Editorial
Over the next five years oil production in Kazakhstan is expected to grow by more than a quarter. However, against the background of the scarcity of petroleum products and lubricants in the domestic market, Kazakh officials and independent experts agree that the government should increase its influence on business processes in the oil and gas sector.
In 2016 Kazakhstan plans to reach an annual production level of oil and gas condensate of 102 million tons, which is 28 % higher than in 2010 (79.7 million tonnes). There is such a figure in the forecast of socio-economic development for 2012–2016 years, which was presented by the government on September 12 to the Mazhilis of the Parliament.The implementation of it is planned to be in phases: by the end of this year the volume of oil and gas condensate production should reach 81 million tonnes, 83 million tonnes – in 2012–2013, 85 million tonnes – in 2014, 95 million tonnes – in 2015. In additionthe government has made adjustments to the expected level of world prices for energy resources. Thus, the average oil price for 2011 was revised from $65 to $90 per barrel. The relevant parameters are set forth in the draft national budget for 2012–2014.
A spoon of tar in this barrel of positive expectations is the current situation on the domestic oil market. Despite all the assurances of the authorities in the late summer and early autumn ordinary consumers were faced with price spikes and a scarcity of petroleum products and lubricants. What was the cause of that new Kazakh "fuel fever"?
According to the Oil and Gas Minister Sauat Mynbayev, the stated fuel shortage occuring in a few regions of the country were caused by untested mechanism of application of the new law on movements of oil products: "There were certain limitations for the refineries, linked to a week delay in shipment.This, in turn was caused by the fact that after adoption of the law “On movement of oil and oil products” not all the necessary documents for its application were available. As a result there were questions regarding the issue of excise registration cards and some disagreements with the tax committees, in particular in the Atyrau and South Kazakhstan oblasts".
In this regard, Mr. Mynbayev believes that in the near future, fuel shortages will be over.In addition, according to him, Kazakhstan could increase import of oil products, particularly high-octane gasoline from Russia, in relation with "some decrease in the trend of oil prices. "The Minister also said that price limits on fuel in September will remain the same.
Let us recall that, the Ministry of Oil and Gas of Kazakhstan establishes maximum retail prices for socially important types of fuel. So, in August the following prices were set for fuel filling stations: petrol AI-92/93 – 106 tenge per liter, AI-80 – 86 tg/liter and diesel fuel – 90 tg/liter.
However, according to some kazakhstani analysts, measures taken by the government are not effective enough. Thus, the deputy Director of the Public Policy Research Centre Kanat Berentayev considers that the government should strictly regulate fuel price, otherwise it will be higher than in Russia. According to experts, lower price for petrol, diesel and heating oil is quite real, not only theoretically but also practically.
To do this, firstly, it is necessary to supply domestic refineries with oil. According to Mr. Berentayev, at a current rate of production almost two thirds of the processing capacity can be supplied with oil, which comes as royalty payments.
Secondly, it is necessary to improve tax legislation. "We could use the excess profits tax in the sense that almost all the profits earned due to price increase both in the sphere of oil production and oil refining should be transferred to the State. In this case, domestic prices would fall sharply, and the government would lose its excuse about the growth of world prices. "
Third, the radical solution, according to Kanat Berentayev, should be nationalization of strategic industries, the loss of state control over which poses a real threat to national security. Another important prerequisite for the reduction of fuel prices in Kazakhstan may be an increase of domestic production of petroleum products.
In turn, the head of the National Welfare Fund ”Samruk-Kazyna“ Timur Kulibayev believes that the current level of government involvement in the processes in the domestic oil and gas sector is already quite high. It already covers supply of the domestic market with oil, export taxes, tax laws.However, according to Mr. Kulibayev, the state has to increase its attention to environmental issues, local content and local personnel, "We work on these questions with foreign investors."
Thus, according to the head of ”Samruk-Kazyna“, in 2011 the enterprises belonging to the fund will increase the share of purchases from domestic producers to 55 % versus 50 % in 2010. The total volume of long-term procurement of Kazakh goods to the end of this year will increase to 600 billion tenge. In particular, purchases of the company "KazMunayGas" from the local engineering companies in 2011 will amount to more than 29 billion tenge, and in 2013 this figure will increase to 32 billion tenge.
Timur Kulibayev also noted that at that moment among 70 thousand types of products purchased annually by the holding more than 40 000 are produced abroad. In this regard, he stressed that "today the initiative of domestic business to focus on the development of competitive products that meet all international standards is particularly important for us".
At the same time with the growing competition for Kazakhstan in the international organizations – the Customs Union, the EurAsEC and the WTO, "the choice of the variant of localization of production by “the complete knock down” may not be sufficient, as the cost of production in Kazakhstan is much higher than in other countries".
