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 KAZAKHSTAN International Business Magazine №4, 2009
 Oil Chronicles. To Prohibit or to Compel?: That is the Question
Oil Chronicles. To Prohibit or to Compel?:
That is the Question

Expecting the growth of the global economy, OPEC analysts raised their forecast for oil demand in 2009 and 2010. On the background of that the government of Kazakhstan tries again to resolve the issue of the POL seasonal deficit in the domestic market of oil products. Now the government will use administrative prohibition measures that produce the justified skepticism of some experts. As an alternative they propose to force all the oil companies to supply a part of their oil to the domestic oil refineries at a fixed price.

On September 7 the Prime-Minister Karim Masimov signed the governmental decree, introducing a temporary ban on the export of gasoline and diesel oil from Kazakhstan. According to the official Astana representatives, the decision was made with the purpose to stabilize the domestic market of oil products.

In accordance with the decree, the export of gasoline is prohibited until January 1, 2010. The export of diesel oil, except for firing household fuel, will be prohibited until November 1, 2009.

The introduction of this temporary ban on the export of petroleum, oil and lubricants was preceded by a statement of Akylbek Kurishbayev, the Minister of Agriculture, addressed to the Energy Ministry with the request to expedite the preparation and production of an appropriate decision since "a problem with AI-80 gasoline is emerging".

At the same time, in the opinion of Kuanysh Aytakhanov, Senate Deputy, the introduction of a temporary ban on the export of oil products is an insufficient measure for the stabilization of the domestic POL prices. In this concern, he proposed to force all the subsoil users to direct up to 3% of their petroleum to Kazakhstani oil refineries at a fixed price.

The appropriate deputy request, addressed to the Prime-Minister, was published by Mr. Aytakhanov on September 10, 2009 at the plenary session of the Senate. "In order to finally resolve the issue of stabilizing the POL price it would make sense to transfer 2-3% of the oil, produced by the subsoil users, to support the Oil and oil products state resources fund at a purchase price, approved by the government of the republic. This fund should become the mechanism that would directly transfer oil to oil refineries for further sale of the produced oil products to farmers at an effective price", he noted, adding that the government needs to appropriately finish the development of the mechanism for provision of the agricultural sector units with petroleum, oil and lubricants.

In the opinion of Kazakhstani experts, one of the conditions of uninterrupted supplies of POL to the domestic market is the unhampered access of oil producing companies to the processing capacities. In this concern, on September 8 the Agency for fostering competition approved a deal on the sale of the Pavlodar oil processing plant to NC KazMunayGas with a mandatory term of ensuring equal access to oil processing. Zhanat Kozhakhmetov, the Deputy Head of the Agency, noted that "if these agreements are not executed the Agency has a right to reconsider this issue and for the investors to show understanding of this matter".

Positive forecasts

The Organization of petroleum exporting countries raised its forecast of demand for oil in 2009 and 2010, expecting a pickup of the world economy growth indicators. Specifically, OPEC analysts expect that petroleum consumption by the end of 2009 will reach the average of 84.05 million barrels per day (the previous estimate was 83.91 million barrels per day). The forecast of oil consumption for 2010 is also raised by 150 thousand to 84.56 million barrels/day.

It is expected that the major growth of oil consumption after 2010 will be carried by China, India, Middle Eastern and Latin American countries. At the same time, the biggest consumers of the hydrocarbon will become such sectors as transport, petrochemistry while the oil demand by agricultural producers will be quite moderate.

Moreover, OPEC revised its forecast for the export supplies of Russian oil by the end of 2009: from 9.78 million to 9.83 million barrels/day. The expected petroleum export from Russia in 2010 was also raised by 93 thousand – to 9.82 billion barrels/day. The experts say that this will become possible due to the launch of new fields and increasing the investment of some companies into upstream.

