Prices are up, duties are down

In the near future official Astana is going to change the price making in the domestic gas market, making it dependent on demand for blue fuel in European countries.

Gas will get more expensive for us

 

The Ministry of Energy and Mineral Resources of Kazakhstan proposed to raise the domestic consumption gas price to the European level with the subtraction of transportation costs. This was announced by Energy Minister Sauat Mynbayev at the government session on May 12, 2009 during his presentation of the country balance of gas consumption and production.

According to the Minister, "in the near future the gas price will inevitably become market-based since this is related to the import supply of natural gas and its deficit". In this concern, Sauat Mynbayev proposed to launch a new price policy: by 2015 to gradually raise the domestic market gas price to the level of the "European price minus transportation costs and minus about 25%". In his opinion, this should be the vector of the domestic price.

Commenting on the situation, emerging in the domestic gas market, the Energy Minister noted that given the delay in the third phase of the Karachaganak project implementation, reinjection of 80% of gas at the Kashagan field as well as the natural growth of domestic gas consumption after 2020 there will be a deficit of blue fuel for supplies to the domestic market.

It is a common knowledge that facing the negative consequences of the world economic crisis, in the beginning of 2009 the participants of Karachaganak Petroleum Operating B.V. consortium asked the Kazakhstani side to delay the implementation term of the third phase of the Karachaganak field development.

At the same time, Mr. Mynbayev noted that in the case of a timely launch of the project’s third phase the gas deficit in the domestic market will be perceived only after 2030. In this concern, Kazakhstan will oblige the subsoil users, developing gas fields, to supply gas to the domestic market after 2015. "It is expected that after 2015 the investors’ contracts for new gas fields development will assume the liability to sell this gas in the domestic market", the Minister states.

 

Note. The Karachaganak field in Western Kazakhstan Oblast is one of the biggest oil and gas condensate fields in the world. It occupies the territory of 280 square kilometers and contains over 1.2 billion tonnes of crude oil and gas condensate as well as over 1.35 trillion cubic meters of natural gas. Overall, this field accounts for 48% of gas production and 18% of liquid hydrocarbon production in Kazakhstan.

 

Kazakhstan ratified the agreement on the construction of Caspian gas pipeline.

 

On May 13, 2009, the President of the country Nursultan Nazarbayev signed the Law on ratification of Agreement between the governments of RK, Russian Federation and Turkmenistan on cooperation in the construction of the Caspian gas pipeline.

The law assumes common responsibilities of the parties on creating a facilitative environment for cooperation and economic efficiency of the project that will allow to annually transport Central Asian gas in the volume of 20 billion cubic meters, including 10 billion cubic meters of Turkmen gas and 10 billion cubic meters of Kazakhstan gas. Thus, the implementation of this agreement will build the ground for the development of the export and transport potential of Kazakhstan as well as facilitate the economic development. In accordance with the Agreement, given the increasing volumes of natural gas production, in the future the parties can consider the possibility of additional expansion of the pipeline’s capacity.

According to official Astana, the major goal of this document is to increase the transit capacity of the republic, concentrated on natural gas, as well as to deepen a mutually beneficial cooperation between states, participating in the gas industry development.

It has to be mentioned that the construction of the gas pipeline is scheduled to be finished no later than in 2010. The Caspian gas pipeline will start at the Belek compressor station on the Turkmenistan coast of the Caspian Sea and will go through Kazakhstan to Russian Alexandrov Gai gas-measuring station. The length of the pipeline is 1,700 kilometers. The project assumes the rebuilding of the existing Okarem-Beyneu gas pipeline, connecting Turkmen gas fields with Central Asia – Center (CAC) trunk pipeline, as well as CAC itself.

It is planned that the Turkmen side will expand old and build new gas pipelines reaching the Kazakhstan border with a carrying capacity of 10 billion cubic meters of gas per year. This year Ashgabat guarantees the supply of the same volume of gas to OJSC Gasprom in this direction. Kazakhstan committed to supply 10 billion cubic meters of natural gas and increase transportation capacities by this route by 20 billion cubic meters. In its turn, Russia guarantees to purchase all the amounts of gas announced by Turkmenistan and Kazakhstan, as well as to expand CAC on its territory.

 

The export duty on petroleum export is down

Effective of May 18, Kazakhstan introduced the lowered export duty on petroleum products. According to the governmental decree, dated April 8, 2009 on Amending the Resolution #1036 of the government of the Republic of Kazakhstan of October 15, 2005, the export duty on light condensate and oil processing products is set at $59.87 per ton, while the rate for oil bitumen and some other types of heavy condensate is $39.91. At the same time, the seasonal rate is applied towards "heavy condensate: gasoil" and "heavy condensate: liquid fuel".