Commenting on the issue of increasing government participation in long-term international oil and gas projects, the head of FNB ”Samruk-Kazyna“, noted that negotiations between Kazakhstan and the consortium Karachaganak Petroleum Operating (KPO) concerning entering into the project of developing the Karachaganak gas condensate field will be completed shortly. We are talking about getting 10-percent stake for "KazMunayGas". "I hope that in the coming months we will decide the issue," – said Mr. Kulibayev.
Let us recall that that in mid-June of this year, it was announced that the government of Kazakhstan and KPO consortium members have reached a preliminary agreement to acquire the 10 % in the Karachaganak field. The Shareholders of KPO gave their consent upon the following conditions: 5 % – for free, the remaining 5 % – at market price. In this case the value of five percents may be as high as $1 billion.
Environmental security of the Caspian Sea – a common cause
In the framework of the III Conference of the Parties to the Framework (Tehran) Convention for the Protection of the Marine Environment of the Caspian Sea, which took place on August 16, 2011 in Aktau, the plenipotentiary representatives of the Caspian countries signed the Protocol Concerning Regional Preparedness, Response and Cooperation in Incidents of Oil Pollution.
On proposal of the Minister of Environment of Kazakhstan Nurgali Ashimov and with the consent of all parties, the document was called "Aktau Protocol" – in honor of the conference venue.It aims at creating a mechanism for further promotimg regional cooperation on preparedness and response to oil pollution caused by activities on the seabed and discharges from ships.
As noted during the conference, during the last three decades the ecological system of the Caspian Sea has been under threat of destabilization.It is noteworthy that, while Kazakhstan, Russia, Azerbaijan, Turkmenistan and Iran signed in 2003 the Tehran Convention, there wasn’t any coordination of actions aimed at protecting the marine environment. And so Aktau protocol now allows to define the responsibilities of the parties to take coordinated measures to prevent and respond to oil spills.
According to Mr. Ashimov, "to maintain balance between the active development of oil and gas industry and the uniquely rich biodiversity of the Caspian Sea is the main task, which can be solved only by joint efforts."
In turn, the akim of Mangistau oblast Krymbek Kusherbayev said, that the Aktau protocol is a "first step in the implementation of the Framework Convention in practice and will form the basis for solving problems in the field of environmental security of the Caspian Sea."
However, the second document concerning the environmental impact assessment in a transboundary context was not signed during the conference. The reason is the absence of agreements between countries on the legal status of the Caspian Sea. Nevertheless, the negotiators expressed willingness to continue the dialogue on controversial issues and the coordination of other protocols to the Tehran Convention.
The company "Exploration Production "KazMunayGas" concluded a deal for purchasing the subsoil rights under the four hydrocarbons exploration contracts from its parent company JSC NC "KazMunayGas”. The total purchase price amounted to $43.8 million, of which $40 million – the cost of the contracts themselves and $3.8 million – adjusted for the costs incurred by the EP to fund the work program on the block Teresken before the closing date of the transaction.
New assets of EP KMG include blocks Temir, Teresken and Karaton-Sarkamys as well as territory neighboring to Uzen and Karamandybas.
Temir and Teresken located in Aktobe oblast in the immediate vicinity of deposits of "Kazakhoil Aktobe" and "Kazakhturkmunai" as well as other assets that are of interest for the EP "KazMunayGas". The Company evaluates the geological resources of all blocks of 1.5 billion barrels of oil equivalent.
The territory neighboring to Uzen and Karamandybas is located in the area of the industrial branch of EP KMG "Ozenmunaygaz. "Block Karaton-Sarkamys – in Atyrau oblast, 100 km south-west from the deposit Kulsary – in the area of "Embamunaigas."
The terms of the contract in the territory neighboring to Uzen and Karamandybas, block Karaton-Sarkamys and Temir area are of about 6 years (since 2010), with right of renewal until 2019, and for Teresken – 6 years (since 2006) with a right of renewal up to 2015.
Previously, the transaction was approved by the board of directors of EP "KazMunayGas" and the board of directors of JSC NC "KazMunayGas". All necessary regulatory approvals have been received.
Koreans to build a rig for the project "Zhambyl"
National Company "KazMunayGas" and a consortium of Korean companies agreed on joint ownership and management of the drilling rig being built for use on the block "Zhambyl". A memorandum of understanding between the "KazMunayGas" and KC Kazakh BV (on behalf of the Korean consortium) was signed in the framework of a Kazakh-Korean business forum in Astana on August 25.
According to the head "KazMunayGas" Kairgeldy Kabyldin, a specialized rig will be built and transported to the Caspian Sea by the Korean side, which owns 27 % of the project. The interests of NC "KazMunayGas" (representing 73 %) are represented by its subsidiary "KazMunayTeniz."
