Oil and gas industry in 1996–2013: Reserves, production, investments
Elvira Dzhantureyeva, Ph.D. in Technical Sciences, Head of the Department for Analysis of the Natural Resources Sector and Transparency in Extractive Industries of the Republican Center for Geological Information Kazgeoinform under the Committee for Geology and Mineral Production of the Ministry of Investment and Development of the Republic of Kazakhstan.
The oil and gas sector is considered a backbone industry of the economy of Kazakhstan. However, strategic priorities such as the efficient use of energy resources and energy processing, transparent distribution of rents, and improvement of people’s life should be taken into account when developing the natural reserves and making an investment to increase the production of hydrocarbons.
Today, the state records of mineral resources of Kazakhstan cover recoverable reserves of 253 oilfields (about 5 billion tonnes), 228 fields with free gas and gas caps (291 sites with reserves of 1.6 trillion m3), 221 deposits of dissolved gas (227 sites, 2.3 trillion m3), and 62 oil and gas condensate fields (about 361 million tonnes). With this, total projected resources are more than 17 billion tonnes of crude oil and 146 trillion m3 of natural gas.
As a result, in terms of proven reserves of hydrocarbons, Kazakhstan ranks eighth in the world with a market share of about 3%. By this indicator, the country lags behind only some countries in the Middle East and Latin America, Russia and the United States.
Regarding the reserves growth, it reached 2.025 billion tonnes of crude oil, 151 billion m3 of natural gas, and 26.5 million tonnes of gas condensate in 2000-2013. Over the same period, the volume of production was 824 million tonnes, 376 billion m3 and 57 million tonnes, respectively. It is easy to notice that the increase in oil reserves outstrips their consumption by 2.5 times, while in terms of the rate of production of gas and gas condensate, the reverse trend still continues.
Major oil fields are located in Western Kazakhstan and confined to near edge zones of the Caspian depression, Southern Emba and North Buzachi uplifts, North Ustiurt system of troughs and South Mangyshlak trough, as well as to the continental shelf of the Kazakh Caspian Sea sector. It is exactly the Caspian Sea where in the first decade of the XXI century (2003) the giant Kashagan oilfield was discovered, due to which the country’s reserves doubled immediately.
A further increase in oil reserves was achieved due to the deposits Karamandybas, Karakuduk and Kashagan (re-estimate of reserves) in 2005, Kozhasai, Kalamkas – Sea, Arystanovskoe, and Kayran in 2008, Akshabulak Center, Kondybai, Zhangurshi, Tasym, Tamdykol, Eastern Mortuk, Tengiz and other in 2010, and East Akkar, Southwest Karabulak, Bashenkol, Novobogat SE, Chinarevskoe, Kashagan (re-estimate of reserves), and Urikhtau in 2012. Last year, the oilfields Khazar, Kalamkas, Morskoye, and Dunga were an additional contribution to the oil fund of the country.
Regarding the gas and gas condensate, the main increase in their reserves was due to the oilfields Tolkyn in 2005, Kozhasai, Kalamkas – Sea, and Chinarevskoe in 2008, East Mortuk and Tasym in 2010, and Kalamkas – Sea (re-estimate of reserves) and West Prorva in 2013.
It should be noted that about 88% of crude oil reserves (of categories A+B+C1 and C2) are separated between large companies. 70% of oil reserves give in sum the reserves that are under development by the North Caspian Operating Company (45%) and Tengizchevroil (25%). Each of Mangistaumunaigas, CNPC-Aktobemunaigas, Uzenmunaigas, and Karachaganak Petroleum Operating BV has 3% of the reserves under development. Embamunaigas has a share of 2%, and Buzachi Operating LTD, KazakhOil Aktobe and Karazhanbasmunai have 1% each. The other medium and small crude oil producers account for only 7% together. Another 5% of the reserves are free from development and are in the common fund.
In its turn, the largest reserves of free gas (plus gas cap) are under development by CNPC-Aktobemunaigas (17%), Mangistaumunaygas (11%), Urikhtau Operating (9%), North Caspian Operating Company (7%), Embamunaigas (6%), Tenge JV (5%), OOC KazMunayTeniz (4%), Amangeldy Munay Gas (4%), Zhaikmunaygas JV (3%), KazGPZ (3%), and others. Another 18% is separated between smaller oil producers, and 7% make up the common fund.
Concerning the gas condensate, the lion's share of its reserves is concentrated in the largest Karachaganak oilfield (74%).