It has to be noted that the previous export duty rates for oil products in Kazakhstan were set at $41.42 per ton for oil bitumen and gasoil and $61.86 for liquid fuel.

 

The situation in the global oil market

At the end of May 2009, the International Energy Agency (IEA), uniting 28 of the largest oil consumer states, lowered the forecast of demand for oil, stating that the shrinkage of oil consumption this year will reach its maximum since 1981.

At the same time, IEA forecasts the biggest drop in demand in the developed nations where oil consumption is likely to drop by 5.1% this year. The agency report indicates that in 2009 the global demand for oil is likely to reach 83.2 million barrels per day (b/d) and will be 3% lower than in 2008.

The forecasts of IEA are based on the expectations of the global economic slowdown by 1.4% in 2009. According to the agency, there are no reasons to hope for evident economic recovery before 2010. "The demand still looks weak, despite the fact that there have been many talks on showing the signs of economic recovery. It is too early to declare the end of the recession", David Fyfe, the head of IEA oil division, notes.

As per the agency experts, the oil reserves in USA remain at maximum level since 1990, as there is a weak demand for fuel in the conditions of slowdown. At the same time, the commercial oil reserves in the developed nations have reached a maximum since 1993.

At the same time, according to Goldman Sachs Group Inc. analysts the oil price is likely to reach the average of $55 per barrel in the second half of the year and $50 for entire 2009. Next year the average price will reach $70, and in 2011 it may be lifted to $90 per barrel.

They also note that despite the fact that, earlier, OPEC announced the decrease in production by 4.2 million barrels per day, compared to September of 2008, the real production in this organization’s member-states went down only by 3.3 million b/d. This is related to the fact that the rates of dropping demand for fuel (especially for gasoline) in USA are slowing down while the consumption growth in China may be the reason for an earlier recovery of the world demand for oil.

 

The oil statistics for January-April of 2009

According to the Agency for Statistics, during the January-April period in 2009 the republic produced 20.29 million tonnes of crude oil and 4.058 million tonnes of gas condensate. This is 4.4% more and 6.2% less, respectively, compared to the first four months of 2008.

Speaking of natural gas, its production in Kazakhstan in this period reached 11.66 billion cubic meters or 4.2% more than in January-April of 2008. Specifically, 6.19 billion cubic meters (-6.7%) of natural gas in gaseous state was produced while the production of oil casing head gas reached 5.48 billion cubic meters (+20.2%).

According to official data, in January-April of 2009, 16.242 million tonnes of oil were transported over the Kazakhstani trunk oil pipeline, compared to 15.526 million tonnes in the same period of 2008. Meanwhile, the cargo turnover reached 10.7 billion tonnes/kilometer, which matches last year’s indicator.

By the end of the first four months of this year oil transportation by the Atyrau-Samara part of the Uzen-Atyrau-Samara trunk oil pipeline reached 5.77 million tonnes, compared to 5.43 million tonnes for the same period in 2008. In January-April the volume of oil transshipment by the Atasu-Alashankou oil pipeline increased to 2.042 million tonnes of oil (1.806 million tonnes, respectively). The transit of Russian oil by the TON-2 oil pipeline part, located in Kazakhstan, reached 1.595 million tonnes (compared to 1.482 million tonnes).

At the same time, the volume of oil discharge from railroad cisterns with the use of national operator capacities reached 2.476 million tonnes of oil (1.956 million tonnes for the same period in 2008). The oil loading in tankers in the Aktau port with the use of national operator capacities reached 3.054 million tonnes, increasing by 607 thousand tonnes in comparison with the first four months of the last year.

As for oil processing in Kazakhstan: In January-April of 2009 the production of gasoline, including aviation kerosene, dropped by 10.9% to 808.3 thousand tonnes. At the same time, the production of residual fuel oil dropped by 11.7% to 946.3 thousand tonnes. The production of kerosene, including the reactive type fuel, decreased by 24.4% to 98.3 thousand tonnes while the production of gasoil dropped by 12.6% to 1300.2 thousand tonnes.

 

The single operator of KazMunayGas’ gasoline stations

In April of 2009 JSC KazMunayGas Onimderi, a subsidiary of the KazMunayGas national company started its operations. The new company took over total financial and operational control of the gasoline stations network of KazMunayGas as well as wholesale and retail sales of oil products and gas throughout the republic.

It is a common knowledge that JSC KazMunayGas Onimderi was established under the structural optimization program of the three subsidiaries of JSC KazMunayGas Trade House, KMG-Zhayik LLC, KMG-Astana LLC, and KMG-Alatau LLC. The decision on establishing the single company was made in accordance with the KazMunayGas NC’s long-term strategy, approved in January of 2009.

In the opinion of national oil company spokesmen, the new organization structure will allow for significantly optimizing the existing business processes, improving the transparency of decision-making, lowering operational costs, and eliminating duplicating management functions.

