The analysis of the preliminary current year’s performance indicators of the Kazakhstan oil and gas sector and of the 2010 forecast has showed that the republic has not managed to implement its ambitious plans to become one of the world’s top oil exporters as it announced earlier.
In 2010, Kazakhstan will increase crude oil production slightly …
According to a statement from Vice Minister of Energy and Mineral Resources of the Republic of Kazakhstan, Lyazzat Kiinov, crude oil production in the country is expected at just 76 million – 77 million tonnes in 2010. This is in view of that fact that the government’s forecast of the crude oil and gas condensate production in Kazakhstan, based on the preliminary results of 2009, is 75 million tonnes. Thus, in the condition of a relatively favorable price, both in the overseas oil exchanges and in the domestic energy market, mineral extraction companies are planning to just slightly increase liquid hydrocarbons production. Alas the observed trend directly contradicts official Astana’s earlier announced plans – in the near future to bring Kazakhstan to the level of key players on the world’s energy market.
Along with this, at the present moment the government is considering a set of measures not to admit the emergence of a shortage of fuels on the domestic market in the next year. According to Prime Minister Karim Masimov, ”allowing for the current situation on the domestic fuels market, Ministry of Energy and Mineral Resources will consider a question of AI-80 gasoline supplies to agricultural producers at a fixed price with fixing it in relevant schedules”.
The Prime Minister said that within the period from January through May of 2009 the petroleum products prices on the domestic market were reported as stable. However, during summer-time the cost of a litre of AI-80 gasoline increased by KZT13, in average. In the first place, this resulted from the increased exports, since the petroleum products prices of the domestic petroleum processing sector were considerably lower than in neighboring countries. In view of the above, in September of 2009 Kazakhstan introduced a temporary ban for exports of gasoline in effect till January 1, 2010.
Also, Karim Masimov said that with the purpose of not allowing gasoline shortages on the domestic market to appear and to ensure stabilization of petroleum products prices, the government provided for the increase in oil processing volumes by domestic oil refineries. Also, the government approved the 2009–2015 Comprehensive Plan of the Oil Refineries Development. Its implementation will allow increasing the design capacity of the refineries to 17 million tonnes per year, to bring the extent of crude oil processing to 90%, and to meet the domestic market’s demands for high quality petroleum products.
On November 16, at the session of the Kazakhstan’s Cabinet of Ministers, the Prime Minister gave an assignment to carry out prospective analysis of development of the domestic fuels and lubricants market.
The head of the government set a long-term task by the year 2014 to provide in full the domestic market with all required petroleum products, i.e. by the time the modernization of the three oil refineries in Kazakhstan will be completed.
According to Karim Masimov, in the medium-term prospect (2010–2014), it is necessary to decide how the market will be regulated in view of the forthcoming creation of the Customs Union and the lack of domestic production of fuels and lubricants. The proposals on the given two issues are to be submitted for consideration to the government before the end of this year.
Mr. Masimov defined the above tasks as the scope of action of the Cabinet of Ministers and related ministries for the coming few weeks and months. In connection with the said, he charged Minister of Energy and Mineral Resources, Sauat Mynbayev, to distribute responsibilities and reveal those who violate, and “to make relevant claims on them to the law-enforcement bodies”. According to the Prime Minister, “those who play with the prices have to be brought to responsibility”.
In his turn, Mr. Mynbayev emphasized that the government working group, created on the basis of Kazakhstan’s Agency for Protection from Competition, Natural Monopolies Regulation Agency, and Ministry of Energy has proceeded on the said work. The Ministry intends to boost tolling operations in neighboring countries for extra return supplies of high-octane gasoline. Also, he believes that “since we can influence the price of oil supplies abroad, we will be able somehow, through not importing black oil and low-octane gasoline, to agree on the amount of high-octane gasoline imports”.
Along with that, the Ministry of Energy will proceed on approving the schedule of gasoline supplies to the regions. With the purpose of strengthening administrative control of the sales of Kazakhstani gasoline, “an online tracking map is developing, allowing to track where the gasoline is supplied to, and how much”.
Deputies of the Majilis of the Kazakhstani Parliament stand for state control of the oil export routes
In the opinion of domestic parliamentarians, the current gaps in the Kazakhstani laws can lead to the loss of control by the government of strategically important export routes. In connection with that, on October 28 at the plenary session of the Majilis (lower chamber of the Parliament), Deputies Vladimir Bobrov, Yerlan Nigmatullin, and Vladimir Nekhoroshev applied with a relevant request to Prime Minister Karim Masimov.
The said request stated that ”the current statutory law does not allow ensuring the preemptive right of the state to participate in projects of trunk oil pipelines construction, as well as to hold controlling stakes in the relevant enterprises of the pipeline transport sector. It is possible that all this can lead to the loss of control by the state of the export pipeline routes that are of strategical importance to the country”.