It should be noted that today, the share of investment in hydrocarbons accounts for about 70% of the total investment in Kazakhstan’s mineral sector development.
Currently, a number of large foreign companies, representing more than 45 countries, including USA, UK, France, Italy, Switzerland, Germany, Russia, Japan, China, Indonesia and others, are operating in the domestic oil industry. In total, $150.1 billion was invested in the oil and gas industry in 2000–2013, including $18 billion in geological exploration. Over this period, the volume of investments increased by almost 5-fold and at the end of last year was $15.6 billion, including $1.2 billion in exploration. According to the forecast, in the current year these figures will be $16.1 billion and $1.2 billion, respectively.
The following large companies record the most investment activity in the domestic market: The North Caspian Operating Company (18%), Tengizchevroil (15%), Mangistaumunaigas (12%), CNPC-Aktobemunaigas (11%), Uzenmunaigas (8%), Embamunaigas (4%), PetroKazakhstan Kumkol Resources (3%), Turgai Petroleum (3%), Karazhanbasmunai (2.5%), and Buzachi Operating Ltd. (2%). The aggregate share of participation by these companies in development of Kazakh hydrocarbon fields is about 75%, in average, today.
It should be emphasized that the investment activity of oil extracting companies contributes to the socio-economic development of the country. Thus, for the last 13 years the mineral producers spent $2.3 billion for the development of social sector of the regions and local infrastructure. About $1,078.4 million was invested in training of Kazakhstani specialists employed in the oil industry. Moreover, the number of employees working on the contracted areas increased from 32 thousand to 54 thousand persons.
Compared with 2000, the annual volume of oil production in Kazakhstan has increased more than twice. For example, in the last year alone this figure was 76 million tonnes. In terms of the regions, the largest contribution (64.8 million tonnes, or 85% of the total output) to oil production was made by companies in Western Kazakhstan. Of this figure, 32.2 million tonnes was produced in the Atyrau region, 18 million tonnes in the Mangistau region, 8.3 million tonnes in the Aktobe region, and 6.1 million tonnes in the West Kazakhstan region. Another 3.8 million tonnes was produced in the Karaganda region and 7.7 million tonnes in the Kyzylorda region (see Table 1).
In terms of oil extracting companies, the undisputed leader is Tengizchevroil which provides more than 35% of total oil production in Kazakhstan. Then it follows with a big lag Karachaganak Petroleum Operating BV (8%), CNPC-Aktobemunaigas (8%), Mangistaumunaigas (8%), Uzenmunaigas (7%), Embamunaigas (4%), Kazgermunai (4%), PetroKazakhstan Kumkol Resources (4%), Karazhanbasmunai (3%), Buzachi Operating Ltd (3%), and Karakuduk-Munay (2%). The remaining 18% is the aggregate contribution by smaller oil extracting companies.
Regarding gas production, 24.1 billion m3 of natural gas, including dissolved gas, was produced in the country in 2013, which is three times more than in 2000. The major contribution in gas production was made by the Atyrau region (43.7% of gas dissolved in oil), the Western Kazakhstan region (35.2% of dissolved gas and 34.5% of free gas), and the Mangistau region (3.3% and 43.7%, respectively).
With this, Karachaganak Petroleum Operating BV demonstrated the best performance in the field of gas production (47%). This company is also a leader in production of gas condensate (88%). TCO and CNPC-Aktobemunaigas rank second and third, 33% and 8%, respectively.
According to forecasts, the future dynamics of hydrocarbon production in Kazakhstan will look as follows: About 80 million tonnes of crude oil, 40 billion m3 of natural gas, and 5 million tonnes of gas condensate will be extracted in 2014, and 85 million tonnes, 45 billion m3 and 6 million tonnes in 2015, respectively.
Problems of efficiency
Among the major problems in the oil & gas extraction and processing sectors is incomplete loading of the operating refineries. Especially given quite a large annual production volume, compared to other countries. As is known, most of the companies developing hydrocarbon fields sent the bulk of extracted hydrocarbons for export under the contracts. Along with that, every year the domestic market of petroleum products reels from seasonal shortages of fuel. In such circumstances, it is necessary to perfect the legislation, both in the framework of existing contractual obligations, and from the viewpoint of the tax burden of the suppliers of crude and petroleum products to domestic and external markets.
