Hydrocarbons of Eurasia and Global Energy
This is a continuation of the discussion initiated at the KIOGE Conference during the debates within the frameworks of VIII KAZENERGY Eurasian Energy Forum. However, the range of issues turned out to be much broader. The experts not only discussed the prospects of Kazakhstan in the global market of hydrocarbons, but also tried to define the contours of the new global energy system, as well as the identification of the role of Eurasian region in its further development.
This year the KAZENERGY Forum received about one thousand delegates, including the representatives of the biggest transnational oil companies, heads of leading international energy institutions, politicians, experts and academics.
In the opening of the plenary session, the Prime Minister Serik Akhmetov read the welcoming message from Nursultan Nazarbayev, which contained the information that Kazakhstan remains committed to the mutually beneficial international cooperation in the energy area and one of the principles for the further development of the country is the transfer of raw materials extraction to the cooperation in the energy processing sector and transfer of the latest technologies. The Head of State underlined the importance of the innovations, including the environmental safety of the field development. “An algorithm of actions was developed in the country for creating a national progress model, with an example of Kashagan field with its production start-up. Many promising projects are about to come in the future. The oil and gas industry should ensure the technological leadership, being one of the key sectors of the country’s economy. I am convinced that our cooperation and strength of our partnership will enable us to achieve all the designated objectives.”
The importance of the Forum was also highlighted by Serik Akhmetov, who reminded that the energy industry is the basis of the Kazakhstan’s economy. The start of the Kashagan project is very important, it can be considered “as the achievement of technological progress and the benefit of the joint efforts of the leading global oil and gas companies”. However, the Republic does not limit itself to this project, and therefore, the exploration will be one of the priorities of the “development policy for the resources and industrial capacity of Kazakhstan". According to the instruction of the President, "the entire high technology chain of the energy resource use, from exploration to the production with a high added value” shall be constructed. This implies the development of oil refining and petrochemistry, energy conservation and the development of conventional energy sources to the "green" level, use of effective approaches to renewable energy.
By creating its own energy policy, Kazakhstan, of course, is focused on the global trends. In the opinion of the Minister of Oil and Gas Uzakbai Karabalin, the most important of them is the growth of energy consumption for 30–40% by 2030. According to the most conservative estimates, the world population will reach 8 billion people, about one-third of the world's population will be living in China and India. The amount of nominal global GDP, will increase in 1.5 times, compared to 2012. At the same time, the competition for access to energy will increase and the regional and other proportions of the energy consumption will undergo the changes. If two decades ago the countries with deficit of energy resources produced about 80% of world GDP, nowadays this figure already exceeds 90%.
According to Mr. Karabalin, oil will retain its leadership within energy mix, whereas the share of gas will firstly reach the coal positions, and eventually, it will come out to the second place. There are the forecasts, reflecting the decline in the hydropower share and the gradual increase in the share of nuclear and renewable sources of energy.
According to the most conservative estimates, the Head of the MOG shared that by 2030 the volume of the current global production will be exceeded in 2030 at least in 1.2 times for oil and in 1.5 times for gas. Hovewer, the 30s of XXI century can be the peak years for the global oil production and Kazakhstan will be one of the countries that are expected to reach the maximum levels by that period.
The next global trend is the end of easily extraxtible oil. "The conventional wisdom about easy exploration and production of hydrocarbons is not suitable for the Caspian Sea and the North Sea, the Arctic Shelf and other regions. For example, Petronas is already developing the pre-salt horizon in the offshore at the depth of over 6 thousand meters. From a professional point of view, it's a whole different level of approaches and technologies. According to OPEC, over the next 20 years the volume of investments into the global oil and gas industry will reach $6–7 billion.
The increased capital intensity of exploration and production processes leads to the rise of the global oil prices, despite the strong volatility. For the last 10 years they have grown more than in 3 times. According to Mr. Karabalin, until the end of this decade, the Brent crude oil price could reach $20 per barrel, and by 2030 it will be set at the level of $50.
Significantly, the structure of the global oil market is changing. The United States of America is actively developing the shale hydrocarbons that can bring the States into the category of the net exporters. In addition, the list of leading oil consumers was supplemented by China, and with the prospect to take the first place over the next 10 years. Right now the cost of ongoing refinery projects in China exceeds the total amount for Europe, Africa and North America. According to the forecasts, by 2030 the level of oil consumption in the developing countries will increase by 1.6 times and will exceed the same indicator of the OECD countries.
