Non-market Price Stabilization Methods
In order to continue maintaining a stable price situation on domestic market of fuel and lubricants in the period of sowing and harvesting campaigns the government decided to prolong its ban on the export of petroleum products and intends to take anti-monopoly measures against the players domestic in the oil products market.
The government of Kazakhstan on June 29 decided to prolong the ban on export of petroleum products up to January 1, 2012. Initially, the ban on the export of oil became operational in May 2010, in order to prevent shortages and rising in fuel prices during the active farm operations. As stated by Prime Minister Karim Massimov, in the past two years thanks to the government's actions in the domestic market there are no seasonal fluctuations in prices for fuel and lubricants during the sowing and harvesting campaigns. According to him, today "the fluctuations in the domestic market in Kazakhstan are connected only with the pricing of petroleum products in world markets". The Prime Minister also stressed that the authorities provide a lower price for fuel, "sometimes not fully according to market methods."
In addition, to meet domestic demand for petroleum products the reconstruction of existing Kazakh oil refineries is being presently carried out. As noted by Mr. Massimov, it is economically more feasible than starting a new refinery. "The construction of a new modern factory costs about $6 billion, the reconstruction of an existing one requires $2.5–3 billion. On the basis of those figures, we decided to reconstruct our three refineries. Now this process is going on, resources have been allocated, no later than January 1, 2015 it will be completed and from that moment Kazakhstan will be able to meet its needs in petroleum products with its own resources," – the Prime Minister said.
In turn, the Agency for Competition Protection intends to make more stringent the measures concerning players in the fuel market, who violate antitrust law. The Agency noted that in 2009-2010 it carried out investigations concerning cases of price collusion and undue reduction in fuel sales, and the perpetrators of these violations have been fined. But today the situation in the market of petroleum products shows that earlier imposed sanctions did not serve as a lesson for all players in the market. In this connection severer measures of antimonopoly response will be taken against the violators.
The agency is currently analyzing the activity of several participants in the market of fuel retail trade that have increased their prices, in order to determine signs of anticompetitive concerted actions, as well as signs of abuse of dominant position to limit the production or the selling of oil products. According to preliminary calculations of antimonopoly agency "there is no economically justifiable reasons for increasing retail prices for fuel by market players".
Conjuncture for oil
The International Energy Agency (IEA) decided to allocate 60 million barrels of oil from their strategic reserves in order to compensate for the interruption in supplies from Libya, as well as to reduce oil prices.
Since its foundation in 1974, the IEA released reserves only twice. The first time it happened during the Gulf War in 1991, and the second time – in 2005, when because of hurricane "Katrina" the production of a large number of oil platforms in the Gulf of Mexico stopped.
According to the executive director of the agency Naboo Tanaka, disruptions in oil supplies are already seen, and the traditional increase in demand in the summer could further aggravate the situation. In this regard, in order to forestall the negative effects of further price increases on the fragile global economic recovery, the IEA has decided to supply the world oil markets with two million barrels per day over the next 30 days.
According to IEA estimates, as of May 31 2011, shortage of oil supplies, caused by the acts of war in Libya, amounted to about 132 million barrels. Despite the ambiguity of the situation, analysts generally agree that the supply from that country until the end of 2011 will be significantly below normal levels. In view of this the IEA welcomes the decision of some oil-producing countries to increase levels of supply. However, knowing that it will take some time, the agency has decided to offset the deficit from its own reserves.
The total volume of oil reserves of the 28 members of the IEA is about 4.1 billion barrels, of which about 1.6 billion are state reserves, intended exclusively for emergency purposes.
Commenting on the world market oil price situation, the Secretary General of the International Energy Forum (IEF), Noe van Hulst said that for the participants of OPEC "it is still too early" to think about production cuts, even if prices fall below $100 for barrel.
However, OPEC and the IEA have significantly revised their forecasts for 2011. In particular, the cartel expects that daily oil consumption will grow by 1.2 million barrels (1.4 %), reaching 88.1 million barrels per day. It is 150 thousand b/d less than the previous estimates of OPEC.
In turn, the IEA also said that global oil demand in 2011 will increase by 1.2 million b/d (+1.4 %), amounting to 89.5 million b/d. In this case the forecast will be 60 000 b/d lower than the previous one. Experts note that it was possible to response to short-term price changes in the spring, when the oil supply from Libya was sharply reduced, but now it requires serious estimations regarding whether the situation with prices will get worst.
However, international analysts predict that in 2012 increase in oil demand will slow because of a consumption decline in Europe, as well as slower growth of consumption in some industrialized countries. In their view, the demand for oil next year will average 89.5 million b/d, which is 1.3 million b/d (+1.5 %) above the level projected for 2011.
