oil production in Kazakhstan is expected to reach 55-60m tonnes by 2005, 100-115m tonnes by 2010, and 120-150m tonnes by 2015. Exports are expected to make up about 85% of total production (Figure 1). Annual domestic consumption is also expected to reach 8m tonnes by 2005 (6.2m tonnes in 2000), 9m tonnes by 2010, and 11m tonnes by 2015.
Significant investment is necessary in order to sustain such extensive production. Today, investment in hydrocarbon production makes up about 80% of the total investment in the mineral sector in Kazakhstan. This has increased five-fold over the last six years and came to US$4.8bn by the end of 2002. Investment in hydrocarbon production during 1996-2002 totaled US$17.9bn, with foreign investors and large companies placing 90% of this money, most of which (83%) was directed into oil, gas and condensate production at the large fields (Figure 2).
It is expected that investment in the oil and gas industry of Kazakhstan will rise to US$5.7bn by 2005. Aggregate investment will reach US$24.8bn in 2005-2010, and US$27.3bn in 2010-2015. Money will not only be invested in hydrocarbon production, but also in establishing the necessary infrastructure. It should be noted that the production cost of Kazakh oil (excluding Tengiz oil) is US$5-7 per barrel excluding transport costs, while in the Persian Gulf, where proved hydrocarbon reserves stand at 95-100bn tonnes, the production cost is US$1 per barrel including economical maritime transport. So, in spite of its impressive oil reserves, it is hard for Kazakhstan to compete with the Middle and Near Eastern oil exporters in terms of quantity, quality or transport arrangement.
At the same time, the expected decrease in oil production in the North Sea by 2010 could create favorable investment conditions for Kazakhstan. In addition, the leading Western countries rely on a regular inflow of the Caspian oil, because it is a major factor in the restructuring of oil imports that is necessary in order to move away from a dependence on the politically unstable Persian Gulf region.
Today, the development prospects for Kazakhstani hydrocarbon production relate primarily to the Caspian shelf. However, the oil and gas industries in Azerbaijan and Turkmenistan are also developing. These countries, along with Kazakhstan, could soon become major competitors against Russia in the global oil and gas market. According to the Russian Ministry of Natural Resources, Kazakhstan and Azerbaijan have the greatest oil potential in the Caspian (Figure 3). The Azeri oil companies have stated that the high-quality oil reserves explored in the Azeri shelf make up 2.3bn tonnes. Kazakhstan’s State Committee for Natural Reserves has estimated that shelf oil reserves reach 1.6bn tonnes (Kashagan) and potential oil reserves are about 7bn tonnes. This is why it is vital for Russia to invest in joint projects that will benefit all the Caspian states.
The State Program for the development of the Kazakh share of the Caspian offshore reserves aims to make these fields the major hydrocarbon producing zones in the country. A geological survey of the Kazakh sector of the Caspian offshore and onshore zones has made it possible to single out the precise areas that contain the huge hydrocarbon reserves.
The Program aims to expand the mineral basis of the Kazakh oil industry as rapidly as possible.
The major objectives are as follows:
1. To assess the potential of each licensed field in order to fix the compensation to be paid by oil companies to Kazakhstan for the right to participate in the surveying and development of these fields.
2. To improve the preparation procedures for wildcat drilling in promising oil and gas fields, enhance the way in which reserves are calculated, drill exploratory and production wells, and commission oilfield facilities and underwater oil and gas trunk pipelines with minimum impact on the environment.
3. Attract the maximum amount of investment into the development of the abundant oil and gas resources in Kazakhstan’s sector of the Caspian Sea.
4. Improve the environment of the Caspian and nearby rivers using the investment and proceeds received from oilfield development.
Oil Production Outlooks in the Caspian
The predicted oil production in the Caspian under currently operational Kazakhstani projects (based on data from these projects) demonstrates that a peak production of 95m tonnes is expected to be reached by 2015 (Figure 4). The prospects of the Kazakh oil industry will depend on a growth in the production and export of Caspian oil beginning in 2005. The Russian Ministry of Natural Resources predicts that about 160m tonnes of oil will be produced in the Caspian by 2015, with 60% produced by Kazakhstan and 30% by Azerbaijan.
Predicted Gas and Condensate Production
Kazakhstan possesses the world’s 13th and the CIS’s 4th largest recoverable gas reserves: 2.2bn cubic meters. The country’s gas production came to 12bn cubic meters in 2000, while consumption was only a third of that. The commercial oil and gas reserves are found in the west of the country (98%), with most of the fields located in Karachaganak and Zhanazhol. According to the 2000-2005 indicative plan for the development of oil industry, gas production will reach about 28bn cubic meters, gas supplies to the gas processing plants will make up 13bn cubic meters, and dry gas production will come to 10bn cubic meters by 2005. The development of Amangeldy gas field would solve the problem of gas supplies to South Kazakhstan.
Gas transportation has been a major problem in recent years. The existing gas trunk lines form part of the former Soviet pipeline system which was orientated from south to north, towards Russia. As a result, there are no facilities for transporting gas from fields in the west of Kazakhstan to most of the country’s other regions. In this connection, a project for supplying gas to North Kazakhstan and Astana was launched in 2001.
The problem of associated petroleum gas recovery is becoming more vital. Today, oil producers flare more than 10bn cubic meters of gas per year. This mostly occurs at fields which are situated hundreds of kilometers away from consumers and do not have the necessary gas processing and transport infrastructure. Oil companies prefer to concentrate on oil production and sales because the utilization of associated gas involves considerable costs. At the same time, energy consumption is growing constantly in the country, alongside an increase in the cost of acquiring fuel. The problem of comprehensive gas utilization is being addressed vigorously at the present time.
Oil Supplies to the World Market
Currently, Kazakhstan exports about 30m tonnes of oil, of which 81% is transported via the Atyrau-Samara, Kenkiyak-Orsk, and CPC pipelines, 12% by rail and 7% by sea. The country is expected to supply the world market with 47m tonnes of oil by 2005, 85m tonnes by 2010, and 102m tonnes by 2015. In order to achieve this, it is urgent that new pipelines should be laid to transport hydrocarbons to global markets (Figure 5).
The major oil transport routes to world markets are Kazakhstan-Baku-Ceyhan (western route), West Kazakhstan-the Pacific Coast of China (eastern route), and Kazakhstan-Turkmenistan-Iran (southern route).
Alongside the existing export pipelines, there are projects to construct domestic oil and gas pipelines. These include: a West Kazakhstan-Kenkiyak-Kumkol oil pipeline project that forms part of the Kazakhstan-China pipeline, an Aksai-Krasnyi Octyabr-Astana gas line, and expansion of the Bakhar Gasfield-Almaty gas line. The first will connect the Atyrau and Aktobe fields with Shymkent and Pavlodar refineries, whilst the second will supply gas to the north-eastern regions of Kazakhstan.
The Committee on Geology and Mineral Resources Protection at the Ministry of Energy and Mineral Resources of Kazakhstan, is currently creating the National Data Bank (NDB) related to oil and gas projects. This databank will be of strategic importance in the development of the industry. Formed on the base of the PETROBANK system, NBD will be a modern computer center designed for the long-term storage, processing, analysis, management and transmission of geologic and geophysical data on the exploration and development of hydrocarbon fields (including seismic, well logging, coordinate, analytical and other data). By providing users with easy remote access, NBD will not only allow effective management of the oil-and-gas sector, but should also attract considerable investment into the industry.
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