It is also assumed that oil supply by the non-OPEC countries in 2009 (comparing to last year) will grow by 340 thousand, reaching 50.8 million barrels/day. The previous forecast reached 50.74 million barrels/day. In 2010 the volume of oil production by these countries is already predicted at 51.22 million barrels/day.

In September the analysts of the International Energy Agency also raised their forecast of the global oil demand in 2010 – to 85.7 million barrels/day that exceeds previous forecasts by 450 thousand.

KazTransGas and BG to gasify the transport of southern capital city

While the government is putting in spasmodic efforts to stabilize the situation in the POL market, KazTransGas and BG Kazakhstan agreed to cooperate on installment of compressed natural in the automobile transport of Almaty.

The appropriate agreement, signed on August 28, 2009, assumes the installment of equipment for the network of automobile gas filling compressor stations (AGFCS) that allows using natural gas as automobile fuel.

At the initial stage of the project BG Kazakhstan will supply two packages of compressor equipment for AGFCS. In its turn, KazTransGas will supply gas to the units and will launch them. According to KazTransGas, the city buses and public transport will become the first to adopt the natural gas technology. In the future, upon the growth of the number of vehicles, operating on gas, the network of such stations will be built throughout Almaty and other regions of Kazakhstan.

In the opinion of experts, the adoption of natural gas by automobile transport will significantly improve the ecology in the biggest megacity of the country.

JSC KazTransGas was established in 2000 with the purpose of acquisition, management, services and exploitation of the trunk gas pipeline infrastructure in Kazakhstan. Today, the company controls the major network of the transport gas pipeline with the length of over 11 thousand kilometers with an annual carrying capacity up to 160 billion cubic meters.

BG Group is a leading international energy company, running its business in 27 countries of the world. In Kazakhstan BG controls 32.5% in the Karachaganak oil and gas condensate field development project. It is listed among the shareholders of the Caspian Pipeline Consortium, owning 2% stake.

The establishment of the JV, based on the Orenburg GPP, is hampered
Meanwhile, it was announced that due to the changes in the terms of the Karachaganak gas condensate field development the establishment of the joint Russian-Kazakhstani venture, based on the Orenburg gas processing plant (OGPP), may be postponed. This was declared by Sauat Mynbayev, the Energy and Mineral Resources Minister, during the Forum of interregional cooperation between Russia and Kazakhstan on September 11. "Recently the international consortium, operating at Karachaganak and represented by British Gas, Eni, LUKOIL and other companies, addressed the government of Kazakhstan with the request to postpone the launch of the third phase of the project development. This somewhat postpones the establishment of the JV itself", Mr. Mynbayev noted.

He explained that the establishment of the JV, based on OGPP, is strictly linked to the beginning of the third phase of the Karachaganak filed development since this phase in particular must provide the opportunity for additional gas supplies to OGPP in the volume of 16 billion cubic meters. At the same time, the Energy Minister of Kazakhstan expressed hopes that the final configuration of the third phase of the Karachaganak development will be defined by the end of the current year.

It has to be mentioned that in accordance with the JV plan between KazMunayGas and Gasprom, KazRosGas LLC will have to provide services on processing the hydrocarbon material of the Orenburg Oblast and the Karachaganak field, based on processing terms. According to the project terms, KazMunayGas must purchase a 50% stake in the established JV while in its turn the Russian side must provide the assets of the plant as a payment for its stake. Moreover, the project participants must invest funds in the modernization of the Orenburg GPP.

According to the agreement between Russia and Kazakhstan in 2007 the Orenburg GPP received 7.4 billion cubic meters of the Karachaganak gas for processing while in 2008 this figure reached 9 billion cubic meters. In 2009 this figure is supposed to grow to 9 billion cubic meters while effective of 2012 it should reach 10 billion cubic meters. In a case of the establishment of the Russian-Kazakhstani JV the annual crude gas supply volume from Karachaganak must gradually increase to 16-17 billion cubic meters per year. As a result the capacities of GPP will be nominally loaded till 2030.

