Interview of Uzakbai Karabalin, the Minister of Oil and Gas of the Republic of Kazakhstan Kazakhstan.
For the first eight months of the current year, the production of crude oil and NGL in the country was 54 million tons, a 3% increase against the same period last year. The output of natural gas and the associated petroleum gas increased by 3.3% to 27.7 billion m3.
Overall, in 2013 it is projected to produce about 82 million tons of crude oil and NGL which is more than the level achieved in 2012.
As we know, further growth in hydrocarbon production is associated with the three major projects: Kashagan, Tengiz and Karachaganak. At what stage of implementation are they now?
The main news in the recent times is the start-up of Kashagan. The first oil was produced in the field on September 11 this year. In early October, the production is expected to reach 75 thousand barrels per day, the so-called Kashagan commercial production level. The reaching of the maximum oil production at 370 thousand bpd at the first phase is scheduled for 2016.
As for Tengiz, the Tengizchevroil Company intends to implement a Future Growth Project (FGP), due to which the oil production in the field will increase from 26 million tons to 38 million tons of crude per year. Completion of the work and the commissioning of new facilities into operation are planned for 2019.
Currently, the Memorandum of Understanding between the Government of Kazakhstan and TCO is being prepared for signing. Its terms have already been negotiated. Thus, it is expected that the TCO will create more than 20 thousand jobs during the period of construction and 500 permanent jobs during the subsequent operation of the FGP facilities. In this connection, relevant memoranda were signed between the Company and the regional administrations of the Atyrau and Mangistau regions. The FGP will employ specialists who have completed working for other projects. For example, those specialists who built the Kashagan facilities and are now not employed due to the start-up of the field in operation.
The third significant project, Karachaganak, is now at its Phase 2M. The production of liquid hydrocarbons and the natural gas has come to the level of 11 million tons and 14 billion to 15 billion m3 per year, respectively. Now our task is to keep this level of performance.
Also, various options for the development of the Project are currently being worked out. It is expected that by the end of the year particular proposals will be made, and the parties will proceed to basic designing.
What about replenishment of hydrocarbon reserves? What exploration projects are planned for implementation in the near future?
Over the last 50 years much has been said about the coming ‘end of the oil age‘. But as we can see, the role of petroleum and the demand for it are still significant. The world’s hydrocarbon production has constantly been growing over the past 30 years. In 1980, 50 million barrels was produced per day, now nearly 90 million barrels per day is produced. According to conservative estimates, in 2030 the global production will exceed the current one by 1.2 times as a minimum for crude oil and by 1.5 times for natural gas.
According to reference data published by BP, at present, our country ranks 12th in the world in terms of proven recoverable oil reserves (3.9 billion tons) and 20th for the natural gas reserves (1.3 trillion m3). In the opinion of independent experts, the potential for our oil resource is 17 billion tons and for gas resources 3.9 billion m3.
At the current level of production, Kazakhstan has crude reserves for a period of 50–60 years. There are still opportunities that are associated with the exploration potential for our country.
Oil-and-gas bearing areas cover the greater part of Kazakhstan, more than 60% of its territory. The Ministry of Oil and Gas has registered 201 contracts for mineral production, by now. More than 80 fields are under development.
In the foreseeable future, we expect further growth in hydrocarbon production. In this sense, Kazakhstan is one of just several countries whose oil production peak is yet to come. According to our pessimistic forecasts, oil production in Kazakhstan can exceed 110 million tons by 2030. This gives grounds to suggest that we will enter the top ten largest oil-producing countries in the world in the future.
In addition, in September, the concept of effective management of natural resources and the use of proceeds from the mineral resources sector was presented in the Government. This document had been prepared by the Ministry of Oil and Gas together with a number of other ministries and agencies concerned. This resulted in presenting a modern vision for managing natural resources, especially, hydrocarbons and solid minerals.
In the implementation of oil and gas projects, the Government expects to get a multiplier effect through the development of local producers and suppliers. What is the current situation in the area of local content?
