Judging from the forecasts made by the Ministry of Oil and Gas, over the next five years the existing Kazakhstan transport infrastructure capacity will fully suit the outputs of oil which the Republic of Kazakhstan is planned to export to the foreign markets. This will allow us to focus on the maximization of profits with minimum costs, while the problems of diversification will remain at the level of geopolitical discussions.
Today, 9 out of 10 tons of the oil produced in Kazakhstan are exported. So, at the end of 2009, the total output of oil and gas condensate in the Republic of Kazakhstan amounted to 76.5 million tons, including 68.1 million tons or 89% of the total output sold abroad. The main export traffic arteries for transportation of Kazakhstan’s crude hydrocarbons include the oil pipelines Tengiz – Novorossisk (the Caspian Pipeline Consortium) and Atyrau – Samara, running over the territory of Russian Federation, as well as the Kazakhstan – Chinese Pipeline running to the East.
So, only for the previous year 27.5, 17.5 and 7.7 million tons of oil were transported through the Caspian Pipeline Consortium, the Atyrau – Samara and the Kazakhstan – Chinese Pipelines respectively. Additional 11.1 million tons were transported by sea via the Aktau Port, while 4 million tons were exported by rail. These figures show that the main export route for our oil is, as before, the Russian one. At the same time, the load factor of the Atyrau – Samara and Caspian Pipeline Consortium’s pipelines has long been exceeding 100% due to application of special antiwear additives.
It is no wonder that amid expectations for high-yield oil of Kashagan, and against the plans for achievement of peak output at the major onshore oil fields of the country such as the Tengiz and Kashagan, the idea of diversification and the transport capacity increase has become an idee fixe of the Government of the Republic of Kazakhstan. Moreover, the work in that direction was done on the principle “the more the better”. Simultaneously with the negotiations for expansion of the Caspian Pipeline Consortium and Atyrau – Samara pipeline routes, Kazakhstan is constructing the pipeline in the direction of China. Moreover, Kazakhstan is considering the matter of its participation in the Ukrainian Project Odessa – Brody, simultaneously retaining in the attentional field the two other projects: Burgas – Alexandroupolis and the Baltic Pipeline System. In April of 2008 the Senate of Kazakhstan ratified the Treaty between Kazakhstan and Azerbaijan on Support and Facilitation of Baku – Tbilisi – Jeikhan Pipeline System. The active phase was also reached by the Project on Creation of the Kazakhstan Caspian System of Transportation (KCST).
In the meantime, just a while ago some experts said that the existing plans for increase of the Kazakhstan transport capacity are ahead of the hydrocarbons production capacity, while the repeated delays in implementation of the Kashagan Project would result in the situation where our country would have to roll back some of its initiatives some day or other. And such a time has seemingly come in 2010.
The Project of the Kazakhstan Caspian Transport System has fallen a victim to the economic expediency. The very idea of creation of the Kazakhstan Caspian Transport System started up as early as in 2006. However, an active phase of the negotiations for implementation thereof began only in 2008 when the Russian shareholders of the Caspian Pipeline Consortium rejected the Chevron’s proposal to commence the financing of its expansion. Meanwhile, the production at the Tengiz was increasing, and Kazakhstan decided to expedite an alternative variant of delivery of its hydrocarbons to Europe. On 14 November, 2008 the Agreement on Basic Principles of Implementation of Project on Kazakhstan Caspian System of Transportation was signed in Baku between the National Oil Companies of Kazakhstan and Azerbaijan, KazMunayGas and SOCAR.
It is not difficult to understand the arguments of the Kazakhstan party: as Russia is not ready to expand the Caspian Pipeline Consortium, Kazakhstan will stake on transportation of oil, bypassing its territory. Moreover, the Project launch dates (2013–2014) were synchronized with the date of commencement of the second stage of the Kashagan field development as planned for that period.