The project of CPC will be approved till the end of 2009
During the forum in Orenburg Sauat Mynbayev also informed that by the end of this year the shareholders of the Caspian pipeline consortium would like to approve the final project of the Tengiz-Novorossiysk oil pipeline expansion that links the fields of western Kazakhstan with the Russian coast of Black Sea. According to the Energy Minister, the delay in the approval of this decision on the CPC expansion is reasoned by the withdrawal process of British BP from the project. "After acquisition of 46% of Lukarco from BP and resolution of some other technical issues CPC shareholders are planning to finally approve the CPC expansion project by the end of 2009", he noted.

JV Lukarco, where BP owns above-mentioned 46%, has a 12.5% stake in CPC. Earlier BP announced its decision to leave the consortium since it is the only CPC shareholder that does not have significant volumes of oil for transportation by the system; therefore, costly expansion of the pipeline is economically inefficient for the British company.

The CPC expansion project assumes the increase of the trunk pipeline’s carrying capacity to 67 million tonnes of oil. In 2008 it transported 31.47 million tonnes of oil. In January-August of 2009 (compared to the similar period of the last year) CPC increased the exports of oil at the Southern Ozereyka-2 terminal (the port of Novorossiysk) by 11.9% to 22.952 million tonnes.

The total length of the Tengiz-Novorossiysk pipeline is 1,580 kilometers. Today, the shipping clients of the CPC system are such companies as Tengizchevroil, Arman, Embamunyagas, Kazakhoil-Aktobe, CNPC-Aktobemunaygas, Litasco, Karachaganak Petroleum Operating B.V. and Nafta Trans.

KMG EP reported their half year results

In the first six month of 2009 JSC KazMunayGas Exploration and Production produced 5.673 million tonnes of oil (230.7 thousand barrels/day), which is 3.8% less than in the same period of 2008. At the same time, the company’s net profit totaled 128.8 billion tenge ($890 million). For comparison, this indicator reached 147.5 billion tenge ($1,224 million) in the first half of 2008.

According to the estimate of the company’s experts, the net profit decreased due to the significant drop of oil prices in 2009 that was partially compensated by the exchange gain in the amount of 101.6 billion tenge (before taxes), produced as a result of the Tenge devaluation in February of 2009. Not considering this circumstance, the net profit decreased by 66% compared to the same period of 2008.

KazMunayGas EP revenue dropped by 39% and reached 206.6 billion tenge. In US dollar equivalent it reduced to $1,428 million or approximately 53%. This shrinkage was reasoned by the decreased average price of oil sales by 39% – from 72,829 tenge per tonne ($83.6 per barrel) to 44,631 tenge per tonne ($42.7 per barrel) as well as a decline of its supplies by 1.8%. At the same time, the exports share in the total volume of supply grew to 80% (in the first half of 2008 it was 75%) that is reasoned by reduced demand in the domestic market. Meanwhile, the planned supplies to the domestic market this year is kept at the level of 2.2 million tonnes (44.4 thousand barrels/day).

From January-June KazMunayGas EP reported a loss in the amount of 5 billion tenge ($34 million) on its participation in Kazgermunay Company. Such financial results of the JV were mainly influenced by lower oil prices, accrual of provision in the amount of $111.6 million, related to an environmental fee for exceeding the gas flaring norms, as well as the changes in the methods of revenue accrual in 2009 that postponed the terms of revenue receipt for 45-60 days.

By the end of the first half of the year the assets of JSC KazMunayGas Exploration and Production reached 1,132 billion tenge (by the end of 2008 – 1,020 billion tenge), liabilities – 204.248 billion tenge (172.439 billion tenge), owned capital – 927.749 billion tenge (847.093 billion tenge), registered capital – 245.481 billion (259.725 billion tenge).