For the four years since the promulgation of the Presidential Decree ‘On Some Issues of Local Content’, there has been built a complete institutional and legal framework necessary for the system development of local content. In 2012, the total procurements by mineral producers came to KZT2.7 trillion, and the share of local content reached 52%.
Since 2010, companies have been monitored for compliance with procurement procedures. The introduction by the Ministry of Oil and Gas of the System of Acceptance of Reports from Mineral Producers significantly added to the improvement of the local content development system. In 2009, the delivery of reports on the local content by the mineral producers had not exceeded 50%, while in 2011–2012, the reports increased to almost 100%. The system allowed to automate the monitoring process for reports on local content of mineral producers, accumulate information on plans of procurement of oil and gas companies for a year, in the medium-and long-term. Data on procurements is available online to all users registered on the relevant web site.
Thanks to the introduction of the System of Acceptance of Reports, the Ministry has full information of the local content in procurement of goods, works and services, and personnel. Also, the time of data processing has significantly reduced from two weeks to a half an hour.
What progress is with the implementation of gas processing and gas distribution projects in Kazakhstan?
One of the main projects is the Beineu – Bozoi – Shymkent gas pipeline. As of today, the construction of the linear part of the pipeline has almost been completed at the Bozoi – Shymkent section. Commissioning is planned for October 2013. On 7 September, an official ceremony took place to start gas supply at this section of the pipeline. The ceremony was attended by the President of Kazakhstan and President of China. Negotiations are under way with the China Development Bank to raise funding for the second phase of the project at the Beineu – Bozoi section. Start of construction for this phase is directly related to the progress of raising funds procedures which are to be completed before the end of the quarter 2013.
Construction of the West – North – Center gas pipeline has been suspended for one year. The Intergovernmental Commission for cooperation between Russia and Kazakhstan requested Gazprom and Kazmunaygas to work out before the end of 2013 a solution on possible routes for Russian gas supplies to Astana and northern regions of Kazakhstan through swap operations. Timeline for implementation of this project will depend on the study of a number of issues, both internal and external ones, together with the Russian side.
One of the major gas processing projects is the construction of the Karachaganak gas processing plant. This project is extremely important for Kazakhstan. To date, the feasibility study has been prepared, the endorsement of the State expertise obtained and public hearings have been held in Aksai. Further steps in construction of the gas processing plant will depend on the decision-making on implementation of the two other major projects on the basis of the Karachaganak field. These are the Future Growth Project and the creation of a joint venture on the basis of the Orenburg gas processing plant.
In general, recent years have seen a significant increase in gas production. In 2012 gas production amounted to 40.1 billion m3, which is more than 5 times higher than in 1991. The increase is due primarily to the increase in hydrocarbons production in the Karachaganak, Tengiz and Zhanazhol fields. By 2015, with the development of new deposits, this figure is expected to increase to 45 billion m3 of gas.
The Ministry of Oil and Gas has implemented the Development Program for the gas sector of Kazakhstan. The main task of the Program is the development and implementation of regional programs to cover with gas distribution new territories and the expansion of the use of natural gas in the sectors of utilities, power generation and road transport.
From 2004 to 2012, 124 projects had been implemented thereby enabling to cover with gas distribution about 210 communities. Altogether, the number of populated areas covered with the gas distribution network throughout the country has reached 941, or 23.4% of the total. Today, natural gas is delivered to 9 of the 14 regions of Kazakhstan.
It is expected that in 2013, 23 investment projects for construction of gas pipelines will be implemented. Of these, 13 projects will be completed this year. The total length of the pipelines now in construction will reach 620 km.
The shortage of petroleum products in the domestic market has always been a sore point for Kazakhstan. What is the current situation?
The dependence of Kazakhstan’s market of high-octane gasoline from supplies from Russia is about 30%–35%. The Russian refineries, located at the border with Kazakhstan, are under planned repairs, at the moment. They are expected to continue for about a month. For this reason, the supplies from Russia will decline in September – early October. Kazakhstan’s market will not particularly be affected because we have a bugger stock of this product, and relevant efforts are made to handle the situation. Currently, there is no ban on exports of petroleum products from Russia.