In particular, according to OPEC, the needs of China in 2012 will increase by 500 thousand b/d, whereas North America will show a growth of only 150,000 b/d, and in Europe we will see a diminution.
As for supply, in June of this year, OPEC, which accounts for about 40 % of world oil production, raised its production to 29.6 million b/d. And those 11 members having quotas, increased their production volumes to 26.9 million b/d, which is the highest figure since 2008.
Deliveries of non-OPEC countries in 2011 should amount to 52.89 million b/d. At the same time next year, according to the cartel, they will increase by 680,000 b/d, reaching 53.57 million b/d.
The expansion of CPC started
The project of expansion of Caspian Pipeline Consortium was launched in Atyrau, on July 1, 2011. Minister of Oil and Gas of Kazakhstan Sauat Mynbayev and Russian Energy Minister Sergei Shmatko took part in the ceremony of welding the first joint of the new pipeline of larger diameter at the pumping station "Atyrau".
It is expected that with the start of work on the expansion of CPC more than $ 1 billion will be invested in Atyrau region and more than two thousand temporary jobs and over 100 permanent ones will be created. The peculiarity of the expansion project is that to comply with the phased schedule the works at the Kazakhstani and Russian sites, as well as at the maritime terminal in Novorossiysk should be synchronized.
However, at the end of the first half of 2011, CPC reduced export shipment of oil from the terminal "South Ozereika-2" (Novorossiysk) by 4.4 % compared with last year. According to information provided by the consortium, in the six first months of this year, oil shipment was 16.35 million tons, while in 2010 this figure reached 17.1 million tons.
As we know, CPC capacity will increase from 28.2 million to 67 million tonnes, and using anti-friction additives – 76 million tons. According to CPC estimations, the expansion of the system will cost $5.4 billion. Project financing is guaranteed by oil producing companies – shareholders of the consortium in the context of of "ship-or-pay" scheme. Up to $1 billion is planned to be attracted in 2012–2013.
After the expansion of the pipeline the annual revenue for the CPC could reach $2.5 billion in 2015. The level of payback for the project will be reached in 2018–2019. By that time the accumulated debt which currently is of $4,6–4,7 billion, will be returned, According to the current financial model, CPC will begin paying dividends in 2018–2019.
Dividends and plans for "Kazmortransflot"
According to the audited consolidated accounts at the end of 2010 the net profit of the National Maritime Shipping Company "Kazmortransflot" (KMTF) was 1,287,043,000 tenge against 2,185,325,000 tenge in 2009. Prior to November 1 this year KMTF has to pay their sole shareholder – NC "KazMunaiGas" dividends for 2010 amounting to 322.759 million tenge, or 25 % of the net consolidated profit (the remaining 75 % being kept by KMTF). The amount of the dividend per ordinary share is equal to 27.88 tenge as against 83 in 2009.
In addition, "Kazmortransflot" is going to attract a loan of $110.6 million for "ATFBank". The money will be used for purchasing two large oil tankers of Aframax type with a deadweight 80 000 t. In general, the company plans to invest $750 million in the development of its fleet until 2020: in 2011 – $110 million, in 2015 – $140 million and $500 million to be invested between 2015 and 2020.
In addition to those two tankers, KMTF intends to buy before 2020 3–4 tankers with a deadweight of 120,000 tons and in 2017–2018 – 3 vessels with carrying capacity of 5 to 7 thousand tons. Moreover the KMTF fleet for support of offshore operations will be increased to 26 units.
The company intends to finance these purchases with the help of its own and borrowed funds, the support of the main shareholder, and funds which are planned to be raised in 2012 from the sale of a minority stake to the public in the framework of the "People's IPO" program.
"Zhaikmunai" revised the reserves of Chinarevskoye
As the company Zhaikmunai LP informed, proved and probable reserves (2P) of Chinarevskoye oil field at the end of 2010 increased (as compared to the first half of 2009) by 2.3 % to 538.6 million barrels of oil equivalent (boe). These estimates were obtained as results of the audit conducted by the consulting firm Ryder Scott.
At the same time the proved reserves increased by 3.2 % – to 143.5 million boe, and probable reserves – by 2 % – to 395.1 million boe. Resource replacement ratio was 208 % and is based on a production of 5.7 million barrels of crude for the period from 1 July 2009 to 31 December 2010. Currently Zhaikmunai L.P. is preparing an updated business plan based on new inventory data to develop a drilling program and project works.
Zhaikmunai L.P. – is the parent company of "Zhaikmunai" Ltd. – oil and gas company engaged in exploration, production and sale of oil and gas condensate. The licensed block, developed by the company, covers the Chinarevskoye field, located in West-Kazakhstan oblast, near the borderline between Kazakhstan and Russia, close to several major pipelines. In 2008, the company made an IPO on the London Stock Exchange, placing 10 million GDR for $10 apiece. The initial offering was 9.1 % of the capital.
