Kazakhstan oil and gas industry

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09.02.2009 00:34
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Maulen Namazbekov
Enormous carbohydrates resources have helped Kazakhstan to develop effective energy policy which has formed basis for accelerated national economic growth.
During the last few years Kazakhstani Oil and Gas industry has been transformed from centralized state-owned organization into fragmented free market enterprise which has abruptly increased its pull of investments and let Kazakhstan to become a leader in terms of its estimated quantity of carbohydrates deposits not only among post-Soviet states but also among major oil producing nations. On Kazakhstani national territory are present virtually all the major companies in the world carbohydrate business. Kazakhstan holds the largest proven oil reserves in Caspian region. According to statistical data carbohydrate reserves confirmed by British Petroleum on land and continental shelf are estimated within 5.5 bin tones or 39.8 bin barrels. However, estimated oil reserves located only within Kazakhstani part of Caspian Sea amount to more than 17 bin tones or 124.3 bin. barrels. Oil and gas rich regions of the Republic which contain 172 oil and 42 gas resources among which over 80 are being already developed occupy around 62 % of Kazakhstani territory. Major oil reserve in Kazakhstan (over 90 %) are concentrated in 15 major resources: Tengiz, Kashagan, Karachaganak, Uzen, Zhetybai, Zhanazhol, Ka-lamkas, Kenkiyak, Karazhanbas, Kumkol, Northern Uzachi, Alibek Molla, Central and Eastern prorva, Kenbai, Korolevskoye; out of all these resources half of combined oil reserves is contained just within Kashagan and Tengiz recourses. Such concentration of geological resources lessons their cost of production, however, geological peculiarities of the resources such as geological formations of oil basins, higher content of chemically aggressive crude oil admixtures. Require extra careful project planning concerning resource development and considerable initial investmente.
The resources are located on the territory of 6 out 14 Kazakhstani oblasts. These are Aktyubinsk, Atyrau, Western Kazakhstan, Karaganda, Kyzyl Orda and Mangistau oblasts. About 70 % of total carbohydrate reserves are located West Kazakhstan oblast.
Atyrau oblast contains the most explode oil reserves: on its territory were discovered over 75 resources suitable for industrial production con-tAind 930 mln. tones of total oil reserves. The largest oil reserve in the oblast is Tengiz (initial estimates of extractable deposits were 781.1 mln.  tones). The other resources in the oblast contain around 150 mln. tones. More than half of these reserves are  found in Korolevskoye (55.1 In. tones) and can buy (30.9 mln. tones) resources.  
On the territory of Mangistau oblast were discovered over 70 resources with extractable oil deposits of 725 mln. tones and gas condensate of 5.6 mln. tones. Less than half resources are producing, the majority of them are at the final stages of exploration. The vast majority of remaining reserves are classed as difficult for extraction. Such as large resources: Uzen, Zhetybai, Kalamkas and Karazhanbas.
Over 15 carbohydrate resources are located on the territory of Western Kazakhstan oblast. Their undisputedly leader is Karachaganak oil and gas resource with extractable deposits of liquid carbohydrate crude around 320 mln. tones and methane over 450 bin. cubic meters. In September 2005 discovery of a new carbohydrate resource in Fedorovskiy next to Karachaganak was announced: oil and gas condensate reserves are estimated 200 mln. tones. Another promising region in terms of oil and gas potential is Aktyubinsk oblast. Around 25 resources were discovered here. The most significant geological discovery in this region is Zhanazhol goup of resources with extractable deposits of oil and gas condensate around 170 mln. tones. In 2005 company CNPC-Aktobemunaigas announced discovery of a new resource Umit located in central block of Caspian cavity Eastern part.
The major oil producing industry of Kyzyl Orda and Karaganda oblasts is Kumkol group of resources - fifth in its significant oil and gas resourse group in Kazakhstan. In summer 2005 company Petro Kazakhstan which was working in this region had announced discovery of commercial oil reserves within its concession territory Koizhan which borders the Northern part of Kyzyl Kiya resource. Further build-up of oil and gas industry resource potential in Kazakhstan will be enabled through large scale exploration of Caspian and Aral water areas.
