Today, more than 90% of all revenues to the National Fund are due to exports of energy resources. Taken into consideration the fact that these funds are used for further transformation of the economy and the increase of its stability in crisis times, it is hardly to overestimate the importance of stable operation of the energy sector. This review covers the dynamics of key indicators in this area.
The current resource base of the energy sector gives Kazakhstan the rankings among the top leaders of the world in terms of proven reserves of hydrocarbons (12th), coal (7th), and uranium (2nd). In general, the global picture of energy resources by countries looks as follows. About 80% of all hydrocarbon reserves are concentrated in the countries such as Venezuela (18%), Saudi Arabia (16%), Canada (10%), Iran (9%), Iraq (9%), Kuwait (6%), United Arab Emirates (6%), and Russia (5.5%). In terms of coal reserves, the leaders are the USA (27%), Russia (18%), China (13%), Australia (9%), India (7%), Germany (5%), and Kazakhstan (4%). The most powerful position our country has in the uranium sector – here our share is 19% of the world reserves.
The key to successful and stable development of the energy producing economies is a balance between supply and demand in the global market. In recent years, due to lower demand caused by the overproduction of hydrocarbons (excluding the OPEC countries), there was a decline in oil prices. Despite this, in prospect, the forecasts for 2016–2020 are that the increase in oil prices will resume due to the demand from the developed economies of Europe, North America, Japan, and also China. With this, the use of gas generators to produce electric power by using wind and solar energy, the replacement of nuclear power plants in some countries for gas plants, and the use of natural gas in the transport sector will lead to increased demand for it. In addition, in the future, solution to carbon emissions may be a gradual transition to the "green economy" through the use of natural gas in the power industry, which will be followed by the replacement of coal with renewable sources. Speaking of uranium, Kazakhstan does not have a complete production cycle of nuclear fuel cells. An interim stage after production is the conversion and enrichment in Russia, and then the production of fuel pellets in our country, which we export to other countries for the manufacture of fuel rods (about 60% to China, as well as to France, Korea, USA, and others). With this, the export of uranium oxide is toughly regulated by the government (for its transportation to foreign markets special rail cars are used). Kazakhstan, with its raising status in the global nuclear industry and financial support from the IAEA, is planning to place a nuclear fuel bank, as well as to build nuclear power plants on its territory. In general, the potential of the country for the export of various energy resources are quite considerable, which will certainly add to the growth of GDP and the economy as a whole.
By now, companies from more than 50 countries in the world, mostly from the United States, the Netherlands, Great Britain, Canada, France, Germany, Italy, Korea, Japan, China, Russia and others, have invested in Kazakhstan. In the framework of domestic laws, the policy in the field of investment takes into account both the interests of the state and foreign and domestic investors. In 2015 a simplified procedure for obtaining exploration rights using the principle "the first who has come gets the first", and competitive bidding have been introduced in the country. In addition, the term and procedures for examination of contracts and acquisition of geological information were shorterned. Concerning the latter one, the calculation of its cost and access to it in the Internet were simplified (www.cac-geoportal.org)
At the moment, the on-balance mineral reserves of Kazakhstan account for recoverable reserves at 4.8 billion tons (267 oilfields) for crude oil, 1.6 trillion m3 (237 sites) for free gas and gas cap, 1.4 trillion m3 for dissolved gas and 441 million tons for gas condensate (62 deposits). Their overwhelming majority are concentrated in the Atyrau region (72%) and Mangistau region (12%). The remaining reserves are spread in five regions of the Western, Central, Eastern and Southern Kazakhstan. With regard to the probable resources, the latter make about 18 billion tons (including 10 billion tons in the Kazakh part of the Caspian Sea) for crude oil, and about 11 trillion m3 for free gas and gas dissolved in oil.
It should be noted that almost 90% of oil reserves (categories А+В+С1 and С2) is spread among twelve largest mineral producers. The North Caspian Operating Company and Tengizchevroil have the largest reserves (45% and 24%, respectively). The share of the companies developing medium and small deposits is 10%, and the remaining 1% of deposits is free from development and production, and will be in the general fund.