Zhanat Tusupbekov, the General Director of JSC KazMunayGas Onimderi, noted that the "re-established company can faster respond to the changes in the market and monitor the customer satisfaction through the quality of offered services

Today, there are 175 gasoline stations in the retail network of KazMunayGas NC. In accordance with the development strategy of the company, by 2015 it is planned to increase its share in the domestic market of oil products to 20%.

 

 

KazMunayGas becomes 100% owner of KPV

In April of 2009 the KazMunayGas national company completed the deal on the acquisition of the BP share in the joint venture Kazakhstan Pipeline Ventures (KPV). The price of the 49.9% stake reached $250 million. This amount will be paid in several tranches.

As a result of this deal, KazMunayGas became 100% owner of KPV and considerably expanded its rights for the carrying capacity of the Caspian pipeline consortium oil pipeline. It is a common knowledge that KPV is one of CPC shareholders with 1.75% participation.

 

Second surface drywell Kurmangazy

According to preliminary data, the drilling of the second exploratory well at the Kurmangazy structure in the Kazakhstani Caspian Sea Sector did not produce positive results. There is no secret that the drilling, initiated by the operating company Kurmangazy Petroleum LLC at the end of March was planned to be finished by mid-June of 2009. The works were conducted with the help of the Astra self-elevating floating drilling rig.

At the same time, according to the President of Russian JSC Rosneft NC, Sergey Bogdanchikov, the company will continue working under the Kurmangazy project at the Caspian shelf. "We have no definition for "unsuccessful well" at the exploratory phase, the well did not give output, but gave new information". Today, the drilling and seismic survey results are being studied. The head of the Russian company also reminded that, according to the license agreement, it is necessary to drill 3 wells and the project participants "have to meet these requirements".

The Kurmangazy structure is located in the Kazakhstani sector of subsoil in the northern part of Caspian Sea, 120 kilometers away to the west from the Buzachi peninsula. The contracted territory reaches 3,512 square kilometers. The depth of the sea in the area of works is 5-7 meters. As per Energy Ministry, the recoverable reserves of Kurmangazy are preliminarily estimated at 900 million tonnes of crude. The development is conducted in compliance with the PSA, signed on July 6 of 2005 between the Energy Ministry on the one side and JSC KazMunayTeniz offshore petroleum corporation and Rosneft-Kazakhstan LLC on the other side. The PSA is signed for a 55 year term with the total investments in the project of $23 billion.

 

 "Stable" rating forecast for JSC KazTransGas

In May of 2009 Standard & Poor’s international rating agency confirmed the "BB" level long-term credit ratings of JSC "KazTransGas" and its 100% subsidiary – JSC Intergas Central Asia (ICA), the operator of trunk gas pipelines. At the same time, S&P changed the rating forecasts for these companies from "Negative" to "Stable". The revision of the forecasts followed the same actions in relation to the forecast of the sovereign rating and the rating of the parent company – JSC KazMunayGas National Company.

The agency analysts evaluate the own creditworthiness of KazTransGas at "B" level. In their opinion, the company "has low creditworthiness, considering big capital investments by the company in the sector gas transportation and distribution), weak financial profile, strong dependence on Russian energy giant, OJSC Gasprom, the risks of changing the amount of gas transit after 2011, expected upon the expiry of the transit agreement with Gasprom, possible competition on part of alternative gas export routes from Central Asia, as well as a non-transparent regime of controlling gas tariffs in Kazakhstan and Georgia".

The impact of above-listed negative factors is compensated to a certain extent by the favorable location of ICA transit gas pipelines, connecting Central Asian gas producers and European customers, high demand for gas in Europe, monopolist position of KazTransGas as a gas supplier in the territory of service, as well as the availability of the gas transit agreement with Gasprom till 2011 that is based on "transport and pay" principle.

At the same time, the rating of KazTransGas may be lowered, if the company’s financial profile becomes more aggressive, as a result of debt financing of promising investments in the construction of pipelines, with FFO ratio (Funds from operations) to debt lower than 15%. The rating can be also lowered in case of further weakening of liquidity position, if the company fails to refinance the considerable amount of debt to be repaid in 2009, or in case of serious increase in the amount of 2009-2010 Investment Program.

According to S&P experts, the strong backup by the parent company or state for the financing of new projects, provided in the form of contribution for raising the capital, debt guarantees, as well as the agreement with Gasprom on raising gas transit tariffs can neutralize the negative impact on KazTransGas’ creditworthiness.

Meanwhile, according to JSC KazTransGas managers, on March 31, 2009 the company liquidity reserves, including cash, equivalent to $280 million, were covering dept liabilities with maturity within the next year in the amount of $159.

Editorial