The rig will be built in the second quarter of 2012.It is designed to work in shallow water (2,5–5,5 m) with a maximum depth of drilling wells of up to 6000 meters. Under the agreement on principles, "Tengiz Burgylau" LLP was appointed the operator of offshore drilling rigs on trust.
The first exploration well in Block "Zhambyl" is planned to be drilled in the second half of next year.
Oil and gas company Max Petroleum Plc has found a productive layer with thickness of 27 meters on the well SAGW-1, which was drilled in "West Sagiz" area in Atyrau oblast.
Electric logging of an exploration well showed the presence of 21 meters of oil and 6 meters of gas-bearing reservoir, which occur at intervals of 114 m in the reservoir in treasov layer at a depth of 1 177 and 1 291 m. The pool have good reservoir properties, and the value of porousness ranges between 18 % and 25 %. According to the results of geophysical survey, electric logging and measuring of the pressure in the well, the geological reserves of oil in the West Sagiz are estimated at 66 million barrels, and the expected recovery factor ranges from 20 % to 30 %.
Currently the company Max Petroleum is setting the final casing string into the well. The pilot operation of the well will begin after receiving the necessary permits from the government of Kazakhstan. Confirmation well will be drilled in early 2012.
In addition, next year Max Petroleum Plc, which has a 80-percent stake in the blocks A and E of the contract area East Alibek, and a 100 percent stake in the block Astrakhanskiy, plans to drill two development test wells.
"LUKOIL" and "KazMunayGas" has not achieved the intended effect in exploration drilling at projects Atash and Tub-Karagan. For the moment these projects are closed.
However, in another offshore project – "Zhambay South – South Zaburunye" the selection of a drilling contractor is presently in process. But this process is too long because of the difficult working conditions in this shallow area, and also because of the absence of the necessary drilling equipment in the region.
In general, according to Russian experts, exploration in the Caspian Sea has not yet brought the results expected by "LUKOIL" and did not lead to commercial discoveries.
It is known that the company is presently involved in seven productions (Tengiz, Karachaganak, Kumkol, Alibekmola-Kozhasai, North Buzachi, Karakuduk, Arman), three explorations (Atash, Zhambai, Zaburunye) and one infrastructure project in Kazakhstan.
In order to concentrate on the core business of the company the Board of Directors of Kazakhmys decided to sell Kazakhmys Petroleum, involved in the development of the "East Akzhar"oil field in western Kazakhstan. The deal, worth $100 million was concluded on August 24, 2011 and is now submitted to approval of regulatory authorities. By its terms the purchaser will pay the royalty potential of up to $476 million depending on future revenues from oil sales. Previously the license for exploration blocks (that expired in May 2011) was extended by the Ministry of Oil and Gas for two years under the same conditions.
On September 6, 2011 in the Turkestan town of South Kazakhstan oblast a ceremony for the welding of the first junction of the linear part of the pipeline Beineu – Bozoy – Shymkent took place.
The event was attended by the First Deputy Prime Minister Umirzak Shukeyev, the Deputy Chairman of the State Committee on Development and Reform Commission, the chairman of the State Office of Energy of China Liu Tenan, the Minister of Oil and Gas Sauat Mynbayev, the Akim of South Kazakhstan oblast Askar Myrzakhmetov, the Chairman of the BoardJSC NC "KazMunayGas" Kairgeldy Kabyldin, as well as the vice president of CNPC Wang Dongjin.
This project is implemented under the State Program on Forced Industrial Innovative Development of Kazakhstan for 2010–2014. The gas pipeline with a length of 1 475 km will pass through Mangistau, Aktobe, Kyzylorda and South Kazakhstan oblasts. During its construction it is planned to involve about 3,500 Kazakhstani specialists, and during the operation to create about 500 jobs.Due to this project, more than 1.5 million people (one tenth of the population of Kazakhstan) will get access to gas supply.
The construction of the first stage of the pipeline (section Bozoy – Shymkent) with a capacity of up to 6 billion m3 per year will be carried out in 2011–2012. During the second phase in 2015–2016 the section Beineu – Bozoy will be constructed with an increase in capacity of up to 10 billion m3.
The launch of the bridges between trunk gas pipeline Kazakhstan – China and Bukhara – Tashkent – Bishkek – Almaty will finally decide the issue of the gas needs of the southern regions of the country, eliminating dependence on imports and creating a new export gas route to China.
In order to ensure the stability of gas supply to consumers in southern Kazakhstan in autumn and winter the company "KazTransGas Aimak" will undertake pumping of Uzbek gas in underground the storage facilities "Poltoratskoye" (175 million m3) and "Akyrtobe" (80 million m3). For the moment 137 million m3 from the planned amount has been already pumped. It is known that the southern regions of the country are supplied with Uzbek gas through the pipeline Bukhara gas-bearing area – Tashkent – Bishkek – Almaty. This year the delivery will amount to 1.8 billion m3.