In connection with the above, the parliamentarians believe that with a view to creating the adequate legal base for the public policy in the area of trunk pipelines, and ensuring the preference in meeting the interests of the state, while implementing new pipeline projects in the republic, it is necessary to develop a statute, which will be regulating relevant relations in the given area.
”If the government finds it efficient to enact the given statute, we will initiate the working out of its draft“, Vladimir Bobrov said in his request.
Kazakhstan can become a supplier of ”blue fuel“ for the international gas transportation project Nabucco, only if Kazakhstan has a sufficient amount of natural gas available for the supply. This was announced by Deputy Director of Multipartite Cooperation Department of the Ministry of Energy and Mineral Resources, Meiram Kanapiyanov, in his speech at the international conference called Kazakhstan's 2010 Chairmanship of the Organization for Security and Cooperation in Europe (OSCE): Challenges and Opportunities, held in Astana on October 28.
”Regarding the possibilities of supply by Kazakhstan of its natural gas for the Nabucco project, the main problem here for our country is the limited amount of natural gas available for supply, as today a few large gas projects are being implemented simultaneously, and this requires considerable volumes of hydrocarbons to be supplied", Mr. Kanapiyanov said.
Also, it is necessary to lay a gas pipeline through the Caspian. This is in view of that fact that the legal status of the Caspian is still unresolved. Thus, without the implementation of the given projects on the Trans-Caspian gas pipeline, Kazakhstan will not be able to transport its gas over Nabuссo. Along with that, the MEMR’s spokesman believes that in the future, in the development of productive fields and if a sufficient amount of gas resources is available, the republic can be considered as a potential supplier of natural gas for Nabuссo.
The Nabucco gas pipeline project provides for transportation of gas from the Caspian region to Europe in bypass of Russia. The project participants are Turkey, Bulgaria, Romania, Hungary, and Austria. The gas pipeline construction is scheduled to be completed by the year 2014. The preliminary value of the project is estimated at EUR7.9 billion.
In November, International Energy Agency (IEA) changed its forecast of oil consumption in 2010, having increased it by 140,000 barrels per day to 86.2 million bbl/day. To compare, the OPEC’s forecast is 85.07 million bbl/day. IEA explains its step on changing the forecast by expectation of the economic recovery in Asian countries and the Middle East.
The forecast of 2009 global demand has also increased by 220,000 bbl/day to 84.9 million bbl/day. To compare, the OPEC’s forecast is 84.3 million bbl/day. This is because IEA is expecting an increase in consumption in the fourth quarter.
In view of the above, IEA has revised the forecast of the consumption of oil produced by OPEC member countries. IEA believes that the demand for oil of these countries in 2010 will increase to 28.5 million bbl/day that is by 100,000 bbl/day more than that of October‘s forecast.
According to IEA’s estimates, the production by OPEC member countries, including Iraq, increased by 110,000 bbl/day to 28.95 million bbl/day in October of 2009. OPEC itself said that the overall output by OPEC member countries rose by 40,000 bbl/day to 28.99 million bbl/day in October. Meanwhile, the OPEC’s quota is set at 24.845 million bbl/day.
Also, IEA increased the forecast of output by non-OPEC countries to 51.1 million bbl/day for 2009 that is up by 130,000 bbl/day more than that of the previous forecast, and to 51.9 million bbl/day for 2010 (+350,000 bbl/day). IEA bases its expectations on the increased oil production in the Mexican Gulf, Norway, and Russia.
…and plans of Kazakhstan KMG
In 2009, the National Company KazMunayGas is planning to produce 18.6 million tonnes of crude oil, to transport more than 60 million tonnes, and to process 10 million tonnes. This was announced by KMG’s Managing Director for Oil Transportation Nurlan Sauranbayev on October 6.
As it is known, based on the last year’s performance results, the output of crude oil and gas condensate within the KazMunayGas Group of Companies was a little bit over 18 million tonnes. The aggregate volume of processing by the said companies was 10.3 million tonnes, while the volume of transportation over the trunk pipelines was 60.6 million tonnes.
On November 6th, KazMunayGas and Eni entered into a cooperation agreement, opening the path for multi-billion dollar investments in the production and processing of crude oil and natural gas in Kazakhstan.
Under the agreement, the parties will carry out exploration of the Isatai and Shagala deposits, located in shallow waters of the Caspian, will study projects of gas disposal optimization, construction of a gas processing plant, a gas power plant for generating electric power, and a shipyard, and modernization of the Pavlodar refinery. The final decisions on investments in the given projects will be taken within the next two years, following the completion of relevant detailed feasibilities studies.
