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Ardak Issaev MSc

KBTU

 

An Analysis of Oil and Gas Sector (the case of Kazakhstan)

 

According to the country report of the International Monetary Fund (IMF) published in 2004, most of the Caspian region’s fields with the largest recoverable reserves belong to the Republic of Kazakhstan. The proven and probable crude oil and gas reserves are 50-60 billion barrels and 6 trillion cubic feet, respectively; and with a current production rate of 1.5 billion barrel per day the hydrocarbon resources will be sufficient for the country for the next 70 years.

In addition, as per the IMF report (2004), within next following 15 years Kazakhstan would be in the top ten oil-exporters with the production rate of 3.5 billion barrels per day, at the same level as Venezuela, Iran, Norway and Mexico (see Figure 1). Gas production would also rise rapidly to 4 times more by 2010 than it was in 2004 and it was planned that by 2020 the production rate would reach 40-60 billion cubic meters per year. Annual income would be $12 billion per year, but with a delay for several years because of the difficulties in the development of offshore fields. It was predicted that a peak of crude oil production would be reached in 2014 before falling to 2.3 million bpd in 2018.

The country's major hydrocarbon reserves are found in the western region of the country, territory of which includes Atyrau, Mangystau, and West Kazakhstan, as well as Aktobe oblasts (Egorov et al., 2003). In the accounts of onshore fields in these oblasts there is about half of current proven reserves, whereas the offshore Kashagan and Kurmangazy oil fields, located in the Kazakhstani part of Caspian Sea, are believed to contain at least 14 billion barrels (US Energy Information Administration, 2010).

 


Figure 1 – Petroleum production outlook

Source: International Monetary Fund, 2004

In the Figure 2 it can be seen that in 2009 oil production in Kazakhstan was more than doubled the rate of a decade earlier, and reached 1.54 million barrels per day, while domestic oil consumption averaged 241 000 bbl/d during this period of time; which means that remained volume of oil in rate of 1.3 million barrels per day were exported to the international market. Nowadays, Kazakhstan is one of key players in petroleum exporting sector in Central Asia with present petroleum transportation system delivering the crude oil to world markets by pipelines to the Black Sea via Russia through the Caspian Pipeline Consortium (CPC) oil pipeline and Atyrau-Samara Pipeline; by barge and pipeline to the Mediterranean via Azerbaijan and Turkey through Baku-Tbilisi-Ceyhan; by barge and rail to Batumi, Georgia on the Black Sea (Trans Caspian Transportation System); and by pipeline to China through the Kazakhstan-China oil pipeline (www.kmgep.com; www.mgm.gov.kz).

As per of interview with Kazakhstan Prime Minister Karim Massimov (October, 2010), the Kazakhstani government is going to strengthen its position in the world oil trading market; and by the Government it is anticipated to increase crude oil exporting up to 3 million barrels per day by 2020; however, it should be taken into account that the rapid oil production boost will require extra capacity for exporting infrastructure system.

Figure 2 – Oil production and consumption in Kazakhstan, 1992-2009

Source: US Energy Information Administration, 2010

In 2010 it is planned to increase the oil production rate up to 1.6 million barrels per day. Successful realization of the plan is dependent on performance of the largest key oil producing fields of the country. These fields are Tengiz, Karachaganak, Uzen, Mangistau, Aktobe, the North and South Kumkol, as well as Akshabulak fields. All of these eight largest are currently producing onshore fields, and five of them are located in the western part of the country; the North and South Kumkol fields are situated in the south central area, and the Akshabulak field is in the central area of the state. In the balance of these major fields are accounted about 80% of liquids production in the country as of 2008 (US Energy Information Administration, 2010).

Figure 3 – Kazakhstan Oil Pipelines

Kazakhstan Oil Pipelines

Source: CIA World Factbook, 2010

Particularly interesting project, that has a potential to be one of the drivers of Kazakhstani Petroleum Industry in the future, is development of offshore field – Kashagan, which is currently under development phase. The offshore oil field is believed to be as the largest one known outside of the Middle East and the fifth largest in the world in terms of hydrocarbon reserves. Its location is the northern shore of the Caspian Sea near Atyrau city. Initially, Agip Kazakhstan North Caspian Operating Company (Agip KCO) was appointed to develop the field; however, then, in 2009, Agip KCO was replaced by the North Caspian Operating Company (NCOC), which operational activity includes Kashagan and other fields in the neighbouring area such as Aktote, Kairan, and Kalamkas. The NCOC Production Sharing Agreement consists of Total, Eni, ExxonMobil, Shell, and National Company KazMunayGas with a share of 16.8% each, ConocoPhillips – 8.4%, as well as Inpex – 7.6% (Egorov et al., 2003; US Energy Information Administration, 2010). The estimated field's recoverable reserves are about 11 billion barrels of oil. Originally, it was planned to get first oil stream in 2005, however the timetable for production start-up has then been postponed to 2013 due to cost overruns, associated with the field's adverse operating environment and complex geological problems. Initial production rate from phase 1 of the project is expected at 370 000-450 000 barrels per day, with a peak production of 1.5 million barrels per day by 2019 during phase 2 as per US Energy Information Administration report of 2010.

