The Seventh Eurasian Energy Forum KAZENERGY, which took place in early October in Astana, was dedicated to an important and polemical theme – building a sustainable energy future. In the framework of it, leading experts from 60 countries discussed the challenges the global energy community had faced, and assessed the contribution that Kazakhstan could provide in solving these issues.
The current agenda of the Forum was not selected by chance. Debt problems of the EU countries, political turmoil in the Middle East and North Africa, the increasing tensions in the Persian Gulf, the currency wars, the volatility of energy prices, and the growth of the shadow economy – all these factors, observed today, negatively affect the sustainable development of world’s energy sector.
With this, our country as a reliable energy partner, connecting the East and the West, plays an important role in ensuring global energy security, Prime Minister Serik Akhmetov stated in his welcoming speech to the Forum delegates. "We realize that even with these current global economic uncertainties, the demand for energy will continue growing. Therefore, we intend to further contribute to diversification of the energy transportation routes and end-consumer markets." However, the achieving of the maximum production potential in Kazakhstan depends on the country’s ability to raise new investments. In this regard, the government is constantly working to improve the investment climate and to ensure conditions for mutually beneficial public-and-private partnership in an effort to diversify capital investments both in production and deep processing of raw materials.
According to the Prime Minister, Kazakhstan pays increasing attention to the development of alternative energy. For example, he referred to the Green Bridge partnership program, initiated by the President. Aimed to introduce the "green" principles and technologies and providing for active engagement of business in this program, it will promote the building of a partnership between Europe and Asia, and the overcoming of the technological gap between the developed and developing countries.
Mr. Akhmetov told that currently the government is providing support to several major projects in the field of renewable energy. The country has adopted a program of energy conservation and energy efficiency, aiming to reduce the energy intensity of the economy by 10% by 2015 and by 25% by the end of the decade.
"Without a doubt, the threat to energy security and environmental sustainability dictates an appropriate preventive measures response from the world, while the implementation of these measures requires global solidarity. Through combining joint efforts only, we will be able to withstand the energy challenges of the 21st century," Kazakhstan’s Prime Minister said.
In the opinion of international experts present at the forum, the long-term factors that form the picture of the "world during the era of transformations" is the increasing population, access to new technologies, the growth of welfare and international trade.
According to Senior Vice President of ExxonMobil Mark W. Albers, by 2040 the world population will increase by more than 25% to 8.7 billion people. With this, the general desire of people for a higher standard of living will mean that over the next 30 years the global economy will set to more than double. Such impressive growth will entail the need for affordable and reliable energy sources. He said that according to their forecasts, by 2040 the global demand for energy, even taking into consideration energy savings, would be about 30% higher than in the current days as a result of more efficient use of energy."
Former Bulgarian President Petar Stoyanov said that in order to ensure the world’s access to energy, annual investments of $48 billion will be required by 2030. However, judging from the present situation, by that time, they will reach just $14 billion a year. As a result, by 2030, one billion people will have no access to energy. "I think those facts alone prove the necessity in the present forum in Astana. The latter should be focused on analysis of the main question: how sustainable human development of energy can help improve the living conditions of people around the world."
In this regard, India’s Member of the Parliament and UN Under-Secretary General for Communications and Public Information Shashi Tharoor said, any discussion of geopolitical factors related to energy should begin with the recognition of the fact "there is not enough supply in the world to meet the demand."
The National Company KazMunayGas President of the Board Lazzat Kiinov agrees with him. He said that the turbulence of the world economy not only reduced oil consumption, but also increased the demand for energy. The structure of demand for some fuels is changing. A question of maintaining the leading position for consumption of liquid hydrocarbons against consumption of natural and shale gas, and also against RES is in the agenda. Thus, according to the International Energy Agency, by the year 2035 the percentage of oil in total energy consumption will reduce from the current 35% to 27%–28%.
Among the relatively new trends Mr. Kiinov also highlighted a sharp rise in oil and gas production in the U.S.A., the emergence of breakthrough technologies of oil extraction at the shale deposits, systematic increase in quotas by the OPEC member-states, and slowing demand for energy in China and South-East Asia. All this is already seriously changing the global centers of consumption and demand.
The achievement of peak performance indicators for extraction in some oil- and gas-bearing regions of the world, and the growth of energy production by the non-OPEC member-states was an important trend announced at the forum. Although, the impact of the cartel on the market situation remains considerable, large independent producers begin playing an increasing role.
The latter fact, in the words of the IEA representative, Ulrich Benterbusch, opens great prospects for our republic. "In the long-term scenario we expect that the total exports from Kazakhstan will almost double by 2035, reaching 3.5 million bbl/d, which will give the country a ranking of fourth among the top oil producers in the world. The actual development rates will depend on factors such as the volume of investment, the difficulty of financing projects, and the creation of an adequate transport infrastructure."
