Presentation by the Kazakhstan national commettеe of WPC

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Wednesday, 07 December 2011 12:29

Kazakhstan is growing
Results and plans of oil and gas industry of the republic make it clear that Kazakhstan is one of the most promising countries of the world

Kazakhstan shows by its activity that, in the context of global economic turbulence, it is able to provide an increased production of oil and gas, which is either comparable to the growth rate of the world production leaders or even exceeds their performance.

Following the results of 11 months of 2011, the country produced 1.1% more oil than during the same period in 2010. For comparison: Saudi Arabia achieved 0.7% increase, and the other world leader – Russia (1,2%) – is only 0.1% ahead of Kazakhstan.

There is a similar situation in the gas industry: Kazakhstan has increased natural gas production over the same period by almost 6,9%, that is, more than twice ahead of the growth rate of Russia (3,9%), and exceeds nearly by one-third the rate of the world's largest gas producer - the United States.

It is possible to predict that before the year’s end Kazakhstan will produce 80 million tons of oil and condensate and more than 26 billion cubic meters of marketable gas, thus, coming closer to the top ten suppliers of hydrocarbons in the global market.

Kazakhstan’s current oil and gas growth continues long-term industry upsurge tendency, which provided the country with almost a four-fold increase in annual production of hydrocarbons over 20 years of its independence.

On the other hand, the increased production reflects the effectiveness of broad changes made by the modern generation of oilmen in Kazakhstan, based on the legacy of their predecessors.

Today, Kazakhstan's recoverable oil reserves make up about 5 billion tons, or 3.2% of the world reserves.  Over 20 years of independence, they have grown almost twice, which looks as an impressive achievement compared with the world average rate of a similar growth of 30%. At the same time, gas reserves have increased from 1.7 trillion cubic meters to 3.8 trillion, reaching about 2% share of global resources.

This raw material growth of the republic has a special value for  the international oil and gas industry, because it was due to development of the least explored and developed parts of the world's hydrocarbon resources - in the sea depths.

A giant Kashagan field discovered on the Caspian Sea shelf in Kazakhstan with recoverable oil reserves of 1.48 billion tons and 1 trillion cubic meters of natural gas not only increased the republic’s resource potential, but also demonstrated to the investment community how promising the investments in the country’s new oil and gas areas are.

Another tendency in the development of Kazakhstan’s energy sector was a manyfold increase of production in the fields, which, at the time of the collapse of the Soviet Union, seemed to have come to the peak of their capabilities.

The development of a giant Tengiz oil and gas field, oil and gas condensate Karachaganak field showed that the combination of natural resources with modern technology gives amazing results. During the years of independence, the level of annual hydrocarbon production at Tengiz field has grown almost 26 times, in Karachaganak - more than five times.

These deposits are of great prominence in the oil world, but in fact there are tens of projects having ensured the development of new reserves and production increase at existing complexes in Kazakhstan. This year, half of almost 80 subsoil users in the country has provided a growth, while some market participants have raised production by several times. 

According to the number of independent producer companies, Kazakhstan is currently the first among the Eurasian states, which is one of the most important indicators of the investment attractiveness of the country.

Another indicator of this status is the accumulated volume of direct investments in the oil and gas sector of Kazakhstan, which made up more than $100 billion over 20 years. No country in the world, which gained independence after 1991, has any comparable volumes of investment in oil industry.

Kazakhstan has been able to achieve such results by implementing an effective investment policy which opened wide business opportunities to market participants: from the establishment of public-private alliances in the form of joint ventures, PSA, privatization transactions - prior to the acquisition of government shares in the stock markets.

At the same time, the leadership of the country and industry ensured a balance of participation in the development of its foreign and domestic sector. For almost 10 years, since its establishment in early 2002, the National Company "KazMunayGas" has increased its oil production more than twice including its shares in companies, and its contribution to the total production of the country has reached 25%.

At the same time, the tendency of government’s increased role, which is inherent in all oil and gas countries, is being maintained in Kazakhstan not by nationalizing businesses, but by assets acquisition by "KazMunayGas" from the owners at the market price, taking into account the increased cost of hydrocarbons, which is another confirmation of the high profitability of investments in the country’s energy industry.

The political expression of the growing influence of the national sector reflected in autumn 2005 in the establishment of the Kazakhstan Association of Oil-Gas and Energy Sector Organizations KAZENERGY, which assumed the role of a representative of their interests (regardless of nationality) in collaboration with the authorities, as well as an initiator and coordinator of the intra-industry cooperation for successful development of its members. After six years of its work, the Association now includes more than 50 companies from various countries of the world, which believe in the political effectiveness of this industrial union. 

KAZENERGY’s active position helps to maintain a friendly nature of Kazakhstan’s investment policy in the oil and gas industry with respect to market participants. One of the latest manifestations of this policy was that the Government’s consent to abandon the termination of contracts with subsoil users who do not comply with the terms of their license, with the replacement of repressive measures by economic measures in the form of fines, with continuing business activity.

Its successful development in the majority of producer companies determines a forecast of a further long-term increase in oil and gas production in Kazakhstan, with increased growth rate in the coming years.