Kazakhstani officials say that if at the same time the processes of globalization and intense competition for access to energy become acute, a key role for the sustainable development of the world will belong to Eurasia. Our continent, including the Middle East, has 59% of global oil reserves, 80% of gas reserves, and according to production, it occupies 62% and 60% respectively. Therefore, the processes occurring in Eurasia will directly shape the long-term development of the global energy scenario. According to Sauat Mynbaev, Head of KazMunaiGaz, we can already say that, at least in the next two decades, the continent will retain its importance as a key energy supplier. According to him, in this case an expansion of North American unconventional hydrocarbons production and an intensive development of renewable energy will not make significant adjustments in the process.
Taking it into account, Kazakhstan intends to further strengthen its position in the global energy market. "We are in the center of Eurasia. Every year the oil and gas industry of the country receives the substantial investments; the large-scale projects in the area of production are under implementation. And one of these projects is certainly the North Caspian project. Before our meeting, the Kashagan field produced its first oil. Today it is already about 60 thousand barrels per day. Kazakhstan with its partners spent more than 10 years to witness this event, which is, as I think, important for all of us," – said Mr. Mynbayev.
According to him, by 2025 the Republic expects to increase the annual production of oil and condensate up to 108 million tons against 79 million for the last year. However, the Head of KMG immediately mentioned that this forecast depends on the conditions and implementation period of the major projects, including the expansion of Tengiz, third phase of Karachaganak and second phase of Kashagan.
After highlighting that each of these strategic projects has the direct participation of KazMunaiGaz, Mynbayev said that, in general, his company owns 44 oil and gas fields, providing 65% of oil transportation and 100% of natural gas transportation, as well as 50% of tanker transport, which are carried out in Kazakhstan. Moreover, in the coming decade KazMunaiGaz plans to increase the consolidated production of oil and condensate from 21 million up to 35–36 million tons, or about a third of all liquid hydrocarbons, produced in the country.
Managing Director of NCOC Pierre Offan shared during the Forum how fast will be the North Capsian project: “On September 11, 2013, Kashagan produced the first oil. Production is now increasing. The following key milestones is to achieve a stable level of 180 thousand barrels per day, which we expect to reach during the winter period, and then 370 thousand over the next year”.
A number of very interesting statements, indirectly and directly associated with Kashagan were provided by Uzakbai Karabalin. So, he thinks that although China participates in the North Caspian project now, its share in the oil production over the next decade can still be reduced to 7–8%. "Other fields, operated by the CNPC reach their peak and they are under gradual decline... The calculations are made considering what is available in the portfolio of the National Chinese Company."
However, the Head of the Ministry does not exclude the possibility that certain volumes of oil production from Kashagan would be exported to China. "If the Chinese part would give a price equal to those in Novorossiysk, I think the Consortium members will be willing to sell part of the oil to China”.
In general, according to Mr. Karabalin, the Kashagan project "organically joined the efforts of the largest global oil companies, and therefore, Kazakhstan hopes to use this experience for its new petroeum initiatives, in particular, for the draft of the Eurasia Exploration Consortium", which may double the resource potential of our country.
The presentation of this project, which involves the exploration of deep horizons of the Pre-Caspian depression both onshore and offshore, became one of the main events of KAZENERGY 2013. The idea will be implemented in three phases. The first involves the collection and processing of materials of the past years. The second is conducting a full-scale study. The third phase will be the drilling of new parametric well, Caspian-1, to a depth of about 14–15 km. Approximate cost of all three phases is about $500 million. The project is proposed to be ensured by the specially created international consortium and at the expense thereof. It will be consisting of Kazakh and Russian companies, as well as of the major Western and Asian investors. Work on the Eurasia project is scheduled to begin in 2015, and it will be over by 2020.
In case of success, it could bring the solid dividends to its participants. According to the Independent Russian Research Institutes, the Caspian basin, which two thirds are located in Kazakhstan and another third in Russia, can contain up to 40 billion tons of the fuel equivalent. "We forecast that in the framework of the Eurasia project Consortium in the Pre-Caspian depression, we will open about 20 large hydrocarbon fields with reserves of more than 300 million tons," – explained the President of the Society of Petroleum Geologists of Kazakhstan, Mr Baltabek Kuandykov.
The Consortium members will have an exclusive access to the exploration data as well as the preferences for the future tenders for the field development. The initiative has been already approved by the President Nursultan Nazarbayev. In the nearest future, an appropriate interdepartmental working group will be created.