In 2000 discovery of Kashagan resource in the northern part of Caspian region with extractable reserves set at minimum estimate of 9 billion barrels has already been hailed as the most significant event in world practice for the last 30 years.
Oil and gas exploration of unresearched deep water areas of Caspian cavity and Aral as  well as positive data obtained via regional seismic works done in the Nprlern, Central and Southern regions of Kazakhstan looks lvery promising.
For Kazakhstan more and more valuable export is becoming natural gas explored and estimated reserves of which - including new-found resources on Caspian shelf - amount nearly to 3.3 trillion cubic meters, whilst potential reserves reach a figure of 6-8 trillion cubic meters. It is worth noting that peculiar feature of the explored gas reserves in the Republic is that virtually in all the resources and particularly in newly producing largest resources gas production is conducted along with production of crude oil and condensate. Therefore, active development of these resources and abrupt growth of oil production volume for the last years require utilization of ever increasing volume of concurrently produced gas. For the last years an average growth of natural gas production stood at 6-8% per annum, meanwhile, however, for 2007 increased volume of gas production was 9.7% reaching total figure of 29.6 billion cubic meters that more than three times has exceeded level of gas production for 1991. Major production of natural gas is conducted in Aktyubinsk, Atyrau, Western Kazakhstan, Kyzyl-orda and Mangystau oblast of Kazakhstan. Taking into account oil and gas reserves as well as ever increasing volume of production for the foreseeable future Kazakhstan will remain one of the world leading producers. In 2010 forecasted volume of oil production in Kazakhstan will be 80 million tons p.a., by 2015 -120-130 million tons. It is also expected that production of unstripped gas by 2010 will increase to 40 billion cubic meters and by 2015 - up till 70 billion cubic meters. Accordingly there will be an increase in production of liquefied gas and by 2015 it will reach level of 2 million tons. Experts forecast that within the nearest future Kazakhstan may enter the ranks of "top ten" oil producing nations being on a par with Kuwait. Growth of Kazakhstani oil production volume is closely tied to two factors: Firstly, considerable increase in foreign investments: in particular, direct foreign investments into oil producing industry. Secondly, favorable carbohydrate market conditions in the world exercise considerable influence on situation of oil industry in Kazakhstani economy.
It is worth noting that one of the most important aspects of есошис reform process in Kazakhstan was creation of favorable investment climate for national and foreign investors which is one of the most attractive business climates not only in CIS countries but also across countries of Central and Eastern Europe as well as Baltic states.
Yet oil production growth in Kazakhstan is happening somewhat slower than was initially anticipated due to technical difficulties encountered during Kashagan and Tengis resource development.
Project delays during development of Kashagan resource due to technical issues and overexpeniture have led to a situation where upon beginnin of oil production accumulated sum total of compensatory payments to Kazakhstani government would amount to 4.5 billion USD. The production stage of development has been transferred from 2007-08 as was initially planned to 2012-13 while estimate of expenditures has been reviewed froi $57 billion USD to $136 billion USD. Raising of production rate Tengiz resource by company TengizShevrOil should happen during the second half of 2008even though it was planned initially for the beginning of 2007.
As a consequence in 2008 it is planned to produce 67.8 million tons of oil in Kazakhstan which somewhat smaller that was planned initially, namely 69 million tons. However, these delays should significantly affect long term development targets of Kazakhstani oil and gas producing industry and will be compensated by increased production during 2012-15.
At the same volume of internal oil consumption in Kazakhstan is relatively not high - about 226 thousand barrels per day or 17 % of total volume of national production - and stable. Kazakhstan exports major part of produced oil mainly via pipelines. Kazakhstan has three major oil refinery plants: in Pavlodar which supplies oil products to the Northern regions of the country, Atyrau in the Western region and Shymkent in the Southern region. Their combined estimated output is 21 million tons per annum.