Another important problem is the low oil recovery factor (about 35%), compared to the European oil extracting countries. More precise calculations in the oil production that contribute to decreased amount of impurities, scaling and associated water, as well as taking into account technical stops and equipment faults, tuning of process programs, optimization of mechanical oil production, etc. could add to increased hydrocarbon production, substantially reduce the cost of extraction and thus increase the profitability of development of the fields in general.
In this regard, one of the strategic directions of development of the oil and gas sector is to improve the regulation of relations in the sphere of mineral production operations in order to improve the quality of governance. Work will continue to monitor and analyze the performance by the mineral producers of their contractual obligations (especially on large sites), as well as to represent the interests of Kazakhstan in arbitration proceedings initiated by mineral producers.
Special focus will be given to the process of bringing all the mineral production contracts in line with the effective legislation in terms of local content, as well as the adoption of measures against the mineral producers who ignore requirements of the legislative and normative acts on improving the transparency of procurements and development of the local content.
All these measures are aimed at bettering competitiveness and national energy security, the meeting of growing needs of the economy in hydrocarbon reserves, as well as the development of the scientific and technological potential of the industry.
Extractive Industries Transparency Initiative
An important mechanism for ensuring the effective use of the raw material potential of the country is an international Extractive Industries Transparency Initiative (EITI), to which our country joined in 2005 by signing a relevant Memorandum of Understanding.
To coordinate the EITI activities, the National Stakeholder Council was set up, composed of representatives of government agencies, extracting companies of the mining and oil & gas sectors, non-governmental organizations and the Majilis of the Parliament. Chairman of the said National Stakeholder Council is the Minister for Investment and Development, Asset Issekeshev. The EITI is implemented according to the Work Plan approved by the parties, and its annual funding is provided from the state budget.
For Kazakhstan, the main result of the initiative development was the EITI Compliance Status awarded to Kazakhstan in October 2013, which is a confirmation of the country’s compliance with the international standard of transparency in the extractive industries.
In addition, as a result of voting by the countries participating in the initiative, the representatives of Kazakhstan joined the EITI International Board for 2013-2015, which also promotes the interests of our country and boosts cooperation in this area.
To provide advice and guidance, the representatives of the International Secretariat and the Board regularly pay visits to Kazakhstan, taking an active part in seminars and an annual national conferences on the EITI.
For example, in June 2014 the Chairman of the International Board Ms. Clare Short visited Astana, where she gave high appraisal to the results of implementation of the EITI in Kazakhstan.
In addition, the activity of the republic in this area is actively supported by organizations such as the World Bank, OSCE, GIZ, USAID, Soros Foundation, the British Embassy, the National Chamber of Entrepreneurs of Kazakhstan and others.
Currently work is under completion to make the 7th and 8th National Report on the EITI for 2012 and 2013. In addition to data on the payment by mineral producers of taxes and mandatory payments to the budget, these reports will contain information on the dividends from public interest, as well as spending on the social sector and infrastructure.
It should be noted that the annual publication of the reports is a fundamental requirement of the EITI, the fulfillment of which is binding on all the countries implementing the initiative. In Kazakhstan, the work on their preparation is carried out by an independent audit company, engaged under the budget program "The EITI Implementation" in accordance with the Technical Assignment, approved by the National Stakeholder Council.
Within the scope of duties of the auditor is the conduct of reconciliation of material tax and non-tax payments as well as payments and receipts for social purposes (social, infrastructure and others). The data on the payments is provided by the mineral producers, while the information on the budget receipts, based on the reporting forms, by the Tax and Customs Committees of the Ministry of Finance. The report takes into account the following payments made by the mineral producer: those exceeding the threshold of 15 million tenge for mining companies and 30 million tenge for oil and gas extracting companies.
The result of reconciliation is the revealing of variances in the data of the payers and payees, the search for the causes of such variances, and the making of recommendations to avoid their future occurrence. The already published reports evidence that the revealed variances are mainly due to temporary differences in the accounting of payments/receipts, duplicate data on payments in the reports of companies and their subsidiaries.
Quality and results of reconciliation, as well as the National Reports are evaluated by EITI International Board experts, and serve as a proof of the country's compliance with the standards of the initiative.
The process of delivery by mineral producers of the reporting on EITI is fully automated: the data is provided through the Internet portal of the Integrated Information System within the Unified State System of the Administration of the Republic of Kazakhstan for Management of Mineral Production. With this, all the information is available online to all the stakeholders.
In general, the activities under the EITI add to enhanced public administration in the extractive industries.