Oil Chronicles. Consumption Increases
Between January and August 2008, oil production in Kazakhstan increased by 5.1%, natural gas by 13.8%, and gas condensates by 4.9% compared to the previous year.
Production and processing
According to the Statistics Agency, the country produced 38.3 million tonnes of crude oil and 8.5 million tonnes of gas condensate during the first eight months of 2008. This represents an increase of 5.1% and 4.9% respectively over the previous year’s figures. During this period the total gas production reached 22.52 billion m3 (+13.8%) with the raw natural gas production reaching 13.05 billion m3 (+15.7%), which included 7.74 billion m3 (+27.9%) of marketable gas. The production of associated gases over the same period amounted to 9.46 billion m3 (an 11.3% increase on the year).
Between January and August Kazakh refineries produced 1,700,900 tonnes of petrol (including aviation fuel) which is 4.6% less than in the same period for 2007. Paraffin (kerosene) production, including paraffin type jet fuel, decreased by 5.6% to 278,900 tonnes whilst heating oil production increased by 37% to reach 2,190,700 tonnes and diesel fuel production increased by 6.3% to 3,087,900 tonnes.
Investment in fixed capital
During the first eight months of 2008 fixed capital investments for the country as a whole reached 2,174,900 billion tenge (+9.7%). According to statistical data, an increase in investments occurred in all the regions of the country over this period. The greatest rises seen were Zhambyl (increase of 100%), Kyzylorda (increase of 70%) and Akmola (increase of 36%) Oblasts. The production of oil and natural gas remain priority areas for capital investment as well as the provision of services in this field. These areas account for 23.7% of the overall fixed capital investments.
Terms of KSCS developments for change
Adopted in 2003 for completion in 2015, the State run Development Programme for the Kazakhstani Sector of the Caspian Sea (KSCS) will undergo amendments currently being planned in Astana. This was revealed during the visit of Mr Karim Masimov, Prime Minister of Kazakhstan, to Mangistau Oblast in August of this year.
Following a proposal from the akimat (government) of Mangistau Oblast a working group has been set up to formulate amendments and additions to the KSCS development, with Mr Sauat Mynbayev, Minister of Energy and Mineral Resources, appointed as its head. The group is scheduled to submit any proposed changes to the State Programme by 1 November 2008 in order to enable the Government to consider them at a subsequent sitting.
According to independent experts, this initiative was prompted by the decision of international investment consortium Agip KCO to postpone the start of the industrial development of the Kashagan deposit.
The State Programme for the KSCS development initially included three stages. During the first stage from 2003 to 2005, conditions for the integrated development of mineral resources were to be established. The second stage, from 2006 to 2010, involved the ‘rapid development of resources’ of the Caspian shelf whilst the third stage, scheduled from 2011 to 2015 was the ‘stabilisation of production’.
According to estimates, the volume of gas produced in the KSCS would have to increase from 300 million m3 in 2005 to 63 billion m3 in 2015, whilst the total oil production output in Kazakhstan would have to reach 150 million tonnes per year.
A positive proposal for the State Programme of investment into the KSCS development includes three stages: investment must reach $6bn in the first stage of the programme, approximately $10.3bn in the second stage, and approximately $15.6bn in the third stage. Estimates of the minimum expenditure required for the development of the KSCS stand at $ 2.8bn, $7bn, and $11.4bn respectively.
According to the proposal, a total of approximately $52bn will have to be invested in the development of the oil industry of Kazakhstan before 2015.
In his speech to the 3rd Eurasian energetic forum KazEnergy in Astana on 4th September, Mr Masimov voiced his expectation that Astana expects to complete negotiations regarding the Kashagan field by 25 October 2008.
Following long and difficult discussions with all the participants in the consortium Agip KCO, he stated that the Government’s share in the project will increase and it will receive compensation for the changes to the implementation time scale. All legalities will be completed by 25 October. The Prime Minister also underlined that an agreement had been reached as a result of a productive yet difficult dialogue, which ended with the adoption of “a form of interaction which satisfied all the parties.”
According to Mr Timur Kulibayev, Chairman of the KazEnergy Association, industrial production at Kashagan cannot start until 2014. “When we talk about October 2013, we should remember that it is impossible to begin production at the field during winter, so it will actually start in 2014. What we really mean is that by the end of 2013 everything should be ready for production.”
