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 KAZAKHSTAN International Business Magazine №4, 2009
 The Energy Forum: A Partnership for the Sake of Oil
The Energy Forum: A Partnership for the Sake of Oil

Marina Popova

The Fourth KAZENERGY Eurasian energy forum that was launched in Astana under Kazakhstan Energy Week prepared certain intrigue to its participants and facilitated the creation of a new outlook on many issues that have been discussed for a long time. Thus, during the forum the participants learned about possible participation of Iran in Nabucco, a new Kazakhstani project of oil transportation to Black Sea as well as that the Ecology Minister supports the plan of a nuclear power plant construction in Kazakhstan.

The dialogue area

The Energy Week, held from September 2126, was dedicated to the celebration of the 110th anniversary of Kazakhstani oil. Perhaps, the capital city has never hosted such a large number of distinguished guests at the same time as those gathered to discuss energy issues. Thus, among the foreign visitors there were Gerhard Schroeder, 33th Chancellor of Germany, the member of Board of Directors, the Chairman of shareholders committee of Nord Stream AG, Randal Gossen, the President of the World Petroleum Council (WPC), Traicho Traikov, the Minister of Economy, Energy and Tourism of Bulgaria, Valery Golubev, the Vice-President of OJSC Gasprom, Rovnag Abdullaev, the CEO of State oil company of Azerbaijan, the heads and representatives of the World Energy Council, the European Bank for Reconstruction and Development, the World Bank, such oil and gas giants as Chevron, ExxonMobil, Royal Dutch Shell, BG Group, ConocoPhillips, the biggest investment companies, banks and appraising agencies, including JP Morgan Plc, HSBC Bank Plc, Platts and others.

Timur Kulibayev, the CEO of KAZENERGY association, believes that the participation of "heads of governments, the number of large international organizations, transnational oil and gas corporations and the largest research and expert institutions in the forum creates the opportunity for deep analysis of today’s challenges".

Today, a number of issues, related to the production and export of hydrocarbons becomes not simply important, but a dominating factor for the formation of the foreign policy of many states, regardless of if they are large players in the energy market or not.

According to Mr. Kulibayev, the three previous energy forums, held in Astana in 2006-2008, "allowed to establish an effective dialogue area for the players, directly involved in the progress of the domestic energy sector, as well as build the opportunity to compare its positions and opinions on key issues in the oil and gas sector development, electrical energy industry, ecology and jointly prepare new decisions and ideas".

The special focus in this forum was given to social responsibility of business since during the crisis period it is particularly important for the companies to best inform the wide range of interest groups, about their activity in this challenging time, performance of committed liabilities on sustainable development. "We have to demonstrate how we react to exacerbation of the situation and how we search for opportunities to solve these problems, at the same time endeavoring to solve the public problems", the Head of KAZENERGY underlined.

In his welcome speech, Karim Masimov, the Prime-Minister of the republic, stated that Kazakhstan has already proved itself as reliable hydrocarbon supplier to the world market and, therefore, "our country will continue the development of a diversification strategy of export routes for its energy resources". Specifically, the republic targets at the development of the Atyrau-Samara oil transportation route and system of the Caspian pipeline consortium as well as the increase of oil supply volume through tankers to the ports of Aktau and Kuryk, modernization of Central Asia – Center system that ensure the transit of Central Asian natural gas through the territories of Russia and Europe. China is also a promising vector of Kazakhstani hydrocarbons export. At the same time, the Prime-Minister noted that one should never stop at the achieved results: "If we want to grow we need to develop our potential. Therefore, the government of Kazakhstan has all conditions in order to develop, first of all, interaction between private and state sectors". 

Speaking of further development of oil and gas industry, Nurlan Balgimbayev, the RoK President Energy Advisor, informed that the "new era" is related to the development of offshore fields and, by the way, it is based on wildlife management area conditions. According to him, this requires the launch of new technologies both for exploration segment and infrastructure. In this concern, he believes it is extremely important to gain and use the experience of foreign companies.