According to Eni’s CEO Paolo Scaroni, potential investments in these projects can come to $40 billion – $50 billion. Also, he added that other companies can be attracted to participate in the projects as partners as well. They are, in particular, Chevron, LUKOIL, BG Group, and Total.
In late October, the Caspian Pipeline Consortium shareholders agreed the distribution of their responsibilities, while implementing the pipeline system expansion. According to President of JSC Transneft, Nikolai Tokarev, the model, under which the CPC expansion project will be implemented, is agreed already. Each of the shareholders will carry out its part of work on its territory. In particular, he said that ”our Kazakhstani partners will be building the linear part of the pipeline and two crude processing stations in Kazakhstan, while Transneft will engage in modernization and construction of new crude processing stations in Russia, and Chevron will be building a terminal and offshore moorings, and jointly with us, will construct a tank farm”.
The head of Transneft added also that before the end of the current year, a final investment decision on the expansion will be signed: ”The matter on the financing will be resolved before the end of the year”.
The tariff for oil transportation after the expansion of transportation capacities will be $38 per tonne. Thus, the currently effective tariff will not change and will apply to extra facilities, which are supposed to be put into operation as soon as the new equipment is launched.
We should remind that the Memorandum of Understanding as to the principles of expansion was signed in December of 2008. It is this document that gave a start to the active phase of operations on preparation of budget estimates and getting authorizations and permits for construction of the required facilities. Under the memorandum, it is planned to carry out the expansion of capacities in three phases.
At the first phase, it is planned to carry out modernization of existing oil-pumping stations. As a result of this, the transportation capabilities will increase by 7 million – 8 million tonnes a year. The approximate term of its implementation is the mid of 2012.
The second phase supposes the building of five new crude processing stations and three tanks, 100,000 m3 each, at the oil-loading terminal, and also the replacement of 88 km of the pipeline. The latter will allow by the mid of 2013 to increase the throughput capacity to 48 million tonnes without using the additives.
In the course of implementation of the third phase of the project, five more crude processing stations, three tanks, and an extra offshore mooring at the oil-loading terminal will be built. This will give the possibility by the mid of 2014 to bring the pipeline to operate at its full design capacity of 67 million tonnes of oil a year.
To meet the scheduled deadlines, it is necessary that the final decision on investment will be taken by the CPC shareholders not later than the mid of 2010. It is expected that till the end of 2009, they will approve the final project of expansion. Its total cost was estimated at $2 billion in 2005, $2.5 billion in 2007, and over $3 billion in 2008. Currently, the new calculations of the project value are in progress.
Based on the results of 2008, the volume of transportation over CPC was 31.47 million tonnes. The CPC shareholders are the Russian Federation, holding a 31% stake (represented by JSC Transneft (24%) and the CPC Company (7%)), Kazakhstan, holding a 20.75% stake (represented by KazMunayGas (19%) and Kazakhstan Pipeline Ventures LLC (1.75%)), the Chevron Caspian Pipeline Consortium Company, holding a 15% stake, LUKARCO B.V. with a 12.5% stake, the Mobil Caspian Pipeline Company with a 7.5% stake, Rosneft-Shell Caspian Ventures Limited with a 7.5% stake, BG Overseas Holding Limited with a 2% stake, Eni International H.A. H.V. S.ar.l. and Oryx Caspian Pipeline LLC, holding a 1.75% stake.
JSC KazTransGas Aimak intends to implement an investment project, aimed at consolidation of distribution gas pipelines of Mangistau Oblast, to be run by a single national operator.
Currently, seven enterprises are operating in the region, engaged in the selling and transportation of gas to end-consumers at various tariffs. The lack of a centralized tariff and technical policy on the gas distribution market is the factor, which destabilizes the socio-economic situation in the oblast.
In connection with the current situation, JSC KazTransGas Aimak is planning to invest more than KZT1.633 billion in the project implementation on entering the gas distribution market of Mangistau Oblast.
The KazTransGas Aimak Company, set up in 2002, is the major supplier of natural gas, providing natural gas to seven gasified oblasts in Kazakhstan. The only shareholder of the said company is JSC KazTransGas, set up in 2000 for the purpose of buying, managing, servicing, and operation of the infrastructure of trunk gas pipelines in Kazakhstan.
Under the contract, executed on October 29, 2009 in Atyrau, the Chinese Sinopec Engineering Company will build an aromatic hydrocarbons producing plant on the basis of the Atyrau refinery. The given project is being implemented in the framework of the 2008–2013 State Program of the Petrochemical Sector Development in the Republic of Kazakhstan.
Investments in the plant construction are expected to come to $1,040 million. The project implementation is scheduled for 2009–2013. Sinopec Engineering will act as a strategic partner and general contractor of the project. The project provides for the application of the ParamaX BTX technology from the single licensor, Axens (France).