In general, the presentations of the Kazakhstani speakers were very optimistic: favourable global environment, start of Kashagan, growing oil production and new ambitious projects ahead. The speeches of some foreign guests looked somehow more pessimistic on this background .
So, the Former French Prime Minister François Fillon said that due to the modern technologies it is possible now to develop new fields and non-traditional sources of hydrocarbons, and many countries, dependent on the energy supplies can become "almost self-sufficient" by 2020. They will seek to reduce the dependence by diversifying the energy resources types and their suppliers. "From this point of view, it is likely that the energy revolution in America would cause the United States to consolidate its influence. And if we take into account the non-traditional hydrocarbon reserves, as well as the substantial gas reserves found in the South-Western part of the Mediterranean Sea, the West block can be confident once again. Several years ago we imagined a completely opposite picture”.
He also urged not to follow the example of Germany, which feared the consequences of Fukushima accident, decided to abandon completely the nuclear energy by 2020 and now must largely rely on the coal reserves. "Even with the exponential growth of the renewable energy production over the next few years, no one knows exactly to what extent the task of Germany can be resolved. I’m personally convinced that the share of nuclear energy in the global energy mix, will start to grow again after 2030".
In turn, the ex-Spanish Prime Minister Jose Maria Aznar warned that the countries whose economy is based on a single product are prone to the narrowing vision, when the people stop looking for alternative sources of income. "Unfortunately, we can see many examples of wealthy oil-producing countries with poor thinking. As the Arab Sheikh Ahmed Zakia Mani mentioned, the Stone Age was over because of the lack of stones and the oil age will end much sooner than the physical oil reserves. This happens thanks to the emergence of new approaches and ideas for the judicious use of various sources of energy. "
Of course, the views of the representatives of the European countries, which are the consumers of our hydrocarbons, could hardly be described as the ultimate truth. That’s why the presentation by the actual Minister of Energy of the U.A.E., Suhail Mohammed Faraj Al Mazrouie, turned to be an interesting one, because his country’s position is closer to the Kazakhstan realities. However, his opinion was largely similiar to the findings of the Western speakers. "The energy map of the world, the demand for hydrocarbons and export routes are changing. The current situation in the oil market remains volatile. We see the negative risks from the slowdown in growth in key emerging markets (e.g. China and India), continued weakness in Europe and a drop in the import demand as a result of the increased production of shale oil and gas in America. Today the critical task for the extractive countries is to equalize the balance, to avoid the excessive deliveries. This will allow to control the market and the price stability."
Another equally important task in the view of Mr. al-Mazrui is managing the benefits between the development of the domestic market and export: "Only single Emirate of Abu Dhabi in 2013 will need more than 750 billion BTUs (British Thermal Units), and this demand is expected to double by 2024. If these energy resources will be obtained only from the crude oil, it will take more than 1.8 billion barrels a day, which, in theory, completely excess all our oil production. So it is required to work on expanding the "energy mix" and to find new sources for the domestic market”. In this regard, the U.A.E. has set an ambitious goal: to generate from 5% to 7% of electricity using renewable energy sources by 2020. In addition, it comes to building of 4 new nuclear power plants, which by that time should provide up to 20% of generated energy.
Mr. Al Mazrui mentioned another important issue for the sustainable development of the extractive countries: the expansion of refining capacity and construction of new petrochemical plants. "For example, within few years we will become one of the largest exporters of Liquefied Petroleum Gas (LPG), increasing the sales up to 13 million tons per year. At the same time, the U.A.E. is actively investing in the industrial development and will continue doing it in the coming decades.
It is noteworthy that the foreign experts obtained the support from their colleagues from the EEC countries. According to the Minister the Eurasian Economic Commission on Energy and Infrastructure Danial Akhmetov, in light of the shale revolution, Russia and Kazakhstan should pursue the coordinated actions in the energy sector: "Over the last 5 years the shale oil production has grown from 8 million in 2007, up to 100 million in 2012. Shale gas is growing approximately at the same pace and it has already reached 250 billion m3. The shale revolution has led to radical changes in the structure of the global market. The scientists forecast that after 2020 there will be waterless shale hydrocarbon extraction technologies. As a result of this process, the fields of China, Mongolia, Jordan and other countries will be involved into this process."
It is clear that this scenario may become a serious destabilizing factor for the traditional hydrocarbon exporters, leading to the inevitable reduction of their production.