Kazakhstan’s Minister of Oil and Gas Sauat Mynbayev shared to what extent the current situation in the domestic oil and gas sector is in line with the expectations of international experts. According to him, at the moment, the proven reserves of liquid hydrocarbons in Kazakhstan reach 5.3 billion tons, giving us a rank of tenth in the world.However, the availability of dozens of exploration contracts gives hope for a higher figure.
Concerning the forecasts of production, its volume by 2025 will increase from current 81 million tons to 135 million tons as the minimum, provided that the three major projects, including the Kashagan 2nd Phase, a project of future growth of TCO, and the Karachaganak 3rd phase, will be implemented timely and successfully. As Mr. Mynbayev noted, it is quite a moderate estimate, because it does not take into account potential production volumes for those 65 exploration contracts, the work on which is in progress now. "Of course, part of the geological structures will turn out to be dry, but as for the other part, reserves in them will be proven, and the field operators will definitely go to the phase of production." Meanwhile, a hypothetical failure of the above three mentioned megaprojects can lead to an overall decline in production as early as in 2015. Certainly, Kazakhstan hopes not to allow this to happen, and this "requires coordinated work with our investing partners."
This applies, first of all, to Kashagan. In May of the current year, a relevant agreement was signed to settle all the issues related to the 1st Phase, and therefore, the long-awaited commercial production is to commence within the period from January to June 2013. As for the 2nd Phase, the ministry expects that the consortium will submit relevant documents: "It is obvious that there will be a number of sub-phases. Preparatory work is already in progress."
The negotiations to settle the disputes and on acquisition of a 10% stake in the Karachaganak project by KazMunayGas are successfully completed. However, the specific parameters of the project expansion within the 3rd Phase require further discussions with Russia, since a significant amount of sour gas is planned to be supplied for processing to the Orenburg gas processing plant.
Talking about the TCO future growth project, it is now under consideration by the stakeholders. As the Minister of Oil and Gas noted, preliminary analysis evidences that it meets the interests of the country.
Switching attention to the export capabilities of Kazakhstan, Mr. Mynbayev reminded that countries outside the OECD membership such as China, India, and others, will have the overwhelming share of the increase in energy consumption in the next 20 years. With this, the consumption in Europe and the U.S.A. will stabilize mainly due to the efficient energy-saving policies pursued in these regions. These forecasts allow us to specifically define the place of our country in the common coordinate system of the global energy market.
Kazakhstan is located exactly in the middle between the key markets of oil consumption – the EU and China. Supplies are possible to other distant markets via the Black Sea or the pipeline Baku – Tbilisi – Ceyhan in the Mediterranean region. This is not even mentioning the markets of the close neighbors – Uzbekistan, Afghanistan, and others. "Nevertheless, considering the volumes of exports, the main export markets for us now are the EU and China."
Not surprisingly, its major plans relate to the development of the transport infrastructure in Kazakhstan’s ties with the expansion of the CPC (which is oriented to the EU markets and is the most effective route in terms of the netback price) and the Kazakhstan-China pipeline. The carrying capacity of the first one of the two mentioned will increase from the current 29 million tons to 52 million tons in 2015. As for the CPC, as Mr. Mynbayev assures, it will be quite realistic and fast to technically implement the planned expansion from 11 million tons to 20 million tons. So, apparently, the stumbling block here is only the adequate provision of the resource base.
Meanwhile, the most effective role Kazakhstan, as the energy bridge between Europe and Asia, plays in the field of transit of gas – is exactly the statement Serik Akhmetov focused on at the beginning of the forum. The evidence of that is that at present, 19.15 billion m3 of Uzbek and Turkmen gas is carried over the pipeline Central Asia – Center via our country in the direction of the European part of Russia. As for the route to China, the traffic over the pipeline Kazakhstan – China in 2012 reached 34 billion m3. The plans are to expand its capacity to 65 billion m3.According to Sauat Mynbayev, the relevant agreement is currently going through official procedures.
It should be noted that today, it is hardly realistic to consider the fact of transformation of Kazakhstan into a global gas exporter. This evidences from the forecast of growing domestic consumption from 12.1 billion m3 in 2012 to just 21 billion m3 in 2030, as well as from the fact that most of the casing-head gas will still be injected back into the reservoirs.
Along with that, Mr. Mynbayev does not exclude that possible changes in the technologies of extraction and injection of gas back into the reservoirs are likely to considerably improve the current state of affairs in this area. A good example of that is the situation in the U.S.A: Owing to the development of innovations and the availability of adequate socio-economic conditions, this country turned out from a traditional importer to an exporter of gas.