The Kazakh side is planning to reach a production level of 450,000bbl per day at Kashagan by 2014. At that time all onshore and offshore construction projects will have to be completed and all transportation issues resolved.
Mr Kulibayev also stated that one of the most important issues is to prevent costs escalating at Kashagan, as this hinders the development of economic aspects of the project, and in particular, national budget revenues.
At the KazEnergy forum Mr Sauat Mynbayev, Minister of Energy and Mineral Resources, stated that Kazakhstan expects to produce 70 million tonnes of oil by the end of 2008. “In 2007 the production of oil and gas condensate reached 67 million tonnes, which is 4% higher than previous figures. In 2008 we expect to produce 70 million tonnes, which is 1.8% of the total world output.” The minister also noted that by 2015 Kazakhstan would achieve an output of 100 million tonnes per year with most of that oil being exported. It is worth noting that in May 2008, Mr Bakhyt Sultanov, Minister of Economy and Budget Planning stated that estimated production levels for oil and gas condensate during 2008 were only 67.6 million tonnes.
The three year budget plan, announced at the plenary session of the Mazhilis on 11 September 2008, indicates that in 2009 the Kazakhstan Government is planning to produce 79.2 million tonnes of oil and gas condensate. The 2010 production estimate stands at 81.3 million tonnes, and the expected output for 2011 is 81.6 million tonnes.
Mr Mynbayev also stated that natural gas is becoming an increasingly important source of energy for Kazakhstan. Including new deposits, explored natural gas reserves in Kazakhstan total 3,300 billion m3, whilst potential reserves could reach 6,800 billion m3. The minister also noted the developing trend in the volume of gas production and sales to consumers. “In 2007 we produced 29.6 billion m3, and estimate that by 2010 we will be producing 42 billion m3 of crude natural gas each year and by 2015 that could reach 62 billion m3.”
Astana fixes new tax rates for oil production…
The new draft Tax Code, which comes into force on 1 January 2009, shows tax rates for the production of crude oil, including gas condensate, ranging from 7% to 20%.
If the crude oil and gas condensate is sold on the domestic market, the above rates will be halved.
The tax rate for natural gas production will reach 10%. If the gas is sold domestically, the rate will be fixed according to the total annual output. When the output is below 1 billion m3 the rate will be fixed at 0.5%, but the rate will increase to 1% for annual output up to 2 billion m3, and 1.5% for the production above this level.
Tax on natural resources production (TNRP) will not be charged for any natural gas that is injected back into the subsoil.
When calculating TNRP accrued during a calendar year, a subsoil user will apply the tax rate for the current tax year to the planned production volume. This procedure will be applicable to each individual contract for the subsoil use according to the above tax rates.
In order to ensure correct calculations and payments of TNRP, subsoil users must submit oil and gas condensate production estimates for the forthcoming year. These estimates must be supplied for each individual contract for subsoil use and should reach the local taxation department by 20 January each year.
Estimated volumes of crude oil, gas condensate and natural gas for the current year will have to be agreed by a competent body.
If the actual and estimated production volumes do not correspond at the end of the calendar year, and they result in a change to the TNRP rate, the subsoil user must adjust the calculated sum of tax payable for the year.
TNRP will not be paid by Tengizchevroil JV developing the Tengiz and Korolevskoye oil and gas fields in Atyrau Oblast or companies working on a production sharing agreement (PSA) basis. An official statement to this effect was made by the Minister of Economy during his Parliamentary presentation of the draft Tax Code. He also stated that only 44 million tonnes of the total projected oil production for next year, will be subject to any TNRP payment.
Until recently Tengizchevroil was producing approximately 300,000bbl per day which is over 20% of Kazakhstan’s total oil production. In 2007 the company produced 13.9 million tonnes of oil. It is estimated that this figure will grow to 18.7 million tonnes in 2008, and in the future, could reach 24 million tonnes per year.
… and has already increased export duty
Kazakhstan has increased its oil export duty from $109.91 to $203.8 per tonne. The Governmental Decree on Additions and Amendments to Decree of the Republic of Kazakhstan of 15 October 2006 No 1036 was published in the official press on 11 September 2008.
