Speech by the Vice Minister of Oil and Gas of the Republic of Kazakhstan Mr. Lyazzat KIINOV on the 20th World Petroleum Congress (7th December 2011, Doha)

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Wednesday, 07 December 2011 08:53

Dear Ladies and Gentlemen,

First of all I would like to greet and welcome distinguished guests, Honorable Ministers, and Their Excellencies Ambassadors, heads of leading world companies, our friends and thank colleagues for participation in this Session in the framework of the 20th World Petroleum Congress.

Allow me express my gratitude to the hosting part for organizing such an important event and for your warm hospitality. 
This Congress is also special for Kazakhstan. It takes place in the year of 20th  Anniversary of Independence of the Republic of Kazakhstan.  That is why my speech is dedicated to the achievements, problems and perspectives of the Kazakhstan’s energetic sector.

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This is a picture of extracted resources of liquid hydrocarbon and gas dynamics for the last 20 years. Till 2001 we had some reduction of resources, but further, as you can see, growth becomes considerable. I should note that Kashagan deposit and increasing supplies of Tengiz deposit, made a great contribution into this growth.
At the whole, it is a real success of geological branch of the Republic of Kazakhstan.

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Thus, nowadays Kazakhstan takes the 9th place in the world by confirmed oil supplies. This data is given by independent resources.  Particularly this slide includes information for June 2011 BP Statistical Review of World Energy. These resources are proved. I think we have grounds to suppose on increasing it in the future, with consideration of estimation of our geological resources and expanded large-scale work on geological researches.

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This is dynamics of production. As you can see, oil production increased more than three times, gas production increased more than five times. And in the future we hope to have considerable growth of hydrocarbon production. In that terms Kazakhstan is one of the few countries which peak of production is still ahead.
Please, do not be confused by the last line of slide. Increasing of production volume of gas is not considerable indeed. Particularly our gas is mainly associated gas. This means that in order to extract more full liquid fractions, the most part of extracted gas is pumped back into layer.
But, firstly, this gas can be extracted later. Secondly, in case of changing commercial conditions of its realization, or introduction of technological innovations, the volume of its production can be easily increased.

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This is not full list of projects, with which we connect the growth as well as volume of production, so as growth of hydrocarbon raw material supplies.
By Tengiz project it is developed so-called “Project of future development”  with possible increasing of production volume from current 26 million of tenge per year till 36 million tenge per year. I suppose, in the nearest future it will be included for consideration in authorized body.
By Kashagan project the large work has been made. Expected date of start of Kashagan commercial extraction is the same – December of 2012 – June of 2013. And, as you know, Phase-1 of this project assumes the production volume from 370 thousand up to 450 thousand barrels per day. Yes, it is still uncertainty concerning the following Phase – II. But I think the project can be considerably more successful, if we have close interaction between contracting company and authorized body, if we have correspondence of the offered decisions to the standards of the best world practice, taking into account of mutual concerns.
By Block N  - our National Company “Kazmunaygas” with the share of 51% is working in the partnership with companies ConocoPhilips and Mubadala. It has been already drilled the first researching well (R-1) on the structure Rakushechnoye-More and it has been received confirmation on the existance of hydrocarbon resources.    Research works are going in full correspondence with working program and we suppose its successful continuation.
By area Zhemchuzhina – our National Company “Kazmunaygas” is working in the partnership with companies Shell (55%) and Oman Oil (20%). Concerning results of researching works, the existance of gas and oil of Khazar and Auezov structures has been also proved.  Project participants are preparing the concept of field development.
Blocks Satpayev and Zhambil are located on the primary stage of research. Nonetheless, according to the results of conducted works we expect confirmation of considerable amounts of hydrocarbon raw materials.  We develop Satpayev block in the partnership with Indian national oil company «ONGC Videsh Limited» (OVL) with share from 25% up to 35%. Zhambyl block – in the partnership with Korean National Oil Corporation (27%).
In the near future we will start exploration on the block Abai with Norway Company Statoil, and then later on the blocks Khvalinskaya and Central – in the partnership with Russian Companies Gazprom and LukOil. And here the issues with Russian government bodies are still unsolved.
As well we plan to conclude partnership with the company ENI for blocks Shagala and Isatai.
At last, I must tell that National Company “KazMunaygas” in 2010 and 2011 has itself opened new deposits on the blocks Liman, Urikhtau. Now final exploration and evaluation works are going there.
We have 61 exploration contracts in the register of the Ministry of Oil and Gas. Geological risk exists all the time. Dry wells of Tube-Karagan, Kurmangazy areas – are the evidence of it.  Nevertheless, I think that we can have grounds to suppose for considerable growth of supplies and production volumes of hydrocarbon raw materials.

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As the production volumes of hydrocarbon are increasing now, the environmental aspects of this activity are of great importance. The issue is important and we will discuss it in the contest of our Forum. And here I would like to show the dynamics of one indicator – volume of gas flared. Please, note that these volumes are inversely proportional to production, and in 2010 volume of gas flared has reached to 1,4 billion cubic meters, it is 3,6% of produced one, including the volumes of technological inevitable  gas flaring. This level of gas recovery indeed is worse than, for example, in Norway, but is already better than in many other countries, including those with old historical experience of oil and gas production.
I must note that legislative requirements in that issue will be tightened in future.