It is to be recalled that the Kazakhstan Caspian System of Transportation is an integrated system designed and intended for transportation of Kazakhstan’s oil from the Tengiz and Kashagan fields to the pipeline Baku – Tbilisi – Jeikhan and other systems of crude hydrocarbons transportation. According to the Project, the Kazakhstan Caspian System of Transportation (KCST) shall include two chains. The first chain will consist of the pipeline Eskene – Kuryk which should connect Kashagan, Tengiz and the Kuryk Port. The second chain will consist of the Trans-Caspian System, including the crude oil loading terminal at the Kazakhstan coast of the Caspian Sea, large-capacity tankers for oil transportation by sea, the oil discharge terminal at the Azerbaijan coast, and junction/ connecting lines to the system Baku – Tbilisi – Jeikhan.
Within the framework of implementation of the KCST Project, in March of 2009 KazMunayGas established its 100% subsidiary enterprise, KMG-Transcaspy LLP. Its main purpose, goals and objectives included the coordination of activities for all segments of the KCST and direct participation in the Project implementation. It was planned in October of 2009 to complete the Feasibility Study of the pipeline Eskene – Kuryk, in 2010 to fully prepare the design and estimate documentation, and by 2013 to place the system into commission. It was expected that at the initial stage the KCST capacity would be 23 million tons per annum, with further increase to 35–56 million tons, while the total cost of the Project (according to the estimates of KazMunayGas) would amount to $4 billion.
A “thunder from a clear sky” burst in mid June this year, when the Chairman of the Board of NC KazMunayGas JSC, Kairgeldy Kabyldin, added support to the recently spread rumour that the deadline for the completion of the KCST Project would be postponed from 2012 to a later date. Moreover, he tied that decision with the launch of the Kashagan field.”For the period from 2014 to 2016 (Kazakhstan) will not have any real oil outputs to justify the construction of the Kazakhstan Caspian System of Transportation … At the first stage of the Kashagan field development the oil output will amount to 370 to 450 thousand barrels per day. According to experts, such oil outputs can be transported through the Caspian Pipeline Consortium after expansion thereof, through the Kazakhstan – Chinese Pipeline and through the pipeline Aktau – Baku – Batumi,” – said Kairgeldy Kabyldin.
New terms and conditions of the Agreement on Kashagan have become a stumbling block for the Trans-Caspian Project. By finally formalizing its guarantee of commencement of pilot production by the end of 2012, the North-Caspian Consortium has simultaneously been released from the obligation to present the budget for the whole period of the Project implementation. For example, the Feasibility Study of the second stage implementation (with which the Kazakhstan Caspian System of Transportation is tied up) will be presented to the Government of Kazakhstan only in 2011. This means that an official resolution on the deadline for launch of commercial production (750 barrels per day) will be adopted in a year's time at the best.
So, the mere fact of postponement of the date of commencement of the export system construction means that Kazakhstan is practically ready for that the phase of “high-yield oil” will be postponed.
It should be noted that it is the USA, which stands for the Project of KCST, that will bypass the territory of Russia and will allow the European Union to diversify the energy sources. Upon the expiration of almost a month and a half after Kabyldin’s statement, on 29th July, 2010 in Astana the Envoy Extraordinary of the USA’ State Secretary for Eurasian Energy Policy, Richard Morningstar, expressed his opinion on the issue regarding the KCST Project. Though, his persuasion that “the Project will be implemented” and “it is exclusively a question of time” carried little conviction. Stating that oils from the Kashagan, Tengiz and Karachagan fields should be enough either for Caspian Pipeline Consortium and for the Kazakhstan Caspian System of Transportation, he commented on the freezing of the latter as follows: “Such Projects are quite long-term by their nature and any postponement for several years will not seem very important in the overall picture.”
A considerable role in postponement or putting to the back burner of the KCST Project was played by the resolution on the expansion of the Caspian Pipeline Consortium, as adopted a long last. This Pipeline connects the Kazakhstan field Tengiz and the oil terminal Yuzhnaya Ozereyka at the Black Sea (near the Novorossiysk Port) and is the most favorable one among all the existing routes. In total, over 209 million tons of oil have been exported through the Pipeline from the beginning of its operation in October of 2001.
