Kazakhstan’s Oil & Gas Industry. Reserves, Production, Investment
Elvira Dzhantureyeva, Ph.D in Technical Sciences, Head of Mineral Production Results Analysis Service of RCGI Kazgeoinform under the Committee for Geology and Mineral Production, Ministry of Industry and New Technologies
The progress Kazakhstan has made in the development of its oil and gas fields laid the foundation for the dynamic growth of Kazakhstan’s economy. However, the President has set a new goal in creating a more effective management system to maintain sustainable production and export of hydrocarbon resources up to 2050. In our traditional annual review, we have presented the main figures and trends of development of the domestic oil industry over the last 13 years.
Kazakhstan’s favorable investment climate and enormous resource potential has attracted major players on the global energy market to Kazakhstan’s oil and gas industry and today companies from the U.S., Russia, China, the EU and other countries are successfully operating in the industry. In many respects, it is the foreign partners that have allowed putting rapidly into production Kazakhstan’s major hydrocarbon fields, such as Tengiz and Karachaganak. Projects involving foreign companies account for about 60% of investments made in the sector over the last ten years.
At the same time, in its policy of today, the government of Kazakhstan relies on expanding the role of the state in oil and gas projects, greater transparency in foreign investors’ activities, and enhanced responsibility of foreign investors in the social sector and local content. New conditions require that our partners articulate more clearly their investment strategies taking into account the interests of Kazakhstan as the oil-producing state and its long-term development goals.
At present, the share of Kazakhstan in the world's hydrocarbon reserves is about 3%. For this indicator, we rank ninth globally after (in ascending order) Libya, Russia, Venezuela, United Arab Emirates, Iran, Kuwait, and Iraq. Holding more than 25% of the world’s hydrocarbon reserves, Saudi Arabia remains the leader in the global rankings of oil powers.
As of January 1, 2013 the state balance sheets had a record of recoverable reserves on 244 oilfields (about 5 billion tons), 220 gas deposits (365 facilities, 1.6 trillion m3), 180 dissolved gas deposits (227 facilities, 2.3 trillion m3), and 61 oil and gas condensate fields (about 360 million tons). The probable reserves reach more than 17 billion tons of oil and 146 trillion m3 of gas.
Speaking of the growth in the reserves, in 2000–2012 it amounted to 1,935.1 billion tons of oil, 126.6 billion m3 of gas, and 26.5 million tons of condensate. While the production during this period reached, respectively, 748.3 million tons, 342.2 billion m3, and 56.3 million tons (Charts 1 and 2). Therefore, the increase in crude oil reserves exceeds their consumption by nearly three times, while the gas and condensate production rates retain the reverse trend.
In general, the growth in the oil reserves was provided in 2003 owing to the Kashagan field while in 2005 it was provided by the Karaman-Dybas, Karakuduk, and Kashagan (re-estimation) fields, in 2008 by the Kozhasai, Kalamkas-Sea, Arystanovskoe, and Kayran fields, in 2010 by the Akshabulak Center, Kondybai, Zhangurshi, Tasym, Tamdykol, Mortuk, East, Tengiz and others, and in 2012 by the Akkar East, South-West Karabulak, Bashenkol, Novobogat SE, Chinarevskoe, Kashagan and Urikhtau fields.
As for gas and condensate, the main increase in their reserves was provided in 2005 by the Tolkyn field, in 2008 by the Kozhasai, Kalamkas-Sea and Chinarevskoe fields, and in 2010 by Mortuk East and Tasym.
It should be noted that 71% of the oil reserves (in A + B + C1 and C2 categories) are accounted for by two major producers. North Caspian Operating Company accounts for 45% of the reserves and Tengizchevroil for 26%. Mangistaumunaigas, CNPC-Aktobemunaigas, Ozenmunaigas, and Karachaganak Petroleum Operating BV have 3% each. Embamunaigas owns 2%. Buzachi Operating LTD, Kazakhoil Aktobe, and Karazhanbasmunai have 1% each. The remaining medium and small mineral producing companies own only 10%. And two more per cent of the reserves are free of mineral production and are in the general fund of reserves.