In terms of Downstream/Refining Sector of Kazakhstani Petroleum Industry, the country had a crude oil distillation capacity of 345 100 barrels per day as of January 1, 2010 in accordance with the Oil and Gas Journal. There are three major oil refineries located in Pavlodar, Atyrau and Shymkent. As per Nefte Compass report an average of 232 900 bbl/d were processed between January and September 2009 against average local consumption of 240,000 bbl/d in 2009.

Although Kazakhstan is a significant oil exporter, the country experiences regional and seasonal oil product shortages because of situation of oil and gas resources mostly in western part of the country; and its industrialized northern and southern regions is lacking pipeline connections with the western petroleum rich regions. These oblasts rely on imports from neighbouring countries such as Russia and Uzbekistan, respectively. Additionally, until recently there have not been the high levels of foreign direct investment in the refining sector that other sectors of the oil industry have. One more factor, which has a huge impact on petroleum products import into the country, is low domestic prices for refined products. This factor forces oil producers to export crude oil to international markets instead of refining it locally. As per report of National Company KazMunaiGas, the company plans to invest up to US $4 billion to modernize mentioned three refineries; and it expects to fully meet domestic demand for petroleum products from its refineries by 2014 from its own increased production of oil and condensates.

As far as natural gas production is concerned, this sector is relied on production of associated natural gas from oil fields, and the country currently is approaching to become a net gas exporter. Likewise oil fields, most of natural gas resources of Kazakhstan are situated in the western part of the country, with more than half of its all gas reserves is in the balance of Karachaganak oil and gas field.

As can be found in Figure 4, annual production of natural gas has been growing from 162 Bcf in 1999 to 387 Bcf in 2009. By 2009 accumulated total gross gas production was 1.26 trillion cubic feet, and 69% of the gas (870 Bcf) was produced, as well as remained volume (31% or 390 Bcf) was re-injected back into oil-bearing reservoirs to enhance crude production. The two largest natural gas producing fields – Karachaganak and Tengiz – are also the giant crude producing fields (US Energy Information Administration, 2010).

Figure 4 – Gas production and consumption in Kazakhstan, 1992-2009

Source: US Energy Information Administration, 2010

There are two separate domestic natural gas distribution networks in the country: the west one services the country's producing fields, and the second – south one – delivers imported natural gas to the consuming regions. The shortage of internal domestic pipelines, which may connect the country’s natural gas-producing regions with the country’s industrial areas and/or back lands, counteracts to the overall development of the country's natural gas producing and distributing sectors. Southern regions of Kazakhstan are supplied with gas from Uzbekistan delivered through the Tashkent-Shymkent-Bishkek-Almaty pipeline, despite the country exports gas from its North-Western part. Mainly, the gas transportation system is controlled and managed by KazTransGas JSC which is a subsidiary of National Company KazMunaiGas.

Until recently Kazakhstan had a status as a transit country for natural gas pipeline exports from Uzbekistan and Turkmenistan to Russia and China through Central Asia Center Pipeline (CAC), Central Asia Gas Pipeline (CAGP), Bukhara-Uralsk Pipeline and Tashkent-Shymkent-Bishkek-Almaty Pipeline (see Figure 5). However, in 2009, for the first time in the history of the country gas exports exceeded imports by 134 billion cubic feet, and Kazakstan has become a net oil exporter (US Energy Information Administration, 2010; www.kmgep.com; www.mgm.gov.kz).

Figure 5 – Kazakhstan Gas  Pipelines

Kazakhstan Natural Gas Pipeline Routes

Source: Kazakhstan Oil and Gas Ministry

All in all it can be concluded that Kazakhstan belongs to a number of countries, which have the great potential of development due to its huge explored hydrocarbon resources. As per the explored oil reserves the country holds the 13th place among world petroleum producing states, as well as in terms of gas and condensate resources it is in the 15th position. At present and future projected time, the major sources of increasing petroleum production rates will remain already explored oil and gas reserves of West Kazakhstan, as well as the production rate growth from the offshore fields will allow the petroleum sector of the country to have dominating position in the development of national economy within next 10-15 years. 


References

Central Intelligence Agency (2011) The World Factbook: Kazakhstan. www.cia.gov. [15/10/2011]

Egorov O., Chigarkina O., Baimukanov A. (2003) Oil & Gas Industry of Kazakhstan: Problems of Development and Effective Functioning. Almaty, Kazakhstan.

Energy Information Administration of the US Department of Energy (2008) Country Analysis Briefs: Kazakhstan. www.eia.doe.gov [accessed on 15/10/2011]

Energy Information Administration of the US Department of Energy (2010) Country Analysis Briefs: Kazakhstan. www.eia.doe.gov [accessed on 16/10/2011]

International Monetary Fund Report (2004) Republic of Kazakhstan. International Monetary Fund: Washington D.C.

KazMunaiGas Exploration and Production (2011) Kazakhstan Oil and Gas Sector. www.kmgep.kz. [accessed on 17/10/2011]

Ministry of Oil and Gas of the Republic of Kazakhstan (2011) The Oil Industry. www.mgm.gov.kz [accessed on 16/10/2011].

Ministry of Oil and Gas of the Republic of Kazakhstan (2011) The Gas Industry. www.mgm.gov.kz [accessed on 16/10/2011].

The Economist Intelligence Unit (March, 2009) The country report: Kazakhstan. The Economist Intelligence Unit: London, United Kingdom.