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Kazakhstan – is a country, which does not have open access to the sea. That is why access to exporting markets, most of all, by means of main pipelines, has key importance for us. This is a map of existing main pipeline system.  The first direction – is Atyrau – Samara with following exit through Russia to markets of Eastern Europe.
The second – is Caspian Pipeline Consortium with exit to the Black Sea.
The third – is already existing main pipeline to China, Atyrau- Kenkiyak, Kumkol-Atasu-Alashankou.
The fourth – is through Aktau port to Mahachkala, Baku, Neku. Further to the Black Sea, by the pipeline Baku-Tbilisi-Ceyhan to the Mediterranean Sea by means of SWAP-operations with Iran to the Persian Gulf.
With starting up the 2nd phase of Kashagan we connect the launching of new logistic route of the so-called Kazakhstan – Caspian System of Transportation (KCST).

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This is quantitative view of actual and expected volumes of exported oil transportation. As you can see, considerable works have been made in that direction during 20 years of our country’s independence. This is the construction of Caspian Pipeline Consortium, expansion and modernization of Aktau port, development of new route Kazakhstan – China, increasing the deliveries by railway.
Concerning forecast period, upon the condition of realization the existing plans, we will also have full provision by exporting powers. As you know project of Caspian Pipeline Consortium expansion has started, indicated in slide powers of 52 million tones per year for Kazakhstani oil, we suppose, will be available in the first quarter of 2015.
Line part of the pipeline Kazakhstan-China has been already constructed.
Power increasing up to 20 million tones – is just an issue of construction the additional oil pumping stations (OPS).  This project can be easily implemented with the growth of recourse basis.
There is no figure of production volume in Kashagan of Phase II in the slide, and unlikely to be earlier in2019. Respectively there is no Kazakhstan – Caspian System of Transportation. These are associated projects. 
Thus, taking into consideration potential use of Kazakhstani Caspian system of transportation, we suppose that question of export routes is basically clear.   And in the same time, certainly, problems of operational, technical character can occur according each project, and these problems must be solved in time. We are ready for this. And we can see that our neighbors, partners and investors are ready to help us. Thank you for this.

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The success in production volumes and exported deliveries is good. But, most of all, Kazakhstan people are interested in provision by all types of oil products in the domestic market. You can see on the slide actual and expected dynamics of oil deliveries to the domestic market. This volume is processing on the three refineries in Atyrau, Shimkent and Pavlodar. These powers are not enough. And for today, a part of consumed on the domestic market high-octane gasoline is being imported.
This dependence from the import during the periods of fuel crisis or price jumps brings to failures in provision of domestic market, as it occurred this summer.  Yes, in creating of open economics, we can not be aside of global price trends.  But we can and we must protect domestic market from sharp price fluctuations.

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For this purpose, unfortunately not timely, we have started realization of the Program on development and updating of these refineries. According to this program it is supposed to reconstruct all our three refineries till 2015, due to which, firstly, processing volumes will be increased up to 17,5 million tones, secondly, to increase the depth of oil processing, and this will encourage to transfer to self provision of all types of oil products, thirdly, it will provide petroleum production at the level of Euro-5 standards.
In the frameworks of modernization of  Atyrau refinery we have already started the construction of aromatic production complex, particularly 133 thousand tones of  benzole, 496 thousnad tones of paraxylene.  General contractor of construction is a big engineering Chinese company «Sinopec Engineering». Complex will be set into operation in December 2013.
We started the construction of integrated gas – chemical complex. It consists of 2 phases.  1 phase is production of polypropylene with capacity of 500 thousand tones per year. Construction was started in 2010. General contractor of 1st Phase is a Chinese company «Sinopec Engineering». Cost of 1st Phase amounts 2 billion US dollars. Contract on guaranteed distribution of ready products has already signed with «Sinopec Engineering» and American company «Vinmar International Ltd.». Construction of 1st Phase is planned to complete in 2015.
2nd Phase – is production of polyethylene with capacity of 800 thousand tones per year. Strategic partner of 2nd Phase has being determined South Korean company "LG CHEM", with which in 2011 were singed an Agreement on creation of joint enterprise with Kazakhstani company LLP«Kazakhstan Petrochemical Industries Inc.» and Memorandum on understanding of relatively project financing.   It has been also signed agreement on products distribution with "LG CHEM". Cost of 2nd Phase amounts 4,3 billion US dollars. Construction of 2nd Phase is planned to complete in the fourth quarter of 2016.
In Mangistau region at Aktau plastics plant began the construction of a plant producing 400 tons/year of high-quality road bitumen meeting the climatic conditions of Kazakhstan. Construction general contractor is a consortium of contractors of JSC "OGCC" KazStroyService" and LTD «CITIC Construction». Bitumen plant will be launched at the end of 2012.

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Briefly about gas production.
This is an actual and expecting dynamics on gas consumption of the domestic market.
For 20 years we have more than double growth of consumption. The next ten years we expect the same double growth of consumption.

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Dear colleagues,
We have other projects as well. In the period after 2019-2020 in accordance with the sector program we are planning the construction of one more refinery.
As a conclusion I would like underline that oil and gas industry was  and is not the only principle industry of fuel and energy complex, but now under the new conditions it plays key role also in the development of manufacturing industry, in realization of Kazakhstan’s strategy of entering into  the 50th of the most competitive countries all over the world.
I want to wish all the participants and guests of our Session effective and fruitful discussions, health and just to be in good mood.

Thank you once again for your attention to our Country.


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