The strategic partnership

One of the main focuses of the forum became the issue of "Global challenges – strategic alliances" and Sauat Mynbayev, the Energy and Mineral Resources Minister, gave a most important speech here.

He stated that, possessing the proven oil reserves in the volume of 4.8 billion tonnes (or 3% of the world’s reserves), by this figure Kazakhstan is listed in the top ten countries. In 2009 the republic is planning to produce 75 million tonnes of oil which is 6.2% higher than the same indicator of 2008.

Speaking about future cooperation prospects, Mr. Mynbayev highlighted CPC oil pipeline expansion to 60-70 million tonnes per year, including 50 million tonnes of Kazakhstani oil. The estimated cost of the project is $2.5 billion. At the moment, the memorandum on the principles of the project expansion has already been signed that will also be approved at the extraordinary shareholders’ meeting. The project documentation is in progress. "Nonetheless, there are still unresolved issues in the expanded pipeline management area and we hope that they will be solved in the near future that will allow approval of the project by the end of this year", he added.

The Energy Ministry Head also noted that, planning the increase of oil production volumes, the government hopes that export supplies will grow significantly faster than domestic consumption. Thus, in 2008 12.3 million tonnes of oil was supplied to the domestic market; of them, 6.6 million tonnes was imported from Russia and mainly from the Pavlodar petrochemical plant. "This is the historically established supply structure – Mr. Mynbayev said. – With the launch of the Kenkiyak-Kumkol pipeline we gained the technical opportunity to supply 100% domestic oil by the oil pipelines to our petroleum refineries. However, this does not mean that we will stop importing Russian oil; these are mutually beneficial supplies. Moreover, with the establishment of the customs union (and this is near future deal), we will observe higher interpenetration of the economies, including the energy sector".

Continuing the topic of the strategic partnership development and, specifically, the interaction between Russia and Kazakhstan in this area, Valery Golubev, the Deputy CEO of OJSC Gasprom, confirmed an earlier announced decision on increasing the supply of the Karachaganak gas to Orenburg in the next few years from the current 7.5 billion to 9 billion cubic meters per year.

Euro standards orientation

The topic of Kazakhstani oil refineries modernization was also covered in the presentation of Daniyar Tiyesov, the Managing Director of JSC KazMunayGas National Company. Sharing KMG plans in this direction, he named the major reasons that forced the national company to adopt a modernization program. These are low oil processing depth at current plants, the necessity to expand the assortment of products and the introduction of Euro standards.

Today, besides the import of crude oil (for PPCP), Kazakhstan has to also import the oil products. For instance, today, import supplies of jet fuel constitute 33% of total domestic consumption a while similar indicator for high-octane gasoline takes up 40%. This situation is reasoned by the lack of capacities and insufficient technological power of domestic oil refineries.

In May of 2009 Kazakhstan adopted the comprehensive modernization program for three Kazakhstani plants with a total investment volume of $4 billion. In the next 4-5 years thanks to its implementation our oil refineries will be able to independently saturate the domestic market with all types of oil products, including ones, meeting Euro-4 standard.

"When I am asked if it is easier to build a new modern plant than to invest money in old production, I say "No", – Mr. Tiyesov shared his view. He also explained that the geographic location of all three existing oil refineries is very beneficial and this allows to satisfy POL needs throughout the republic. "Moreover, from an economic point of view, the modernization will cost less than the construction of new plants. And the last but not least reason is the social aspect", the KMG representatives underlined.

Today, the modernization program is already being implemented at the Atyrau OPP. The next are the Shymkent and Pavlodar plants, which recently became the property of KazMunayGas national company.

"The troublemaker"

Under the discussion of the future development of oil and gas industry the main attention, first of all, was paid to international cooperation in the field hydrocarbon transportation. Gerhard Schroeder, the former Chancellor of Germany, Chairman of shareholders’ committee, member of Nord Stream AG Board of Directors, presented a paper "On energy partnership between Europe and Central Asia in XXI century".