In general, the theme of the North American shale revolution appeared in the speeches of many speakers at the forum. Here are just a few of the most eloquent facts of those mentioned. If 10 years ago the percentage of shale gas production in overall production in the U.S. accounted for only 2%, today this figure rose to 37% and is still continue rising. If 5 years ago it was expected that the U.S.A. would become a net importer of natural gas, today, they are already talking about their own stocks in the U.S.A. beingenough to meet domestic consumption in the next 100 years. Shale gas production in the U.S.A. has already exceeded 100 billion m3 a year and is projected to reach 300 billion m3 by 2030.
All this has already led to a decline in prices and the full change in the fundamental conditions of development of the global gas market. For example, Russia’s Gazprom postponed the development of the largest Shtokman field, since the project partners had plans to export the extracted gas in the form of LNG to the U.S.A., and now this project has become quite economically unfeasible. Thanks to the development of shale gas, the price of LNG in the United States now stands at just $2.2 per 1 million British thermal units (MBTU), while in Japan – $16 per 1 MBTU, and Gazprom supplies gas to Europe at $10 per 1 MBTU.
Platts Energy Security Specialist John Roberts drew attention to the fact that the main drive for the shale revolution in the U.S.A. was not large national players, but medium and small private companies which had managed to develop and apply breakthrough innovations. In this regard, in his opinion, it seems important to develop a partnership between the private sector, which has very high growth potential, and the public sector, which manages mineral resources and has regulatory capacity to create a favorable business environment.
In his turn, Shashi Tharoor said that 80% of the hydrocarbon reserves are now in the hands of national players. Today, there are 13 state-owned companies, which by their reserves are ahead of one of the largest multinational corporations – ExxonMobil. "This means that government solutions have key influence on how the world's energy resources are developed, extracted, processed and sold."
So, it is not by chance that in his speech at the forum Renato Bertani, the new President of the World Petroleum Council (WPC), outlined the eight basic principles of interaction between TNCs and national governments, which are able to ensure the sustainable development of the energy sector. So, first of all, the oil companies have to maintain a reasonable profitability. "For many people, the word “profit” still sounds as something negative. However, to be responsible for profitability is probably the best way to ensure that the huge amount of capital, which will be required to be invested in the oil and gas sector, will actually bring fruits." Secondly, remaining profitable, the industry has to return wealth to the society. This should be done in the form of taxes, royalties, employment, recruitment, and respect for the interests of local communities. The third principle is the aspiring to zero indicators in terms of accidents involving injuries and damage to the environment. The last condition, but of no less importance, is that business must achieve the trust of the society, running its activities ethically and as transparently as possible.
Speaking of the governments, they, on their part, should develop clear and fair rules in respect of taxation and setting terms and conditions of the contracts, so that the companies could operate in a stable investment climate. The second principle is a non-discriminatory access for all oil companies to new exploration blocks and areas. Third, the state should set strict rules for the protection of health, safety, and environment, and to demand for their exact compliance from the companies. The last principle is that the governments need to ensure that such development and growth of local service companies and providers of goods and services, so that they can do business not only in terms of national protectionism, but would be competitive on a global scale.
According to Renato Bertani, today in Kazakhstan, the above-listed principles and the interests of the parties are effectively balanced. The head of the Council positively assessed the prospects of development of the domestic oil and gas industry, which "will continue growing, and the country itself will make a significant contribution to ensuring the sustainable, reliable and safe production and supplies of oil to the external markets."
The status of our country in the energy system of coordinates continues to improve that was confirmed by the fact that at the forum for the first time in the history of Kazakhstan, a meeting of the National Committee of the World Petroleum Council was held, where our country was represented by KAZENERGY Association. Following its completion, a number of solutions were approved, including the establishment of the Heritage Fund to provide financial support to social programs, the funds of which will be invested in the social infrastructure of the WPC member states, in particular, for educational programs of vocational training and retraining.
With recent trends in the field of social responsibility of business, this is a very timely decision, and its results should be felt in the near future. In addition, in the course of the negotiations, the Chairman of KAZENERGY Association Timur Kulibayev and President of the WPC Renato Bertanis agreed to hold a seminar of the World Petroleum Council in Astana, devoted to the development of local content and transfer of technologies.
By the way, at the press conference following the first meeting, Renato Bertani said that Astana can be considered as a strong candidate to host the World Petroleum Congress in 2017. "Without a doubt, I can say that Kazakhstan is fully ready to host events of such level. If Kazakhstan applies with this request to us, this will be very welcoming, although the final decision on this issue will be taken by the WPC through open voting."