In turn, the largest reserves of free gas (plus a gas cap) are held by CNPC-Aktobemunaigas (17%), Mangistaumunaigas (11%), Urihtauoperating (9%), North Caspian Operating Company (7%), Embamunaigas (6%), Tenge JV (5%), KazMunaiTeniz (4%), Amangeldy Munai Gas Ltd. (4%), Zhaikmunaigas JV (3%), KazGPZ Ltd (3%), etc. Another 18% is distributed between smaller mineral producers, and 7% forms the general fund.
The lion's share of gas condensate reserves is concentrated in the largest Karachaganak field (74%).
Compared to 2000, oil production in Kazakhstan increased by more than 2 times. For example, about 72.2 million tons were produced only last year. In the regional context, the greatest contribution of 61.5 million tons of oil (or 85% of the total oil production) was made by the companies in West Kazakhstan. These include 29 million tons produced in the Atyrau Oblast, 17.6 million tons in the Mangistau Oblast, nearly 8 million tons in the Aktobe Oblast, and 6.9 million tons in the West Kazakhstan Oblast. More 4.1 million tons were produced in the Karaganda Oblast and 6.6 million tons in the Kyzylorda Oblast (Table 1).
As for individual companies, with its 33% of total oil production Tengizchevroil is the undisputed leader in this indicator. It is followed, with a large margin, by Karachaganak Petroleum Operating BV (9%), CNPC-Aktobemunaigas (8%), Mangistaumunaigas (8%), Embamunaigas (7%), Kazgermunai (4%), PetroKazakhstan Kumkol Resources (4%), Karazhanbasmunai (3%), Buzachi Operating Ltd (3%), and Karakuduk-Munai (2%). The remaining 19% is provided by other mineral producers.
With regard to gas production, by the end 2012 the country produced 32.5 billion m3 of gas (including dissolved gas) which is 3.5 times more than in 2000. The main volume of the production was provided by the Atyrau Oblast (43.7% of dissolved gas), Western Kazakhstan Oblast (35.2% of dissolved gas and 34.5% of free gas) and Mangistau Oblast (3.3% and 43.7%, respectively).
The best performance in the field of gas production was demonstrated by Karachaganak Petroleum Operating BV (47%), which is also the leader in condensate production (88%). The second and third position is taken by Tengizchevroil (33%) and CNPC-Aktobemunaigas (8%).
According to forecasts, the future hydrocarbon production in Kazakhstan will be as follows: in 2013, Kazakhstan is expected to produce 73.6 million tons of crude oil, 39.2 billion m3 of gas and 4.8 million tons of condensate. In 2014, these figures are expected to be: 76 million tons, 40 billion m3 and 5 million tons, respectively, and in 2015: 85 million tons, 45 billion m3 and 5.6 million tons.
From 2000 to 2012, $134.5 billion was invested in the oil and gas industry, including $16.8 billion invested in geological exploration (GE). During this period, the amount of investment increased nearly 5-fold (Chart 3) to $13.8 billion at the end of last year, including $1.1 billion for exploration works. Up to 2013, these figures are expected to reach $15.2 billion and $1.2 billion, respectively. It should be noted that the share of investment in crude hydrocarbons now accounts for about 70% of the total investment in the development of the mineral resources sector of Kazakhstan.
Following the results of 2012, about 80% of all the investments in hydrocarbons production were made by large companies, such as North Caspian Operating Company (19%), Tengizchevroil (15%), Mangistaumunaigas (13%), Karachaganak Petroleum Operating B.V. (6%), CNPC-Aktobemunaigas (8%), PetroKazakhstan Kumkol Resources (4%), Kazakhoil Aktobe (2%), Karazhanbasmunai (3%), Zhaikmunai (4%), Buzachi Operating Ltd (3%), and others.