The new plant will comprise a catalytic reforming unit, an extractive distillation block with benzene separation, the Eluxyl paraxylene separation unit, the XyMax xylol izomerization unit, the TransPlus toluene transalkylation unit, and other plant-related facilities.
The project implementation will allow the Atyrau oil refinery to integrate into a single petrochemical chain in the country, to introduce innovative technologies, and to create productions, producing benzene and paraxylene in the amount of to 133,000 tonnes a year and to 496,000 tonnes a year, respectively. Also, modernization will add to bringing the quality of commercial gasoline to the level of the Euro-4 Standard, and to improving the environmental characteristics of gasoline due to reduction of the benzene content in it. This is because under the Euro-4 Standard requirements, the benzene content in gasoline shall not exceed 1%, and the aromatic hydrocarbons content shall be not more than 35%. Also, with the production of extra amounts of hydrogen, the plant will be able to produce diesel fuel, meeting the Euro-4 Standard by its quality.
Sinopec Engineering comprises the structure of the Sinopec Company. The latter one ranks third in terms of petrochemical processing and fourth in petrochemical products production in China. In its turn, almost the entire share at 99.21% in LLC Atyrau Oil Refinery is held by JSC KazMunayGas Trade House.
A JV on the production of gas turbines to be set up in Kazakhstan
On November 5th, GE Oil & Gas, Kazakhstan’s National Welfare Fund Samruk-Kazyna, and JSC The Western Kazakhstan Machine-Building Company (WKMBC) entered into an agreement, under which it is planned to set up production and servicing of gas turbines in Kazakhstan.
The parties to the agreement in the persons of GE Oil & Gas’s President and CEO Claudi Santiago, Samruk-Kazyna’s Managing Director Aidan Karibzhanov, and WKMBC’s General Director Alibi Akhmedzhanov confirmed their intent to set up a JV on the production of gas turbines GE. The JV’s production will be supplied for the projects, related to pumping-over and transportation of natural gas, implemented in Kazakhstan, Azerbaijan, and other Central Asian countries. The launch of the enterprise, which will be producing gas turbines GE10 with the power of 11+ MWatt, is scheduled for the mid of 2010.
GE Oil & Gas has had successful experience in cooperation with the Western Kazakhstan Machine-Building Company, on the basis of which the production of components for the gas-compressor units GE is launched. Also, an agreement between the said companies on setting up a service center for servicing of gas turbines GE is at the final stage of development.
GE Oil & Gas is a world leader in the production of equipment and provision of services for all segments of the oil and gas industry. At present, the company’s Kazakhstan-based equipment numbers over 50 gas turbines and 50 compressors with various power, including unique equipment for sulfurous gas injection in the reservoir, used for enhanced oil recovery at the Karachaganak, Tengiz, and Kashagan oilfields.
The completion of construction and the launch into operation of a new oil refinery in Zhambyl Oblast is scheduled for May – June of 2010. The cost of the project, implemented by LLC Amangeldy Gas Processing Plant, is KZT1.6 billion. The construction, started in 2008, is financed through borrowing. The design capacity of the plant is 550 tonnes of finished products a day, including 100 tonnes of gasoline, 60 tonnes of kerosene, 120 tonnes of diesel, and 270 tonnes of black oil. With the putting of the gas processing plant into operation, 100 new jobs will be created.
At the given moment, at the construction project the fence is erected, the storage areas and labs are constructed, large facilities are assembled, utilities and pipelines are laid. Also, the erection of a railway overpass and dead-end track is completed. The preparatory work on assembling the major process equipment, bought in Russia, is in progress.
The Amangeldy deposit in Zhambyl Oblast or Karashagan in Kyzylorda Oblast are being considered now as potential sources of raw material for the new oil refinery. The implementation of the given project will allow providing southern regions of Kazakhstan with petroleum products.
Oil statistics for January – October of 2009
According to the Statistics Agency, the output of crude oil and gas condensate in Kazakhstan in the first ten months of this year was 63 million tonnes. This is by 7.8% more than in the same period of 2008. Crude oil processing reduced by 4.5% to 9.5 million tonnes, along with that, from January – October the republic produced 29.1 billion m3 of natural gas (+8.9%).
42.057 million tonnes of crude oil was transported over the Kazakhstani trunk pipelines system, compared to 39.119 million tonnes in the same ten months of 2008. The carrying of oil over the Atyrau-Samara pipe reached 14.509 million tonnes (13.890 million tonnes in same period of 2008), the supplies of oil for the Atasu-Alashan’kou pipeline was 6.223 million tonnes (5.013 million tonnes in same period of 2008), and the loading of oil into tankers in the port of Aktau was 7.78 million tonnes (5.954 million tonnes in same period of 2008).
The transit of Russian oil over the pipeline part TON-2 from January – October of 2009 was 4.326 million tonnes (4.04 million tonnes in same period of 2008).