Export of Hydrocarbons. It’s in the Pipeline…
The development of the national oil and gas sector is closely related to the issue of transporting extracted hydrocarbons to the foreign markets. It is rather clear as the share of oil and gas condensate makes up more than 61% of the total national export. In 2007, 60.8 million tonnes of oil were exported to the CIS countries and further abroad.
Today, there are only three HC transport routes available for Kazakhstan. The first route is oil pipelines running through the territory of Russia: the CTC and the Atyrau-Samara pipelines. The second one is trans-Caspian transport and export via the Baku-Tbilisi-Ceyhan (BTC) pipeline. The third route is the Atasu-Alashankou pipeline that links Kazakhstan and China. The current capacity of these pipelines is enough to provide Kazakhstan’s export energy supply. Although the increase in crude oil production falls short of the expected figures, the main oil fields in the country, the Tengiz field and the Karachaganak field, will reach their maximum productivity in the near future. The commercial production of the Kashagan field will start in 2013 (the development of the field was delayed several times) providing the additional 500,000 barrels per day in early stages.According to the Ministry of Energy and Mineral Resources, during the next seven years, the crude oil production in the country is expected to rise to 100 million tonnes. The ambitions of the officials were restrained, as previously they expected to gain 150 million tonnes of crude oil in 2015. However, if Kazakhstan implements these adjusted plans for increasing hydrocarbon extraction, the current pipeline capacity will not be sufficient. It may cause a shortfall of export routes for Kazakhstan’s raw materials in the near future. In addition, it may hinder the implementation of the state policy of diversification of HC export flows.
So, Kazakhstan needs to enlarge the capacity of the existing pipelines, as well as construct new ones. That is why Kazakhstan searches for new routes and strongly supports construction projects that provide easy delivery of Kazakhstan’s oil to international markets via export pipelines.
Russian transit. Supercharge load
The main export route for Kazakhstan’s oil is still the Russian one. Thus, more than 2/3 of the total crude oil export is pumped via the Atyrau-Samara and the CTC pipelines. During the recent years, the pumping rates of these pipelines have exceeded their designed capacities. Today, they can be loaded over 100% due to the application of special antifriction additives. The negotiations on expanding the capacities of both pipelines (up to 25 million tonnes and 67 million tonnes respectively) have been conducted for a long time, however they have not been concluded yet and the final decision has not been made. Meanwhile Tengizchevroil, the main supplier of raw materials for the CTC system, plans to produce 32 million tonnes of oil in 2010 (as compared with 14 million tonnes in 2007).
Ready to consider any routes
The issue of expanding the CTC and the Atyrau-Samara pipelines led to new prospective routes in addition to the traditional ones used through Russian territory. Kazakhstan willingly considers the route to China, is interested in the Turkish route through Baku and Tbilisi, and negotiates on its participation in the Ukraine project of the Odessa-Brody pipeline. The government also takes into account such projects as the Burgas-Alexandroupoli pipeline and the Baltic Pipeline System. In particular, in the event of an acquisition of a share in the Burgas-Alexandroupoli pipeline project, Kazakhstan will have good prospects for exporting approximately 17 million tonnes of its crude oil to the South European market.
The Kazakhstan-China pipeline project implementation period was really short. In September 2004, there was an official ceremony of the construction starting, and in July 2006 there were the first commercial supplies. In 2006, the monthly average of crude oil supplied to China totalled 300,000 tonnes, in 2007 this figure made up approximately 400,000 tonnes, and this year it has reached 480,000 tonnes. According to the data as of the beginning of August 2008, the total volume of crude oil exported to China via this pipeline exceeded 10 million tonnes. At the end of 2009, the Kenkiyak-Kumkol section will be put in operation and will allow for doubling the pipeline capacity in future.
Another prospective route is the BTC pipeline. From the very beginning of its construction it was clear that Azerbaijanian’s oil would not be enough to provide the full load capacity (according to the most optimistic forecasts, by 2010, the production of the Azerbaijan International Operating Company will only be 45 million tonnes). Obviously, the design of the BTC pipeline was counted on the Kazakh oil, but for a long time Kazakhstan did not participate in this project – the issue of Kazakhstan’s participation in this project was not settled until the last moment. It was not until April 2008 that the Parliament of Kazakhstan ratified the Treaty between the Republic of Kazakhstan and the Republic of Azerbaijan on support and assistance of oil export from the Republic of Kazakhstan via the Caspian Sea and the territory of the Republic of Azerbaijan to international markets by means of the Baku-Tbilisi-Ceyhan system.
This treaty (with such a notable title) contemplates the construction of a new system to transport Kazakhstan’s oil across the Caspian Sea from the Aktau Port to Baku. The Yeskene-Kuryk oil pipeline (740 km long) and an oil export terminal will be built in 2010-2011; oil tankers of different deadweight will deliver crude oil to Azerbaijanian’s ports. It is planned that during the initial production stages at the Kashagan field, Kazakhstan may supply 25 million tonnes of oil to BTC pipeline, with further increase in productivity reaching up to 38 million tonnes per year.
Multiple-vector approach and …safety
Usually, the HC export is closely connected with political situation in transit countries. On 4 September 2008, at the 3rd KazEnergy Eurasian Energy Forum in Astana, Karim Masimov, the Kazakhstan Prime Minister, said: “Kazakhstan will continue to implement the strategy of diversification of export energy routes… taking into account their safety.” Highlighting the last issue was anticipated. Safety and stability in transit countries are the major criteria for investors, as well as for suppliers.