It should be emphasized that the investment activity of the mineral producers contributes to social and economic development of the country. Over the past 13 years, companies in the oil sector directed over $2 billion to the social welfare of regions and local infrastructure. And about $1billion was directed for training of Kazakhstani personnel working on a contractual basis. The number of the employees working on contracts increased to 48 thousand from 32 thousand (Chart 4).
One of the main challenges for sustainable development of the oil and gas industry in Kazakhstan is the lack of a special legislative act to regulate matters relating to the prevention of contamination of the marine environment with oil while taking into consideration the state’s and mineral producers’ interests.
There is no concept of “oil spill” in the current law that regulates relations in the sphere of use of mineral resources in the course of oil operations, including offshore and inland water operations. Moreover, the law does not define the mechanism for the state and mineral developer to interact in the event of an oil spill at sea. Meanwhile, elimination of oil spills should be started at a very early stage to improve the efficiency of operations and reduce environmental damage.
Taking into account the importance of the issue, a draft law has currently been developed to complement the Law on Minerals and Mineral Production with a new article whereby the definition is given to the term “oil spill in the sea “. The Act provides that the subsoil user approve plans to prevent and eliminate oil spills and enter into a contract with a specialized organization with operations in this area.
Another aspect of the problem of oil spill is the availability of sufficient financial funds of the user of mineral resources. As international experience shows, when a major oil spill occurs, the damage to the environment and the costs of clean-up activities may reach several billion dollars. In this context, the state is directly interested in the availability of sufficient funds from subsoil use to eliminate accidents and compensate for damages.
Currently, when choosing an insurance limit, the user of mineral resources is often guided by considerations of cost savings for insurance coverage which can result in inadequate measures of responsibility and incomplete coverage. In this regard, the draft law provides for the obligation of the user of mineral resources to create a special fund to accumulate funds in the event of oil spills.
Today, Kazakhstan has successfully developed oil-producing projects in the Caspian Sea. So, for example, the first confirmation of the presence of hydrocarbon resources has been achieved for Zhemchuzhina (Pearl) Project’s areas where NC KazMunayGas, Shell and Omanoil have been conducting explorations under the work program. According to the results of the exploration work the presence of oil-and-gas has also been proved for the Khazar and Auezov structures.
Although the Satpayev and Zhambyl blocks are only at the initial stage of exploration, they also expect confirmation of significant hydrocarbon reserves. In the near future the national operator jointly with the Norwegian Statoil will begin exploration at the Abai block and a bit later with Russian Gazprom and LUKOIL at the Khvalynskoe and Central blocks.
In addition, a number of large projects are planned to go into operation while the existing projects will expand oil production. This will significantly increase Kazakhstan’s oil export potential. First of all, this is a new phase of development of the giant Kashagan field where, as planned, the production of hydrocarbons will reach about 15 million tons by 2015, and 65 million tons by 2020.
Great prospects are associated with the increased production capacity at the Tengiz field as part of the Future Growth Project. Its cost is estimated at $15–20 billion, and after its completion in 2016–2017 it will provide an opportunity to increase oil production at the field from 25.9 to 36 million tons. The Future Growth Project proceeds from the success of the recently completed Sour Gas Injection and Second Generation Plant Project.
Currently, the Ministry of Oil and Gas and Karachaganak Petroleum Operating BV are negotiating the terms and conditions of approval and parameters of the third phase of the Karachaganak gas condensate field. In total, its development is divided into four phases; two of them have already been completed. In particular, the processing facility has been commissioned to export liquid hydrocarbons via the CPC. A multi-plant Unit 2 for re-injection of gas into the reservoir has been built (it uses the newest technology to reduce the impact on the environment while increasing several times the recovery from the field as compared to traditional methods). About 100 wells have been commissioned, and 635-kilometer Karachaganak – Bolshoy Chagan – Atyrau export pipeline has been built to connect the oilfield with the CPC. The total investment has exceeded $4 billion. As a result, the production of liquid hydrocarbons and natural gas from the Karachaganak field has almost doubled.