According to the Decree, those liable for rent tax for exported oil and gas condensate will see an increased rate of export duty from $27.43 to $121.32 per tonne.
The rate of export duty for heavy distilled products (liquid fuel), coke and oil bitumen is fixed at $112.5 per tonne, compared to the previous figure of $82.2.
Stability only on paper?
The Ministry of Energy and Mineral Resources has prepared a new draft of the subsoil and subsoil use legislation. According to Mr Mynbayev, “Reviews of some contracts have shown that there are significant gaps in the legislative support for the entitlements and obligations of subsoil users.” In order to fill in these gaps the Ministry has submitted new draft legislation on the use of subsoil for consideration by Ministries and other bodies.
Astana believes that when the new law comes into force, all previous laws on oil, subsoil, subsoil use and on PSA will become ineffective.
The principal provisions of the new draft include:
· No joint contracts for exploration and production;
· Changes in bidding procedures (successful tenders will be selected on the basis of bonus and social payments);
· Regulation of the State’s entitlement to priority share purchase
· Legal regulation of the activity of all commissions;
· Production of a complete list of all documents required for subsoil use operations and their links to any contract.
· With the new legislation in mind, the Ministry of Energy examined the performance of contractual obligations for previously concluded subsoil use contracts. As a result 20 contracts were cancelled during the first six months of 2008.
Mr Mynbayev also noted that the licence and contractual performance of subsoil using companies significantly improved as a result of these measures. Compared with the first six months of the previous year when only 67% of the companies performed their contractual obligations, the current figure is over 90%.
At an open session of the Government in Astana Mr Kanat Bozumbayev, Chairman of the State Holding Samruk, stated that the National Company Kazmunaigas expects to receive 188 billion tenge net profit by the end of 2008. He also added that the Company net profit for the first six months of 2008 amounted to 177.5 billion tenge which is 30% higher than the same period for 2007.
It is anticipated that Kazmunaigas will produce 17.4 million tonnes and refine almost 5.9 million tonnes of oil during 2008. The Company will transport 50.5 million tonnes of oil and 119 billion m3 of gas through its pipelines.
This compares with 2007 when Kazmunaigas produced 16.69 million tonnes of oil and gas condensate, refined 5.73 million tonnes of oil products and transported 50.86 million tonnes of oil.
The consolidated financial statements for the national company shows receipts of over 292 billion tenge of gross profit for 2007.
The National Company Kazmunaigas which represents the State in the Kazakh oil and gas industry is the national operator for exploration, production, refining and transportation of hydrocarbons. The Kazakhstan Holding for the Management of State Assets, Samruk, owns 100% of the Company shares.
On 11th August in Almaty Mr Boris Zilbermints, the Deputy CEO for Exploration and Production of the Russian owned Gazprom Neft stated that the Company is planning a strategic collaboration with the National Company Kazmunaigas.
“In addition, we are ready to work with Kazmunaigas on Russian projects and this is currently being discussed. It looks like this: we own 51% of the shares, Kazmunaigas owns 49%. We are considering geological exploration and production. The approach is mutually beneficial: we work here; you work in Russia. We are ready to make offers that no one else can make.”
Mr Zilbermints outlined the Company priorities. ‘We are looking at international development. First of all we consider countries who are the most responsive to Russia. We take development in Kazakhstan very seriously.”
He also noted that Gazprom Neft has plans to develop its own network of petrol stations in Kazakhstan. “Obviously we are not going to construct new stations but we will consider purchasing opportunities. The aim is to reach the end consumer”.
Mr Zilbermints added that in Kazakhstan Gazprom Neft only had a regional branch for wholesale products. “We have the Omsk refinery which is very close to Kazakhstan. From there we could address the problem of oil product shortages in Kazakhstan”.
Gazprom Neft is currently bidding for 49% of shares in the Kazakh oil producing company Mangistaumunaigas, where Kazmunaigas has already purchased 51% of shares.
Gazprom Neft is a subsidiary of the Russian gas monopoly Gazprom. The main divisions in Gazprom Neft are the production of oil and gas, oil field services, oil refining and marketing of oil products. The Company proven oil reserves exceed 4 billion bbl.
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