The explosion at the Turkish sector of the BTC pipeline and the armed conflict between Georgia and South Ossetia, showed the sensitivity of this export route. Particularly, Azerbaijan had to decrease the oil production rate and look for alternative routes of crude oil transportation. Finally, Azerbaijanian’s oil was switched to the Baku-Novorossisk pipeline. In addition, Iran decided to build the Neka-Jask pipeline, an alternative route to the Baku-Tbilisi-Ceyhan pipeline. Karim Masimov had to suspend the oil export through the Georgian territory and reorient Kazakhstan’s oil flow (that is 1 million tonnes per year) from the Batumi oil export terminal to the local market in Kazakhstan.
The global circumstances of the small and short war will surely be more substantial than its scale. Europe is in doubt about Georgia as a power supply partner, and is starting to look for a new alternate route. The lack of stability at the Caucasus may change the oil transfer routes for the Kashagan field and other shelf projects, despite the fact that four companies carrying out explorations within this region own 15% of the BTC system. By the beginning of the Kashagan field development, the construction of the last section of the Kazakhstan-China Pipeline will be completed, as well as the construction of an oil pipeline between the Kashagan field and a new oil export terminal at the Caspian Sea. That will provide the availability of oil from the Kashagan field to China and Iran. Implementing the projects of the CTC and the Atyrau-Samara pipelines extension is also not to the benefit of the BTC.
Gas main pipelines
It is well-known that oil fields in Kazakhstan have a high gas to oil ratio, so the issue of increasing of oil production will be considered, taking into account the issue of associated gas utilisation. In 2007, the national oil production totalled 29.6 billion cu m, but according to the Ministry of Energy and Mineral Resources, in 2010 this figure will make up 42 billion cu m, and in 2015 – 62 billion cu m. However, such trends cannot solve the problem of gas supply for the Kazakhstan population. First of all, Kazakhstan’s oil and gas sector extracts mainly associated gas to be processed at gas processing plants. Today, there are three gas processing plants in the country with the total capacity of 12.3 billion cu m of gas per year that cannot satisfy the demands. Secondly, marketable gas is required to be delivered to customers, but the main gas pipeline network consists of transit gas main pipelines, running through the territories of eight oblasts in Kazakhstan. The most important of these are the Central Asia-Centre gas pipeline, the Bukhara-Ural gas pipeline, and the Orenburg-Novopskov gas pipeline, with a total transit capacity of 100 billion cu m of gas per year.
As a result, the northern oblasts of Kazakhstan are supplied by Russian gas, while the gas supply of the southern region, which usually suffers from lack of gas in autumn and winter times, is provided by Uzbekistan. Today, to decrease external dependency, the project of the Beineu-Bozoi-Akbulak main gas pipeline is developed within the pipeline construction project between Turkmenia and China. According to the Ministry of Energy and Mineral Resources, “that will provide easy gas supply from the west regions of the country to the south ones, with further access to the east boundary of Kazakhstan. The initial pipeline capacity will be 5 billion cu m of gas”. This gas pipeline will be constructed based on the principles of state and private partnership: 50% of the total expenditures will be covered by the state budget, and another 50% will be provided by a strategic investor, chosen by tender.
The substitution of an imported gas with a domestic one will certainly raise a level of energy security and will decrease gas rates for the population of southern Kazakhstan. In future, the new gas pipeline will be used for exporting Kazakhstan’s gas to China. The designed gas pipeline capacity is 30 billion cu m of gas per year. In 2009, it is planned to complete the construction and put into operation the first stage of the pipeline, with the capacity of 10 billion cu m of gas. In 2012, after commissioning the second stage, it will be up and running at full capacity.
There are several other gas pipeline projects. In particular, KazTransGas, the national gas supply operator, sharply increased its investment. It plans to invest more than $8bn to the implementation of the three construction projects: the West-South gas pipeline, the gas pipeline to China and the Caspian gas pipeline.
In September, during the Russian Prime Minister’s visit to Tashkent, it was shown that Russia was willing to develop the project of constructing a new train with a capacity of 26–30 billion cu m of gas along the reconstructed Central Asia-Centre system. The capacity will be increased from 54.8 billion cu m of gas to 100 billion cu m of gas per year.
In addition, the European Union tries to win Kazakhstan over to the Nabucco gas pipeline project. This trans-Caspian pipe, 3,300 km long, will be laid at the bottom of the Caspian Sea and will join to the Nabucco through the following route: Central Asia–Turkey–Bulgaria–Romania–Austria.
Thus, the role of Kazakhstan in the international transit of gas is steady growing. But it is not clear if the Central Asian producers provide the adequate amount of gas for each of new gas pipelines. The capacity of the above pipelines is designed in the view of probable gas reserves subject to be recovered.
Mosaic of interests
Kazakhstan’s hydrocarbons are not only the energy sources, but also a factor of geopolitical influence on neighbouring countries. Each participant of these non-linear relations has its own interest. China is interested in the provision of its growing economy with hydrocarbons, Russia is interested in oil and gas transit through its territory, and, conversely, the European countries are interested in alternative routes that exclude the Russian territory. Kazakhstan has its own interests. For example, cooperation with China will allow for greater independence from European counties in terms of investment, as well as from the Russian monopoly on raw material transit to international markets.
Obviously, the major issue for Kazakhstan today, and also for other Caspian counties, is to sharply increase the production of energy resources. But according to experts, the current plans for transporting energy resources from the Caspian region are in advance, compared to the productive capacity of the region. It is quite likely that the hydrocarbon production can be behind the scheduled dates for the commissioning of the new oil and gas pipelines. This may occur due to dry wells at rather prospective fields, or because of several delays in the Kashagan field development. So the production forecast is subject to adjustment in terms of a reduction of the production rate and the respective circumstances for the designed pipelines. There is one more aspect; while the political, economic and financial problems of the project are settled, the project costs are continuously growing. The illustrative examples are the Kashagan project and the Nabucco transport route.
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