As part of the third phase, CPC will introduce a number of additional facilities, including a gas processing plant with export pipeline (the so-called “gas complex”). This will provide a significant increase in supply of hydrocarbons and also exports from Kazakhstan of not only primary products but also high-tech compounds derived from hydrocarbons. The third stage of development of the Karachaganak field and expansion of the CPC are the two most important current challenges that Kazakhstan faces in the oil and gas sector.
As for the second phase of the Kashagan field, its realization can be deferred until 2018–2019 which in turn will affect the beginning of implementation of the Caspian pipeline transportation system project. Delay is costly although this will not affect the timing of the start of commercial production of oil in the first phase. Recall that while approving the timing, Kazakhstan increased its stake in the project from 8% to 16.8% and obtained from the consortium of foreign companies royalty payments, which were absent in the original agreement. In accordance with the agreement, if commercial production from the field is outside the 31st of December 2013, Kazakhstan will not reimburse for the expenses of the consortium. The government and the consortium have also agreed to the stability of the tax regime for the Kashagan development contract.
Thus, by 2020, production will begin from a number of fields in the Caspian shelf. In particular, by this time, the Hazar field is planned to produce annually 987 thousand tons of crude oil while the Kalamkas-Sea field will produce 675 tons, Auezov 416 thousand tons, Rakushechnoye-Sea 816 tons, and the block N will produce 453 tons. It should be emphasized that the dominant share of this oil will be exported, mainly to Europe.
Extractive Industries Transparency Initiative
The purpose of the EITI, which has been implemented in Kazakhstan since 2005, is to ensure transparency in the management of natural resources of the country and disclosure of government revenue from the extractive industries. The mechanism of the standard is that upstream companies shall publish information about payments and the government shall publish the amount of the revenue. This data shall be compared to the annual report of the National EITI and accompanied by an international expert assessment. In order to coordinate the Initiative tasks, the National Stakeholders Council has been created with Deputy Prime Minister Kairat Kelimbetov as chairman. It is composed of deputies of the Majilis of the Parliament, representatives of ministries and departments, minerals developers of the oil and mining industries, and civil society activists. All decisions on the implementation of the EITI are accepted by the National Council on the basis of consensus.
To consolidate the Initiative at the legislative level, the relevant changes have been introduced to the Law on Minerals and Mineral Production to define responsibilities of users of mineral resources with the terms of the Memorandum of Understanding on the Initiative. In the period from 2005 to 2012 seven National EITI reports have already been written. They are available at the website of the Committee of Geology and Subsoil use of the RK MINT (geology.kz), as well as at the International EITI website (eiti.org).
To ensure the successful implementation of the Initiative, Kazakhstan took an active part in the sixth EITI Global Conference held in Sydney, Australia. The national and regional conferences and round tables are regularly held with the participation of members of the National Council, government agencies, international organizations and media. On the 9th of October, 2013 the fifth National EITI Conference will be held in Astana as part of the VIII Eurasian Energy Forum KAZENERGY.
According to the requirements of the EITI International Board, this year Kazakhstan conducted validation (assessment by an independent expert whether the country complies with EITI international standards) and prepared the relevant Validation Report. Currently, the country is expecting from the EITI International Board to determine its status as an EITI Compliant. An advanced plan has been prepared for the implementation of the EITI plan for the post-validation period in accordance with the new EITI rules.
Acceding to the Initiative will improve its investment attractiveness, reaffirm the commitment to transparency and accountability for revenue and effective spending. The government will receive additional benefits by implementing the standardized and internationally recognized procedure to ensure transparency in the management of natural resources.