The role of drivers will be performed by the development projects for Tengiz with an increase from 26 million to 32-34 million tons per year, for Karachaganak - from 11 million to 15 million tons of oil and condensate, for Kashagan – with the level of 22.5 million tons within the framework of pilot development, other smaller commercial businesses onland and offshore, together with western, East Asian, and Russian investors.

A milestone of the next planned stage of hydrocarbon growth is the production level at 130 million tons of oil and nearly 29 billion cubic meters of marketable gas in 2020.

The national sector will play a significant role in the "new wave of Kazakh oil". "KazMunayGas" and its subsidiaries are involved in the development of the Tengiz field, plan to enter the Karachaganak international consortium, ensuring the progress of the project, to be cooperators in the development of the Kashagan and other offshore fields, as well as to implement plans for exploration of prospective onshore deposits in various parts of the country, in which they intend to invest over half a trillion tenge (about $ 400 million).

Along with it Kazakhstan is fully committed to transparency and accountability of processes in the oil and gas sector. For instance, Kazakhstan is an active participant of the Extractive Industries Transparency Initiative since 2005, which implementation is also fostered by KAZENERGY Association. Our country has successfully achieved “Close to Compliant” status, and we are ready to work further with all parties involved.

A powerful increase of oil and gas production radically changes the map of export infrastructure in Kazakhstan, according to the country’s production and market strategy and its partners.

In 1990s, the republic had only one oil export pipeline, but in the next decade, it built two new ones - the North Caspian (known as CPC) with the capacity of up to 32 million tons to the Black Sea and China with the initial capacity of 10 million tons, and the gas pipeline which connects the resources of Central Asia with industrial consumers in the Eastern part, capable of pumping 30 billion cubic meters annually.

Today, the capacity of all these routes is expanding: CPS - up to 67 million tons per year, the oil pipeline to China - up to 20 million tons, the Asian gas pipeline - up to 65 billion cubic meters. To connect it’s own gas resources, the republic began the construction of Beineu-Bozoy-Shymkent pipeline this year. 

In 2018-2020, it is planned to set up the Kazakh Caspian oil transportation system, which at the first stage will ensure an export of 22 million tons annually through the Caucasus with a further increase of the throughput that would be proportional to the increase in production on the shelf.  

A continental view on transport plans shows that Kazakhstan enhances multidirectional and balanced nature of its hydrocarbons export, while it pays no less attention to the growing gas opportunities, as compared to traditional oil. 

Since the beginning of this year, the export of Kazakh gas to Europe has exceeded 12 billion cubic meters, that is the same volume as the combined delivery of neighboring Turkmenistan and Uzbekistan. The access of the republic to the East Asian natural gas market will create a broad presence throughout the Eurasian gas region.

The current decade will become a qualitatively new stage of development of the country’s oil and gas industry. Kazakhstan's and industry’s leadership plans to significantly increase production of hydrocarbon products, by establishing points of technological and investment growth for the design formation of the extractive industry next generation.

For these purposes, Kazakhstan started the construction of the Atyrau gas processing facility with the capacity of more than 1.2 million tons of various types of polymers per year, a similar production in Pavlodar, developed the projects to upgrade existing refineries in the country with increased refining depth to 85% and increased oil output from 14 million tons to 17 million tons per year.

It is also planned to build new GPP facilities, which will increase the output of liquefied natural gas from 2.2 million to 3.72 million tons, and organization of a new production of methanol and synthetic liquid fuel using GTL technology is under way in the West Kazakhstan region.

A successful implementation of these plans will make Kazakhstan the second supplier of refined petroleum products and petrochemicals from this part of Eurasia after Russia.

In Western Kazakhstan, the Government has selected eight machine engineering plants - equipment manufacturers – for participation in the implementation of “Oil and gas machine engineering” cluster. Other industrial facilities of the same profile are constructed in the Caspian, Atyrau and Mangistau regions.

In the next five-seven years, the volume of investments in the oil and gas refining sector and related mechanical engineering industry may reach $15-20 billion, making them comparable to the level of annual volume of investment in hydrocarbon production projects. All these industrial projects involve private and foreign companies, which means the achievement of the investment attractiveness of various sectors of Kazakhstan's economy through the efficient use of hydrocarbon capabilities of the country.

The control center for technological and managerial modernization is operated by Samruk-Kazyna National Welfare Fund, which controls more than two thirds of the national economy, including the energy sector.

Receiving dividends from the shares of state-owned fuel sector enterprises, the Fund invests in the industrial development projects of the Kazakh oil industry, thereby providing a balanced solution of the current business problems with corporate strategic goals of general economic reforms.

The implementation of these plans guarantees that Kazakhstan, in the nearest and mid-term future, will maintain high rates of investment growth and GDP at the current level of 7-8% per year. The efforts of the country will result in its diversified presence in the global hydrocarbon market in favor of products with high value-added price and high-tech component.

Today, Kazakhstan increases oil and gas production, but this growth is the basis of innovative rise of the republic, the results of which will already be seen in this decade.