Exploration and production. Speaking of the increase in recoverable reserves, we can say that as a result of exploratory operations conducted in 2000–2014, it reached 2.1 billion tons for crude oil (including 118 million tons in 2014), 271.1 billion m3 for natural gas (126.3 billion m3 in 2014), and 111.5 million tons for gas condensate (86.7 million tons). Over the same period, production volumes amounted to 890 million tons (74.8 million tons), 409.2 billion m3 (42.5 billion m3) and 64.5 million tons (4.2 million tons), respectively. In general, replacement of crude oil reserves is almost 2.5 times faster than the production of oil. Nevertheless, given that the oil is a non-renewable resource, the increasing of its stocks remains a major challenge. In terms of natural gas, there is the reverse trend: here the production of natural gas goes 1.5 times faster than the replenishment of the resources; however, given the reserves of unconventional gas, such as shale gas and coalbed methane, the resource endowment of the sector can be considerably extended.
In the framework of the 5-year (2010–2014) program for the mineral sector development, 3.7 billion tenge was allocated for geological exploration of hydrocarbons, including 1.7 billion tenge for exploration in the West Kazakhstan region, 1.6 billion for gravity and magnetic survey of Kazakhstan sector of the Caspian Sea, and 450 million tenge for to the study of oil and water wells.
In addition, to replenish the mineral resource base, the exploration program for 2015–2019, with a total budget of 120 billion tenge, including 14.5 billion tenge allocated for hydrocarbon raw materials, has been launched. For the same period, off-budget capital investment of 900 billion tenge ($5 billion) will be provided, to be allocated for geological exploration with the participation of national companies, large mineral producers and investors. Memorandums with Mangistaumunaigas and EP KazMunayGas to conduct geological studies at their own expense with regard to promising geological structures and sites in the Mangistau, West Kazakhstan, Aktobe, Kyzylorda, Zhambyl regions and other regions were signed. PetroKazakhstan initiated the drilling of deep exploration wells (5 km and 6 km deep) on the Zhamansu geological structure, located on the border of the Karaganda and Kyzylorda regions. In the Kyzylorda region (Aryskum mountain trough) Orken Petroleum and NC KazMunayGas will jointly implement a project of prospecting. Simultaneously, the international Eurasia Project of regional geological and geophysical studies in the Caspian Basin is being launched. As a result of exploratory operations it is expected that the accumulations of oil and gas will be discovered in the Paleozoic ear sediments.
Investment. As of January 1, 2015, in Kazakhstan there are 267 sites for development and production of hydrocarbons, including 63 ones at which exploration is underway, 90 at which production is in progress, and 114 ones where combined exploration and production is being carried out.
The total investment made in the development and production of hydrocarbons over the past 15 years, amounted to $165.7 billion, of which $18.9 billion was allocated for geological exploration (GE). Over this period the annual volume of investments increased more than 5 times, and in the past year totaled $15.8 billion. Of these, $973.3 million, or 6%, was spent on geological prospecting.
At the moment, 10 largest companies engaged in the development and production of hydrocarbons account for 80% of all the investments and production volumes in the sector. Among them are Tengizchevroil (27% of the total investments and 44% of the total production), Mangistaumunaygas (16% and 10%, respectively), the Branch of the North Caspian Operating Company B.V. in the Republic of Kazakhstan (15% of the total investments, production is not carried out), Uzenmunaygas (11% and 9%, respectively), CNPC-Aktobemunaygas (10% and 8%), Karachaganak Petroleum Operating B.V. (8% and 12%), Embamunaygas (5% and 5%), Karazhanbasmunai (3% and 4%), Buzachi Operating Ltd. (3% and 3%), and PetroKazakhstan Kumkol Resources (2% and 4%). Meanwhile, in terms production of natural gas and gas condensate the leaders are Karachaganak Petroleum Operating B.V. (48% for natural gas and almost 98% for gas condensate), Tengizchevroil (38% for natural gas), and CNPC-Aktobemunaygas (10% for natural gas).
Socio-economic indicators. High investment activity of companies in the oil and gas sector contributes to social and economic development of the country. For example, over the last 15 years, they spent $2.3 billion for the development of the social sphere and local infrastructure alone. Another $1.15 billion was allocated for the training of local specialists engaged under the contracts for development and production of hydrocarbons. At the same time, the number of employees engaged in this sector increased from 32 thousand people in 2000 to 54 thousand in 2014.