Comparing to last year’s indicator the operational expenses of the company grew by 23% and reached 149.6 billion tenge ($1,034 million). The reason of the growth is the introduction of rent tax and mineral extraction tax (effective of January 1, 2009) that substituted the royalty as well as admission of penalties and increased salaries to employees. Not counting the taxes and penalties, the operational expenses in tenge grew by 3.7% while in US dollar figure the operational expenses per barrel of produced oil dropped by 13%, not including taxes and penalties.

The capital investments (not including costs for acquisition of non-material assets) reached 12.9 billion tenge ($89.4 million) which is 36% lower than a similar indicator of the first half of 2008. The plan for total capital investment of the company for 2009 was raised by 13% to the level of 45.3 billion tenge. This increase is mainly reasoned by the drilling of an additional 25 exploitation wells, scheduled for this year.

The company informs us that as of June 30 the size of net cash, cash equivalents and financial assets reached 603.8 billion tenge ($4 billion) versus 534.5 billion tenge ($4.43 billion) on December 31, 2008 while the loan amount – 14.2 billion tenge ($95 million) versus 20.4 billion tenge ($169 million) respectively. At the same time, at the end of the reporting period 86% of financial assets were denominated in US dollars and 14% were denominated in tenge.

Nearly 82% of the total deposit sum of the company is placed in two of the biggest banks of Kazakhstan – Halyk Bank and Kazkommertsbank. Also about 39.7% billion tenge (approximately 7%) is stored at BTA Bank.

The financial report of the company for the first six months of 2009 includes an unrealized loss in the amount of 4.5 billion tenge, related to hedging deals, signed in the first half of 2009.

JSC KazMunayGas Exploration and Production was established in March of 2004, as a result of a merger of the KazMunayGas National Company oil producing subsidiaries – JSC Embamunaygas and JSC Ozenmunaygas. The company is listed in the top three oil producers in Kazakhstan. Its shares are listed at Kazakhstani Stock Exchange (KASE) while the global depository receipts are listed at the London Stock Exchange.

Zhayikmunay reports a loss

In January-June of 2009 Zhayikmunay Company produced 1.33 million barrels of oil (versus 892 thousand barrels in the first half of 2008). The average daily production volume of the hydrocarbon raw material reached 7.271 thousand barrels (4.930 thousand barrels, respectively). At the same time, the average sales price of oil in the domestic and foreign markets reached $31.32 and $91.92 per barrel respectively. In the first six months of this year the corporate revenue dropped from $76.9 million to $44.7 million (-42%) while EBITDA (earnings before interest, taxes and depreciation) decreased from $42.1 million to $32.5 million (-23%).

In the reporting period as a result of hedging and exchange loss the company produced a net loss in the amount of $20.1 million (comparing with a net profit in the volume of $17.6 million in the first half of 2008). In January-June the capital expenses of Zhayikmunay were reduced to $24.9 million versus $90.8 million last year.

Zhayikmunay is a private oil and gas company, running exploration, production and sale of crude oil and gas condensate in north-western Kazakhstan. The licensed field, developed by the company, includes the Chinarev field with total area of 324 square kilometers.

The oil statistics for January-August of 2009

According to the Agency for statistics, in the first eight months of this year the republic produced 41.84 million tonnes of crude oil and 8.16 million tonnes of gas condensate. This is 8.8% and 4.6% lower respectively compared with the same period in 2008.

Speaking of natural gas, its production within the mentioned period reached 23.38 billion, which is 6.5% higher than in January-August of 2008. Specifically, 12.19 billion cubic meters of natural gas in gaseous state (-6.6%) and 11.19 billion cubic meters of associated gas (+25.9%) were produced in the republic.

In January-August of 2009 the oil refineries of the republic produced 1,646.4 thousand tonnes of gasoline, including aviation fuel. This is 3.1% lower than in the same period of 2008. Meanwhile, the output of residual oil dropped to 252.7 thousand tonnes (-7.6%). The production of kerosene, including aviation turbine gasoline, fell to 212.1 thousand tonnes (-23.8%) while the output of gasoil dropped to 2,819.6 thousand tonnes (-8.6%).


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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