As aresult Kazakhstan will export almost all production increase and this is precisely why key significance is attached to investments made to develop routes of export: mainly pipelines which are very effective and reliable means of carbohydrates transportation.
Oil export from Kazakhstan which does not have access to sea ports was traditionally dependent upon transit via Russia; however, degree of dependency was considerably lowered over the last years. Since the President Nursultan Nazarbayev has declared on several occasions that energy related partnerships of Kazakhstan are based on pragmatic economics.
Kazakhstani pipeline system is comprised of three autonomous areas interconnected with system of Russian company ОАО NK Transneft. Major part of exported oil is piped along Atyrau-Samara route. Kazkhstan exports significant amount of oil by rail transport which is more costly. Over the last decade there were built two new large pipelines to export oil. Firstly, Caspian pipeline consortium (KTK): pipeline 1580 km long connecting Tengiz resource nearby Caspian Sea shore with Russian Black Sea port Novorossiysk.
Along KTK built in 2001 during last year there was transported around 260 thousand barrels per day or 32.6 million tons of oil mainly produced by TengizShevrOil and АО Exploration Production KazMunayGas. Volume of transit turned out to be somewhat higher its initially planned capacity: around 28 million tons per annum - anticipated increase of production.
Secondly, through pipeline connecting Kazakhstan with China 200 thousand barrels are transported each day or 10 million tons. The pipeline connects Central Kazakhstan and eastern section of pipeline system of АО KazTransOil with Chinese rapidly growing energy market. Pipeline construction was completed in 2006 and it is not yet used to its full capacity because it is not connected to Kazakhstani Caspian resources. These new pipeline projects as well as high prices of oil have weakened dependency on oil transit and made cost effective even expensive rail transportation. There were also oil supply to Iran in accordance with swap agreements. Nevertheless, within few years after start of development of Karashagan resource and increased production from Tengiz Kazakhstani pipelines transmission capacity will be obviously insufficient to transport increasing volume of production in the country. For example, already in January 2008 the largest oil producing company in Kazakhstan -TengizShevrOil - announced 90 thousand barrels per day increase in production reaching total figure of 400 thousand barrels per day. Upon launch of second queue facilities planned for the second half of 2008 TengizShevrOil is set to increase production up till 540 thousand barrels per day. On the whole, given national oil production is above 90 million tons per annum - including 21 million tons per annum produced in Kazakhstani part of Caspian Sea - since 2009 it will be necessary to build a new pipeline to export oil. Upon reaching oil production growth of 140 million tons per annum including 61 tons per annum from Kazakhstani part of Caspian Sea by 2012 it will be necessary to build another pipeline. So it seems the major projects in terms of developing oil transit will be the following: Firstly, Kazakhstan - China pipeline throughput capacity double increase up to 20 million tons and its connection to major part of national pipeline system.
Secondly, KTK pipeline throughput capacity double increase up to 1.3 million barrels per day or 67 million tons per year of around two billion USD value. Common agreement with Russia concerning this has already been reached. Thirdly, Yeskene-Kuryk pipeline and oil terminal in Kuryk port construction worth around 1.6 billion USD as a part of Kazakhstani Caspian pipeline system. This pipeline is a part of largest scale scheme of transportation allowing to supply Kazakhstani oil mainly from Kashagan resource from Caspian Sea basin through Caucasian region to Mediterranean markets via Baku-Tbilisi-Dzheikhan.
It is important to note that in May 2008 Kazakhstan has ratified a treaty with Azerbaizhan about support of oil transit from Kazakhstan through Caspian Sea and territory of Azerbaizhan to international markets via pipeline system Baku-Tbilisi-Dzheikhan which considerably strengthens common prospects and significant of Yeskene-Kuryk pipeline.
Direction to Iran is also of interest to the Republic. According to preliminary research Kazakhstan-Turkmenistan-Iran route is economically one of the most attractive options to export Kazakhstani oil to the Persian Gulf markets. According to the project oil pipeline route starts in Western Kazakhstan goes through Western Turkmenistan and follows further alone Iran territory up to its Northern region.