Explored coal reserves in Kazakhstan amount to more than 34 billion tons; of these, black coal is 62%, lignite 38%. In total, the state on-balance reserves account for 147 sites in 47 coal basins. The majority of these are located in the five coal basins: Karaganda, Ekibastuz, Maykyuben, Torgay and Teniz-Korzhunkol basins, and the ten major coal fields: Borly, Shubarkol, Samarskoye, Zavyalovskoye, Kiyakty, Zhalyn, Kainama, Kushoky, Bogenbai and Karazhyra located on the territory of the Karaganda, Pavlodar, Kostanay, Akmola and East Kazakhstan regions. Projected reserves of coal exceed 105 billion tons; of these, 27 billion tons are black coal, and the rest is the lignite.
Exploration and production. As a result of geological exploration conducted in 2003–2014, the recoverable coal reserves increased by 51.7 million tons (no increase in the last year). In its turn, the coal output over the past 15 years was 1.2 billion tons, including 108 million tons in the last year. At the moment, coal output exceeds the replenishment of reserves by almost 25 times. However, given the fact that the total reserves and inferred resources of Kazakhstan are quite enormous, the abundance of the resources in the sector is enough to cover the needs for more than 100 years.
Investment. As of 1 January this year, development and production of coal was implemented at 45 coalfields, including 37 where coal mining was carried out, and 8 where combined exploration and mining was carried out.
Total investments in the coal industry for the period of 2000–2014 made $10.2 billion, of which $40.2 million was allocated for exploration. For this period, the amount of annual investments increased almost 5-fold to $1.0732 billion in the last year, including $3.5 million, or 0.3%, spent on exploration.
To date, the leaders in coal mining are 10 local largest mineral producers, which account for 92% of the total investment. Among them are ArcelorMittal Temirtau (33% of all investments and 11% of total coal output), Eurasian Energy Corporation (20%), Bogatyr Komir (18% and 38%, respectively), Shubarkol Komir (9% and 10%), Kazakhmys Corporation (5% and 7%), Karazhyra Ltd. (5% and 6%), Angrensor Energo (3% and 4%), Gamma (3% and 2%), Sary-Arka-ENERGY (2% and 1%), and the Kuznetski opencast (2% and 0%, respectively).
Socio-economic indicators. In 2000–2014 coal mining companies invested $58.5 million in social development and local infrastructure and $67.5 million in training of personnel involved in work on that contract sites. The number of workers in the sector for this period increased from 29 thousand to 32 thousand people.
Explored reserves of uranium in the country are accounted for 70 sites and exceed 900 thousand tons. 23 coal mines, or about 45% of the balance reserves, are in operation. Projected reserves of uranium by P1 category is 625 thousand tons. They are accumulated in the flanks and deep horizons of the known deposits.
About 80% of the reserves are located in the two geological provinces – the Chu Sarysu province (south-eastern part of the Karaganda and Kyzylorda regions, South Kazakhstan and Zhambyl regions and the western part of the Almaty region) and the Syrdarya province (Kyzylorda region and south-western part of the Karaganda region). The remaining 20% are concentrated in the North-Kazakhstan geological province, which includes deposits in the Akmola and North Kazakhstan regions. Kazakh uranium is mainly concentrated in the sandstone-type deposits developed by using the underground-situ leaching method.
Exploration and production. As a result of exploration conducted in 2003–2014 the recoverable reserves of uranium increased by 267.9 thousand tons, including 109.3 thousand tons produced in the last year. However, over the last 15 years, Kazakhstan produced 154.4 thousand tons of uranium, including 22.8 thousand tons in 2014. It is worthy of noting that the replenishment of reserves outstrips their production by almost twice, that given the proven reserves and inferred resources, ensures stable long-term development of the industry.
Investment. As of January 1, 2015, exploration and production of uranium was carried out on 25 uranium deposits. Of these, exploration is underway on the one deposit, production on 12 deposits, and combined exploration and production on the other 12 deposits.
In 2000–2014, $8.8 billion was invested in the uranium sector, including $508.6 million in exploration. The annual capital investments increased by almost 5 times to $1,010.2 million in the last year, of which $29.3 million, or 2.9%, was spent to conduct exploration.
The largest player in the sector is NAC Kazatomprom, which accounts for more than 55% of the total production of Kazakh uranium. The company carries out its main activity in the extractive segment through the joint ventures with the participation of foreign investors (France, United Kingdom, Japan, China, Russia, and Kyrgyzstan). In addition, Kazatomprom is the national operator for the import and export of uranium.
