by Igor Ivakhnenko
KAZAKHSTAN ATTRACTS ENERGY INWESTMENTS
The current turbulence in financial markets makes international investors look for the places, where a decent profit is not undermined by political risks and commercial drops. One of such places is giant Kazakhstan, lying between the industrialized West and the rapidly developing East. Its mineral wealth and ambitious technological development has created huge demand for investment to profit from a combination of these two foundations of economic growth.
On the Rise. Looking globally, we can see that it is already 20 years that this state has been on a stable oil rise, increased its share in the global energy trade due to signifcant growth of production and the establishment of a branched export pipeline system.
Now the country is at the cusp of entering into the top ten oil producers, by 2020 it is going to be among them; and in a long term perspective it will be one of the “great seven” states with the “black gold” reserves up to the end of the current century.
At the same time, Astana is planning to make 25 times increase in the current production of polymers in the mid-term, and threefold increase in the production of own oil and gas products by the end of the decade. Such growth indicators are a part of the Industrial and innovative development strategy of Kazakhstan accepted in 2010 (at the end of the frst global crisis wave), with one of the long term purposes the affliation with the 50 most competitive world economies, due to rapid industrial growth composing 7% annually.
To achieve the set goals, Kazakhstan oil industry needs foreign investments infow approximately equal to that obtained during the previous 20 years of independence, which is about $120 billion. However, it is more obvious that the capital sources structure will signifcantly change. Before, west companies were recognized as the main investment partners of Kazakhstan, now Astana is actively diversifying the fow of foreign investments through eastern companies.
Eastern Wave. Asian investors are actively participating in the Kazakhstan oil market. For example, the Indian ONGC Videsh Limited (OVL) acquired 25% share in Satpayev project from the national KazMunayGas (KMG) for $80 million. The forecasted extracted resources of this site make up 253 million tons of crude oil equivalent (o.e.), which represents an average scope for Kazakhstani sector of the Caspian Sea (KSCS).
Another group of the Indian companies, including the earlier mentioned OVL, as well as Gail and Indian Oil Corporation (IOC), may enter the North Caspian project for $6 billion. This project provides for the development of a unique in terms of the reserves of the
oil and gas condensate deposit, Kashagan. Its reserves are valued at 4.8 billion tons of oil equivalent (o.e.).
American Indian negotiations are not completed yet, but if this business project goes beyond the scope, then the tendency of oil industry investments building up by new participants will be more obvious. Out of all agreements, on the Kazakhstan Caspian Shelf development in particularly, the two thirds belong to the Eastern and South Asian investors.
New Resources Attraction. New investors are attracted to the Kazakhstani market by both global processes, like reduction of resource base on the traditional world oil producing areas, and recent positive news on real business situation regarding the development of KSCS.
It is noteworthy that they are provided by projects with the participation of investors from the Gulf countries. Caspi Meruerty Operating Company BV Consortium operating on Zhemchuzhina block in the north-eastern Caspian, over the past few years drilled a number of exploration wells, each of which was successful. In this project, 55% belong to the Anglo-Dutch Shell, 25% to KMG and the rest belong to Oman Pearls Co. Ltd.
Another company of the Arabian East, Mubadala from AUE, jointly with the American ConocoPhillips (each has 24,5%) and KMG (51%), succeed in exploration of N block. The frst exploration well was built in the year beginning, where crude was found and the drilling is going to be continued.
Implementation of the opportunities under the mentioned projects will provide for the crude production in Kazakhstan up to 130 million tons by 2020 from 80 million tons in 2010. in a longer term the increase in crude production will be provided by other offshore projects growing in number.
The foreign companies’ contribution into off-shore projects is growing as well, in-cluding the fact that shelf’s crude poten-tial is increasing during a long period. In the early 90-s KSCS resources were valued at less than 3 billion tons of oil equivalent. Today they have reached 8 billion tons and keep tends to grow. The dynamics of the explored hydrocarbon reserves represents the groundbreaking confrmation of the potential. At the end of XX century they equaled zero, but now they exceed 5 billion tons of o.e. Besides, progress in the projects with the participation of Oman Pearls Co. and Mubadala shows a high probability that the explored reserves will grow.