The plans for expansion of the capacity of this 1510-kilometers pipeline have been thought over since 2002. However, the Project began to move forward only in 2008 when Kazakhstan established a Joint Venture with Azerbaijan for construction of the KCST (Kazakhstan Caspian System of Transportation), and the Russian party became conscious of the necessity to take specific measures to ensure that Kazakhstan oil should remain in the field of its control. As a result, though no direct interest exists (the Russian Federation pumps through the CPC system one quarter of the oil piped by Kazakhstan) and there are problems with foreign participants, to whom the Consortium has debts, the Memorandum of Understanding on Principles of CPC Expansion was signed in December of 2008. And already on 16th December, 2009 the unanimous resolution on authorization of the expansion project was adopted at the General Meeting of Shareholders in Moscow. At the same time the existing transport tariff ($38 per ton) and preferential crediting rates were prolonged, and the agreement was reached to the effect that the project at the cost of $3 billion will mainly be financed at the expense of the Consortium’s own funds. So, all the problems and matters in dispute between the participants of the Caspian Pipeline Consortium have been solved and settled in full.
Currently, the project is at the stage of its practical implementation. After its completion by 2015, the Caspian Pipeline Consortium’s oil pipe capacity will increase to 67 million tons per annum, including 52.5 million tons of Kazakhstan’s oil. The CPC expansion will involve the construction of ten more oil pumping stations (two in Kazakhstan and eight in Russia), six crude oil storage tanks within the area of the Novorossiysk Port, and the third Single Mooring Point at the offshore terminal of the Caspian Pipeline Consortium.
The highest progress, as far as diversification is concerned, Kazakhstan has achieved by developing the eastward export route. In July of 2006 KazMunayGas jointly and in cooperation wit the Chinese National Oil Corporation launched the oil pipeline Atasu – Alashankou which construction has been made in accordance with the Framework Agreement for Development of All-Round Cooperation in Oil-and-Gas Field signed between the Governments of the two countries on 17th May, 2004 in Beijing. The capacity of the Atasu – Alashankou section which has become the first chain of the Kazakhstan-Chinese Pipeline, is 10 million tons per annum with further expansion to 20 million tons per annum. The project was financed by way of debt financing against security of the Chinese party.
Moreover, Kazakhstan and China do not intend to stop at what has been accomplished. Last year they successfully completed the next stage of the construction which basic facility was the pipeline Kenkiyak – Kumkol. The new section of 794 km length was laid through the territories of the Karaganda, Kyzylorda and Aktobe Oblasts. The capacity of the first-stage section of the pipeline Kenkiyak – Kumkol is 10 million tons per annum with a possible expansion to 20 million tons per annum. However, it is obvious that Kazakhstan does not have enough resources to fill this pipeline designed for crude oil supplies from the western fields of the Republic of Kazakhstan with oil. As from commencement of the commercial operation in October of 2009 and until 1st April, 2010 in total 1.3 million tons of oil was pumped through the pipeline Kenkiyak – Kumkol.
According to the draft Sectoral Program on Development of Oil-and-Gas Industry for the Period of 2010 to 2014, as published in July of 2010 on the web-site of the Ministry of Oil and Gas (www.mng.cov.kz), the volume of Kazakhstan oil exports will increase over the next 5 years only by 4.1% to reach 75 million tons in 2014. At the same time, the volume of transportation of our crude hydrocarbons through the pipeline Atyrau – Samara will become stable at the level of 15 million tons per annum, which is even less than in 2009 (17.5 million tons). The volumes of transportation by sea along the routes of Aktau – Baku, Aktau – Makhachkala, and Aktau – Neka will decrease, too. In 2011–2012 the supplies along the above routes will be reduced to 10 million tons per annum with further sharp drop to 3 and 2 million tons in 2013 and 2014 respectively. For this period of time, the rail transportation will practically come to nothing as well (see the Table below). In order to increase the volume of exports, Kazakhstan will stake on the Caspian Pipeline Consortium (from 28 to 37 million tons) and the Kazakhstan-Chinese Pipeline which already in 2013 should reach a maximum capacity. At the same time, the Caspian Pipeline Consortium Expansion Project stipulates that after 2014 the Republic of Kazakhstan will still have the reserve of 15 million tons. And this means that the available transport facilities will be used by Kazakhstan at least until 2016.