However, according to specialists of JSC "KazTransGas Aimak," the consumption of gas by Uzbekistan (as well as the southern regions of Kazakhstan) is increasing every year, that against the background ofalack of resources leads to a reduction in the supply of Uzbek natural gas. In this regard, to ensure energy security the group of companies "KazTransGas" is considering the possibility of supplying the gas from the western regions to the south. The pipeline Kazakhstan – China will be used in the coming heating season to compensate possible shortages of gas.
Let us recall that that the JSC "KazTransGas Aimak" is a major supplier of natural gas, supplying customers from seven of the nine gas regions of Kazakhstan, and controls 77 % of the natural gas market of the country.
As noted in the company, currently the gas supply to the Kostanay, West Kazakhstan and Aktobe oblasts is carried out smoothly and in required quantities. The volume of gas consumption in Kostanay oblast in 2011 is expected to be of 950 million m3, in West-Kazakhstan – 800 million m3, Kyzylorda – 250 million m3, Aktobe – 1.044 million m3, and in Mangistau oblast –2 billion m3.
According to Russian experts, by the end of this year the price of oil could have fallen to $80–100 per barrel. Thus, the director of the Energy Strategy Institute Vitaly Bushuyev said that the peak of $120 per barrel, which had been expected this spring, was reached, and that so in the second half of the year the price is expected to fall to $80 per barrel, because "all the factors contributing to growth and price stability, have exhausted themselves".
However, according to the forecasts of Leonid Grigoriev, deputy director general of the Russian Energy Agency, by the end of this year due to the efforts of OPEC member countries oil prices, will be $100 per barrel.
At the same time, Russian analysts agree that the world gradually will refrain of using oil as a source of energy. "Those world global challenges that have emerged – the Arab revolution and Fukushima, – say that the era of effective oil business is finishing and that the world does not want to be at risk of this volatility", – said Vitaly Bushuyev. According to him, currently Europe, America and other countries rely on the transition to alternative energy sources, in particular, renewable energy, shale and coal. And if that happens, "the oil business will cease to be so effective."
The situation in the global liquefied natural gas (LNG) market remains quite predictable.Thus, according to Anne-Sophie Corbeau, the senior analyst of the International Energy Agency (IEA), the volume of LNG trade in the near future will not repeat the jump, which occurred in 2010. The reason is the slow down in the construction of facilities to produce LNG. It is expected that during the 2012–2017 years their increase will be only of 91 billion m3, while over the last two years capacity has increased by 100 billion m3, or 39 %. Thus, in the next five years this figure will be lower than in the past two years.
Let us recall that, in 2010 the volume of LNG increased by 21 % to 300 billion m3, accounting for 9 % of the global demand for gas. The largest producer of LNG is Qatar, which accounts for a quarter of the world's capacities for liquefied natural gas.And for the last two years this country has increased its capacity from 42 billion to 105 billion m3. Indonesia, Malaysia, Australia and Algeria are also major LNG suppliers. By 2016 Australia could have become the second largest LNG exporter behind Qatar: the country is preparing the launch of six companies with total liquefaction capacity of 60 billion m3.
Other players are also trying to find their niche in this promising market – Russia and Yemen came to it in 2009, Peru – one year later, Angola intends to start exporting LNG in 2012, and Papua – New Guinea – in 2014.
According to the IEA, in the years 2010–2016 the demand for gas will increase to 510 billion m3. About 60 % of this growth will be achieved by increasing of domestic production, particularly in Middle Eastern countries, the rest will be imported. Analysts of the agency note that, since the "revolution of unconventional gas moves slowly outside North America its impact on other regions in the next five years will be limited. "As a result, LNG will meet one-fifth of the global gas demand”.
Non-OECD countries will remain the main consumers of LNG in 2010–2016.Apart from China, India and Taiwan, snowballing demand for LNG will come from Southeast Asia: Thailand (started to import LNG in June), Indonesia, Vietnam, Malaysia and Singapore. In addition, a growth of the demand is expected in the Middle East and Latin America.
According to the Agency for statistics, in the first eight months of this year Kazakhstan produced 44.92 million tonnes of crude oil and 8.41 million tonnes of gas condensate. This is 0.7 % and 5.4 % higher respectively as compared with the same period in 2010.
As for the production of natural gas, on 1 September it was of 26.3 billion m3 (+7.8 %). 13.1 billion m3 of natural gas in gaseous state (+10.7 %) were produced, and its commodity output increased to 6.3 billion m3 (+2 %). In turn, the production of associated gas reached 13.3 billion m3 (+5.1 %).