Zhana Makat oil field will get a new status
British oil and gas company Max Petroleum has prolonged the period of test production for the Zhana Makat field up to December 15, 2011. However, it filed documents in state agencies to change the status of Zhana Makat to full production field, in accordance with the contract for exploration and production at the blocks "A" and "E", a total area covering 13,5 thousand km2. The new status will allow the company to exploit the subsoil for 25 years and give it the right to supply 80 % of crude oil for export.
Before obtaining the status of full production field, which is expected in the fourth quarter of 2011, after appropriate coordination with local authorities, Max Petroleum will sell the entire amount of its oil domestically. Today Max Petroleum produces about 2.2 thousand b/d, which allows the company to receive $3.5 million of net revenue from monthly domestic sales. That is $15–17 per barrel, lower than in the case of export. At the same time the company expects that in the third quarter of this year daily production will increase to over 3 thousand barrels.
Industrial Park will appear in Aksai
Karachaganak Petroleum Operating B.V. (KPO) has initiated the construction of the Industrial Park in Aksai. The opening ceremony of the pilot project start was attended by Deputy Akim of West-Kazakhstan Oblast (WKO) Gumar Dyussembayev, Aibek Krambayev, Head of Technical Group of PSA, Paolo Repetti, KPO Services Director, KPO employees, Kazakhstani contractors and foreign investors.
The Industrial Park will be composed of such facilities as production workshops, each one of 2 500 covered square meters, overhead cranes and gas distribution system, electrical and instrumentation bay, welding workshops, scaffolding production workshop, training centre, test laboratories, offices and warehouses.
The aim of the project is the creation of a complex of objects of higher quality, able to support and attract international investors and manufacturers in WKO to produce products with domestic enterprises.
During the ceremony, it was noted that KPO was one of the first ventures in Kazakhstan to implement a vendor development initiative. Over 3,000 Kazakh vendors are currently registered on KPO’s supplier database. During 2010 over $527 million worth of contracts has been concluded with 283 Kazakhstan companies for the provision of goods, work and services. And since the beginning of the FPSA in 1997, the local content level in all contracts assigned has exceeded $3.5 billion.
Karachaganak Petroleum Operating B.V. – is a consortium of companies associated to implement the Karachaganak project. It includes BG (subsidiary BG Kazakhstan) and ENI, the share of each being 32.5 % as well as Chevron (20 %) and "LUKOIL" (15 %). KPO performs its activities in accordance with the FPSA, which consortium members have signed with the Kazakh government in November 1997. Under the agreement, KPO will manage the Karachaganak project during the period extending to 2038, and new taxes and levies do not apply to its members.
Production statistics: results of the first half of 2011
According to the Agency of Statistics, in January–June 2011, Kazakhstan produced 33.96 million tons of crude oil and 6.36 million tons of gas condensate. It is, accordingly, 3 % and 5.4 % more than in the first half of 2010.
As for natural gas, for the first six months of this year its production rose to 19.94 billion m3 (+9.2 %). In particular, 9.79 billion m3 of natural gas in gaseous state (+10 %) was produced, and its traded output was 4.79 billion m3 (+0.4 %). In turn, the production of associated gas has reached 10,148,700,000 m3 (+8.5 %).
However, in January–June 2011 there was a decrease in the production of petroleum products, including: – gasoline, including aviation, by 20.2 % – down to 1 275.1 thousand tons, kerosene by 25 % – to 197.3 thousand tons; diesel fuel by 3.8 % – to 2,265.9 thousand tons. For the same period, production of fuel oil increased by 10.6 % – up to 2 117.7 thousand tons.
The volume of oil transportation via the main pipelines of JSC "KazTransOil" in the first half of the year rose to 27.255 million tons (+5 %), and the turnover up to 17,692 million ton-km (+6 %). In particular, the volume of oil pumped in the Atyrau – Samara section of the oil pipeline Uzen – Atyrau – Samara grew to 8 047 tones (+10 %).
The growth trend in transportation of hydrocarbons was also observed in the eastern direction: pumping via Atasu – Alashankou reached 5.752 million tons (+16 %). In June there was a fixed maximum monthly level since putting the pipe in operation – 1 002 tons. This increase is related to changes in supplies of oil producing companies in favor of the Chinese direction.
Transit of Russian oil through the pipeline section of TON-2, located on the territory of Kazakhstan, during this time rose to 2.938 million tons (+6 %).
As for the pipeline transportation of crude oil to domestic refineries, it was 6.180 million tons, while the supply has increased by 5 % to the Atyrau refinery (to 1.878 million tons) and to the Shymkent refinery (to 2.273 million tons).
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