In the today’s rankings of the largest uranium producers the following companies have the leading positions: Katko JV (32% of the total investments and 18% of the total output), Kazatomprom (25% and 24%, respectively), Biken-U (8% and 5%), Inkai JV (8% and 9%), Southern Mining and Chemical Company JV (7% and 14%), Semizbai-U (6% and 5%), Khorasan-U JV (5% and 4%), KRK Zarechnoye JV (4% each), Karatau (3% and 10%), and Akbastau JV (3% and 7%).
Socio-economic indicators. Over the past 15 years, uranium mining companies spent $164.6 million for social development and local infrastructure, as well as $83.9 million for the training of personnel involved under the contracts. Over this period, the number of employees in the sector increased from 2,643 people to 4,853.
Problems and solutions
Stable operation of the fuel and energy sector depends largely on the timely solving of tasks, aimed at increasing the stock of energy resources, increasing export potential, using advanced, energy-saving technology and management experience of other countries, and developing transport and social infrastructure. Among the most critical problems are as follows:
- Currently, Kazakh oil is exported mainly as crude oil. Therefore, it is necessary to increase the volume of processing and the output of high-quality petroleum products both for the foreign and domestic markets.
- In order to raise the low ratio of oil recovery, it is necessary to introduce new innovative technologies, to upgrade outdated equipment for operation of wells, and to raise the skills of industry professionals.
- Strengthening transport infrastructure and its efficient use will increase the trade turnover of the country.
- Taking into account the development of the gas distribution system and power lines, it is necessary to increase the export of gas and to make the supply of gas to the regions of the country, especially rural areas, stable.
- To improve the transparency and justification of cost-effectiveness of the use of funds allocated for the development of the energy sector, it is necessary to introduce an annual publication of the audit reports on the activities of the regional power supply companies, including those in rural areas.
Extractive Industries Transparency Initiative
To date, already 48 countries have joined the Extractive Industries Transparency Initiative; 31 of which are fully compliant with the EITI (www.eiti.org). Among them are large developed countries, such as France, Germany, USA, and Britain. Implementation of the EITI in Kazakhstan is of high international and political importance, and is aimed at the transparency of revenues received by companies and the government in the extractive sector. Owing to the joint work of the state, society and business in 2013, the country was awarded the status of "EITI Compliant". To date, 9 national reports on the EITI have been issued. Moreover, on the website of the state agency for supervising of mineral production[i] one can get acquainted in an on-line mode with the reports of all the mineral producers.
Further implementation of the EITI is underway, based on the new international standards of the initiative[ii]. One of the main conditions here is the disclosure in the annual national reports of a wider range of data, and the more extensive distribution and use of the documents.
In this regard, the current 10th national report of Kazakhstan for 2014 includes not only data on reconciliation of payments and the state budget revenues from the extractive sector, but also contextual information[iii]. The list includes: the state revenues, the flows of dividends from the state shares in the equity of the companies, sub-national payments and social investment, local content, revenue from transportation, volumes of production and export on the main and priority minerals, the shares of the extractive sector in the total GDP, the description of fiscal regime, data on geological exploration, maps of major fields, and so on.
For the first time in the form of a hard copy and multimedia the popular version of the report on the EITI[iv] in the three languages (Kazakh, Russian and English) was published. In addition, a number of events to develop the initiatives at the regional level were conducted. For example, in May 2015 by order of the President’s Administration in all regions of Kazakhstan the extended meetings were held, in which representatives of government agencies, NGOs and extractive companies took part. At the meetings, the regional akimats (governors’ offices) presented reports on the spending of funds allocated for social programs from local budgets at the expense of investments as per the contract liabilities of the mineral producers.
The strategic meeting on the EITI held with the participation of representatives of the international EITI Secretariat, deputies of Majilis of the Parliament, government agencies, NGOs, business associations and other interested parties was a significant event. The participants of the meeting discussed the main directions of further advancement of the initiative in view of the strategic objectives of development of the industry.
The 7th National Conference on the EITI, which is held in the framework of the 10th Eurasian Forum KAZENERGY, provides the next opportunity to discuss the agenda of extended implementation of the Initiative (EITI+) with all the participating countries. In view of the new opportunities offered by the EITI, Kazakhstan could become a regular venue for such discussions, both at the regional and global levels.
Elvira Dzhantureyeva, Ph.D, Head of Service for Analysis of the Mineral Raw Material Sector and Transparency of Extractive Industries of the Kazgeoinform National Center for Geological Information of the Ministry for Investment and Development of the Republic of Kazakhstan