He made a statement that, undoubtedly, will produce sharp resonance. In the opinion of Mr. Schroeder, the implementation of the Nabucco gas pipeline construction project can be viewed as promising if it is filled by Iranian gas. "I support the implementation of the Nabucco project since we need the additional import of gas to Europe, but we need to keep in mind that we have sufficient natural gas for the Northern and Southern Flow pipelines, but not for Nabucco".

Meanwhile, Mr. Schroeder admitted that "the European Union will need to overcome the political opposition. It (EU) will need some strength to solve the political disagreement on sanctions against Iran and energy resources, exported by this country". Later on at the press-conference, commenting on his forum presentation, the former Chancellor reminded that US President Barack Obama "several times announced his will to overcome the currently existing confrontational situation with Iran".

It has to be mentioned that the Nabucco project is estimated at 7.9 billion Euro and assumes the transportation of natural gas to European states through Azerbaijan, Georgia, Turkey, Bulgaria, Hungary, Romania and Austria. It will become the continuation of the already constructed Baku-Tbilisi-Erzurum pipeline and plans the annual transit of 31 billion cubic meters of gas. The launch of the pipeline construction is scheduled for the next 1-2 years while first transportation is expected in 2014. Initially, it had been planned to assign 250 million Euro by EU to finance Nabucco that was reduced to 200 million Euro. One of the main stumbling rocks in the negotiations over Nabucco, which have been conducted over the last few years, is the guarantees on filling natural gas to the trunk pipeline. In the beginning of 2009 the negotiation process was re-activated, expedited by another Russian-Ukrainian gas conflict. Running against the participation of Iran in the Nabucco implementation, at the same time USA supported the idea of Iraqi gas transportation to Europe.

Speaking of Kazakhstan, Mr. Schroeder noted that our country "is the stability center in Central Asia" and, therefore, he holds up the chairmanship of Kazakhstan in OSCE that will begin in 2010. "Regarding Kazakhstan’s chairmanship in OSCE, I was one of those politicians that endorsed this idea and I keep my position", he highlighted. Such strong support is quite understandable since, according to the former Chancellor, Central Asia will become the corridor between Europe and East Asia and Kazakhstan will have to perform certain missions, imposed to our country in this area. 

The news of the day

The significant event of the forum became the joint statement by Timur Kulibayev, the Head of KAZENERGY association, and Rovnag Abdullaev, the President of Azerbaijani state oil company (SOCAR), on the possible construction of a new pipeline for the transit of Kazakhstani oil through Azerbaijan.

Today, about 100 thousand barrels of Tengiz field oil are delivered daily to the world markets by this route (by the Baku-Tbilisi-Ceyhan pipeline and by the railroad). "We see that there is a need in additional capacity for our oil transportation through Azerbaijan. Therefore, we agreed to consider the opportunity of using another existing Baku-Supsa oil pipeline and, upon necessity, to build a new pipeline in the same corridor", Mr. Kulibayev noted.

Meanwhile, he underlined that Kazakhstan "that builds the routes in all the vectors has a very beneficial position, attractive to other energy resource producers and consumers. If there is some reason why one of the routes stops operating, we have an opportunity to redirect the flow in another direction". This is the reason why republic will continue supporting all routes both northbound and southbound.

The Head of KAZENERGY reminded that Azerbaijan and Kazakhstan signed an interstate agreement on the construction of the Caspian pipeline system. He argued the possible erection of a new route in this system by the forecasted increase of petroleum output in Kazakhstan, effective of 2012 – when first oil will be produced in Kashagan. "The field will gradually start producing higher volumes, over 50 million tonnes; it is clear that in this case we need reliable and potent routes", Mr. Kulibayev concluded.

European outlook

The representatives of foreign energy companies and organizations, offered the speech at the forum, unanimously confirmed that the world demand for energy sources will continue to grow in the future. In this context, it is Central Asia and the Caspian region, including Kazakhstan that will play a significant role in energy supplies to Europe.

Specifically, Charles Watson, the Executive Vice-President of Shell Exploration and Production Services (RF) B.V. for Russia and Caspian region, said that the demand for energy sources will continue to grow until 2050. He believes that it will become more challenging for the hydrocarbon producing countries to satisfy this demand in the future.

