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 KAZAKHSTAN №5, 2015
 Forum KAZENERGY: For the Union of Oil Countries

For the Union of Oil Countries

On September 30 at the X Eurasian Forum KAZENERGY, held in Astana, the First Vice Minister of Energy of Kazakhstan, Uzakbai Karabalin, proposed to set up a new association of oil producing countries, which will regulate the production of oil, depending on the demand from the global economy and ensure stability in energy supply for most countries. In his opinion, such union could operate in coordination with the United Nations and other global organizations. We present to your attention main points of his speech.

In my opinion, in the current reality it is important to pay attention to a number of aspects of development of the industry. Firstly, the range of use of oil is still far from its limits. Well, at present, the lion's share of the oil use falls on traffic, but the full potential of the petrochemical industry has not been uncovered yet. Those harbingers of the industrial revolution, such as the development of 3D-printing and other fundamentally new technologies, are based in many respects on the use of plastic and its components. Secondly, it’s hardly reasonable to compare the technological level of the XX century with that of XXI century.

Today, up-stream is the combination of the most in-depth, fundamental and applied studies. Test sites are now created at the level of the leading military laboratories; the in-depth drilling in terms of technological complexity is comparable to flights to the space; technical innovations are comparable to the work in the outer space, and so on. It is explained by a low chance of probability of new large discoveries of easily recoverable oil and transition to a new stage of development in the form of closer integration with the most advanced sectors of industry and science.

Third, it was repeatedly said about the shift of the centers of consumption of hydrocarbons into the large developing economies. We also predicted those processes, and are monitoring the dynamics. But we should not forget that the traditional consumer countries are rather far from the giving up of oil or gas completely. The principles of decarbonization defined by the Group of Seven (G7) are often cited, but they will be vital until the end of the century. Do you agree it is a very long time, so we have to work. Therefore, we should approach the analysis of the oil market taking into account its complexity and diversity.

Fourth, we should more critically think over such thing as the provision with the crude oil resources. In global statistics experts rest on current production levels. Along with that, the average growth of demand for crude in recent years has made up about one million barrels per day. At the current pace of growth, by 2020 the level of world consumption will reach almost 100 million barrels per day. In the first place, this means that at the current level of hydrocarbons resources, the world will be provided with the raw materials for a period less than 50 years, not 50 years as it was commonly believed before. In the absence of significant discoveries, this period may reduce to 40 years at best.

The fifth aspect I would like to pay attention to is the growing influence of national interests. The process of strengthening the national companies that began at the end of the last century has continued in the XXI century. Their share in the global oil reserves has reached 80%, in production – 63%, and in oil refining – 31%. This phenomenon is clear and understandable; however, there is a risk of excessive autonomy of the interests and the lack of compromise with the other market participants to the detriment of the principles of global energy security.

These and other aspects of operation of the global oil and gas industry are, unfortunately, accompanied by unpleasant information background. In recent years, a large amount of information and data is interpreted in the media and stock exchange environment in a very negative way. One can be offended with that, or recognize a certain separateness of the leading producing countries and large companies, narrow-mindedness of views, and the lack of compromise approaches in the balancing of fundamental indicators. Anyway, all these points influence the investment attractiveness of the industry, the timeliness and usefulness of capital investment. This means that they influence the factors of turbulence in oil production and the future of energy security of the planet as well. In its turn, with the above said is connected the resource potential for the development of other fundamentally new industrial products with higher added value in the creation of innovative sectors of the economy.

The globalization of the contemporary world and the mutual influence of certain countries are mostly seen in the oil industry. In such a situation, more and more often the opinion is expressed as to the need of creating a modern platform for a broad exchange on a regular basis of views between oil producing countries and companies on issues of regulation of oil production in line with the needs of the global economy. Probably, such a platform could be the improved OPEC, or the creation of a new association of oil producing counties will required. In order to neutralize certain lobbying, such an association could, in our view, operate in coordination with the United Nations and other global organizations. Participation in such an association of the countries engaged in that industry, with production of 1 million or 1.5 million barrels per day, will provide an expression of the views of those who are responsible for the oil production exceeding 80% of the world’s one. It is my personal opinion, which is rest on many factors. But I think that the evolution of the global oil and gas community will most likely come to such an approach of mutual reasonableness. The sooner this happens, the sooner, in my opinion, the stability in energy supply in most countries comes.

Kazakhstan, on its part, has always been a supporter of the national energy security. The entire chronology of the formation of the oil and gas industry in our country is intertwined with international oil community and openness of constructive cooperation. Now a new phase of our operation is coming, associated with the new proposal in the field of up-stream, and therefore with increasing global opportunities. In 2013, the leading geologists and petroleum sector experts in our country completed a multi-year study of 15 sedimentary basins of the country for the oil-and-gas-bearing capacity. This has been the first work of such kind over the years of Kazakhstan’s independence, which was based on a wide range of modern geological approaches and technology. The results were quite impressive: the resource potential of hydrocarbons in our country in the future could increase three-fold. All the hydrocarbons-bearing accumulations in the country have such potential, but the Caspian depression is of special interest. Many people remember that exactly at the KAZENERGY Forum two years ago we outlined the contours of the Eurasia project, aimed at studying the Caspian region. One step of the plan was the drilling of a record super-deep support-parametric well to 15 km in-depth. Now, the project is entering the implementation stage. A relevant Kazakh team was created; negotiations with the majority of interested parties are in progress. Actions of support from the state, including tax incentives and measures to motivate foreign participants, are expected. We believe in the success of the project, which means that the world will gain important experience of ultra-deep drilling and the information for analysis and creation of new databases of development of innovative equipment and technologies.

At the same time our country is improving its approach in all segments of the oil and gas sector. We should recognize that Kazakhstan has many more opportunities in this area. Firstly, it is the use of mineral resources: some 50 oilfields with total recoverable reserves of more than 160 million tons have been discovered over the last 10 years in Kazakhstan. More than 200 contracts for mineral production of hydrocarbons were registered in the Ministry of Energy. Approximately 60 of this number were contracts for exploration and production, and 12 contracts as Product Sharing Agreements. With this, during the period from 2009, about 20 extracting contracts were concluded and some 20 amendments related to the transition to the production phase, were signed. Last year, 212 exploration wells with total sinking of nearly 346 thousand meters, were drilled. 2D seismic work carried out in the scope of 10 thousand linear km, and 3D seismic works in the scope of 2.5 thousand km2. Despite the difficult current situation in the market, in 2015 the Ministry expects that the mineral producers will perform exploratory drilling at about 200 wells; the scope of work for 2D is expected to be 3,150 linear km, and for 3D 350 km2. At the same time, Kazakhstan will continue to focus on the two directions in its work: improvement of the legal and regulatory framework to support investment, and to transit to the international standards of stock accounting.

Our strategy in terms of production will be implemented as part of measures to increase oil recovery. The country is amongst the list of holders of hydrocarbons resources with the widest range of oil properties, collectors and territorial features. Therefore, the potential of enhanced oil recovery in Kazakhstan is far from exhausted. In this regard, we are interested in experience of the global oil community. In general, as for the industry, we are expanding our knowledge base, we will develop research work, conduct simulation of automation, conduct testing, carry out technology transfer, develop new technical and technological solutions, develop transport infrastructure, refining and new petrochemical productions, and train human resources capable of working in line with the leading international standards.

We believe in the long-term demand for oil and gas, and Kazakhstan will increase its capacity to ensure energy security in the world. Of course, no sector of the world economy is immune from turbulence and influence of a wide variety of factors. Such discussions and collaborative constructive work help overcome them with minimal losses within the shortest possible time.

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