Meanwhile, though the operational activity on the Kazakhstan Caspian Shelf is continuously increasing the scope, the biggest part of potential structures in KSCS remains free. 75% out of 120 oil and gas carrying sites found potential remain unallocated. At the same time expanding the geological research is opening new promising structures that can be hydrocarbon deposits. That is, the resource of the Caspian shelf of Kazakhstan's attractiveness to investors increases from year to year.
This raw material potential receives active infrastructure support for the monetization of energy products. This decade expanding began in the export routes to the West, including the North-Caspian pipeline from 28 million tons to 67 million and the establishment of the Kazakhstan Caspian Transportation System up to 56 million, as well as the East: Atasu - Alashankou from 10 million to 20 and a gas pipeline Beyneu - Akbulak to 10-15 billion cubic meters a year.
The result of these efforts will create a strong well-balanced system of supply of Kazakh hydrocarbons to the world market. That is the preparing of the infrastructure for the export of additional quantities of oil and gas from current and new projects, and preventing of transportation risks is solved with anticipation.
Deep Processing Revenue. At the same time, growth in oil and gas reserves and production in Kazakhstan, forming a certain surplus of raw materials in excess of the export trade opens up entirely new possibilities to generate revenue.
The presence of an enormous resource base allows creating the country's capacity for deep processing of hydrocarbons. They will have a signifcant competitive advantage compared to similar industries in the countries industrialized, but located far from the sources of supply. In fact construction in Kazakhstan of petrochemical enterprises saves owners of such projects from the millions and billions of constant costs for delivery of raw materials to the processing site. In turn, savings in transport costs increases the return on investment in Kazakhstani oil-gas. And the proximity of the republic to such growing consumers of the products of deep processing as China, Russia, the European Union provides additional benefts in the sale.
It is not surprising that in May this year The Korean Company, LG Chem, and Kazakh public-private alliance Kazakhstan Petrochemical Industries (KPI) signed the memorandum of cooperation in implementing the second phase project of Atyrau Gas Chemical Complex (AGCC) in the form of a joint venture. Korea will provide a loan of $ 3.01 billion to implement the second phase of the complex to produce 800 thousand tons of polyethylene. Moreover, the Korean-Kazakh joint venture will invest in the project additional $ 1.29 billion equity. And the frst phase AGKH for 450 thousand tons of propylene is already under construction by another Asian company, Chinese Sinopec Engineering. And to fnance this project, Eximbank of China provided a loan of $ 1.3 billion.
Atyrau project for the production of polymers is one of the largest, but not the only one planned in Kazakhstan. In addition to a number of petrochemical facilities for republic refneries to be constructed in 2015-2017, there are some other plans. For example, a private Pavlodar petrochemical company is looking for partners for a project to increase the production of polymers from 32 tons to 1 million tons.
The number of industrial projects, based on deep processing of hydrocarbons is increasing in Kazakhstan, refecting the global trend of long-term rise of the market of petrochemical products. After all, if now the global petrochemical industry revenues are about $ 1.8-2.2 billion per year, by mid-century they will grow to $15-20 trillion. The increased revenue will not only increase the production volumes of products but also a steady increase in value. It is obvious that a signifcant portion of that money will be earned by those market participants, who optimally use the resource and logistical specifc of regions when selecting the location of new production capacity. Just like in Kazakhstan...
Tanks against balance. Even this brief pro-fle of recent projects makes clear the nature of the new "Eastern" wave of investments in Kazakhstan's oil and gas industry. Foreign companies are trying to secure a comprehensive presence in the market. Most likely, because they consider the state an attractive place to build vertically integrated hydrocarbon business from the crude to the process-ing.
It is clear that a signifcant role in the country's investment attractiveness plays its legal and tax climate. A typical example is as follows, the companies from neighbouring Russia this year after the formation of the Common Economic Space have been actively re-registering and transferring their business in the Central Asian Republic. These market participants imply more lenient tax regime and long-term stability of the political situation in Kazakhstan, avoidant national and civil conficts.
Today, when a variety of national groups of investors are directed to Kazakhstan, it is worth recalling that the businessmen from the Gulf were among the frst foreigners who after independence of the Republic saw in it an attractive place for investment and proft from the projects in the energy industry. For example, investors of the Arab East provided the birth of the North-Caspian pipeline in the early 1990s.
20 years later Kazakhstan opens up new opportunities for them. Highly proftable investments in exploration and refning of the stocks of its oil tanks is a good alternative to bank safes, as cash holdings are the most vulnerable part of the capital when the f-nancial crisis is shaking the global economy.