Roland Kobia, the European Commission Energy Commissariat Cabinet member, responsible for international affairs, also assumes that the world’s demand for oil and gas will continue to expand, reaching 45% growth in the near future. Speaking of oil prices, he shared that "today’s prices are quite acceptable for the majority of consumers".

Randal Gossen, the President of the World Petroleum Council (WPC), views it as necessary to develop close cooperation between all the global market players in order to introduce the newest innovative technologies in the industry. He also asked the world oil and gas companies to pay attention to youth initiatives. In unison to his proposal, prior to the forum Astana hosted a debate tournament among students, followed by an international youth conference.

This way or another, the topic of an energy partnership between Europe and Central Asia was mentioned in all the presentations. Regardless of what aspects were covered by the speakers, they all shared a common opinion – the most important stability factor in Eurasian continent is a reliable supply of hydrocarbon resources to all the countries. It is clear that the idea is destined to fail without a commonly approved and mutually beneficial energy policy, considering the interests of energy producers and consumers.

The experts agree that in the future Kazakhstan will remain attractive from the viewpoint of foreign investment. It is not a random fact that Paul Brummel, UK of Great Britain Ambassador in Kazakhstan, said "Kazakhstan is a big source of energy resources that Great Britain needs. We have extensive experience in the development of oil and gas fields. We believe that Great Britain and Kazakhstan are partners in the area of oil and gas extraction".

Environmentally friendly atomic power

The forum also paid attention to such topics as alternative energy sources and environmental issues. Nurgali Ashimov, the Minister of Ecology, informed that under Kyoto protocol Kazakhstan made a voluntary commitment until 2012. "We already have examples of applying the Kyoto protocol in real life. Thus, we implemented the project on utilization of associated gas at the Kumkol field. In 2007 we launched the project on decreasing the volume of greenhouse gas emission at the Ural thermal power plant".

Sergey Yashin, the Vice-President of Kazatomprom National Atomic Company, shared about the launch of the first unit at the Kazakhstani atomic power plant in Aktau in 2016. In accordance with the project the new atomic power plant will have two units. The feasibility study of the construction has already been prepared and, today, it is being reviewed by state expertise. The joint Kazakhstani-Russian venture was established for the preparation of a feasibility study and further construction of the power plant. According to Kazatomprom representative, the type of tank is already selected that will be set up at the first Kazakhstani atomic power plant – the water heterogeneous energy tank with the power of 300 megawatt.

By the way, it turned out that Mr. Ashimov supports the plan for the construction of the atomic power plant in the country: "To be honest, not as the Minister, but the expert, I support the idea of an atomic power plant". His main argument was the compactness of production: Atomic energy is the cleanest energy at present, of course, not considering wind energy and hydropower plants".


The Energy Forum was full of events. There were topic-focused conferences, round tables and presentations on the issues of tax regulation of subsoil use industry, utilization of the associated sulphur, and implementation of Extracting Industries Transparency Initiatives (EITI), training and retraining of personnel, the corporate social responsibility.

The main outcome of the forum became the adoption of a Resolution that reflected the most important conclusions and participants’ recommendations. It specifies the following top priorities:

·         Further development of cooperation between Kazakhstan and key international partners;

·         Establishment of regional mechanisms for mutual support on overcoming the impact of the global economic crisis on the energy industry;

·         Implementation of joint projects, targeted at the diversification of energy supply routes to the world markets;

·         Higher importance of environmental content in the energy sector;

·         Acceleration of modernization of existing and the establishment of new oil processing and petrol and gas chemical plants;

·         Higher involvement of local content;

·         The provision of necessary governmental support, including the investment for the development of national energy sector.

At the end of the forum, "Plant a tree!" promo-event, which became traditional for such conferences, was organized for the delegates when distinguished foreign guests participated in the set up of the first stone for "wayside trees of Oil industry workers" in Astana.


Table of contents
Caspian Gas: One for All?   Sergei Smirnov 
Insurance Market: Sight from Outside  The special report of Standard & Poor’s 
Macroeconomy. September 2009  Sergey Kasyanenko, Edilberto L. Segura 
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