ECOLOGICAL SAFETY - MAJOR PRIORITY OF KAZMUNAYGAS
Caspian Energy: Mr. Karabalin, what are the major indicators of the KazMunayGaz national holding's development, how much oil and gas does the company and its partners produce? What is the plan of development of the Caspian Sea fields, is the exploration work on track?
President of KazMunayGaz Karabalin U.S.: In total the national company KazMunayGaz produces more than 20 mln tons, including all the projects in which it is involved (26.5 mln tons planned for 2004). About 8 mln tons per annum is produced in the fields where KazMunayGaz is the individual field user. This is about 16% of the whole oil production in the Republic of Kazakhstan.
As to the pipeline projects, here the NC KazMunayGaz takes the position of the leader with big lift-off due to the KazTransOil JSC and KazTransGas JSC included in the holding. In 2004 it is planned to transport over 35.7 mln tons of oil and over 113.7 bn c.m. of gas. I would like to note especially the tanker deliveries realized by another subsidiary of our company - KazMor TransFlot JSC, their volumes rise steadily. For example, in the first half-year of 2004 almost 2 mln tons of oil was transported by sea transport, which is almost 40% above the plan.
The development of the Caspian fields is implemented in accordance with the State Programme on development of Kazakhstan sector of the Caspian Sea ratified by the Decree of the Republic of Kazakhstan in May 2003. This Programme, in particular, targets at turning the KSCS to the major area of hydrocarbon production in the Republic of Kazakhstan.
Today we are realizing the first stage of development of the Kazakh sector of the Caspian Sea, which stipulates geological-exploration activities and preparation to realization of the development projects in promising sites of Kazakhstan sector of the Caspian Sea. The key assets of infrastructure and offshore oil operations support service industry will be created in this period. This work is already on track in the Bautino bay and the Tyub-Karagan gulf, the port Aktau is being upgraded, the work is on track to build a new port in the Kurik bay.
Exploration activities are as well on track. In accordance with the contractual liabilities they are fulfilled on the North Caspian project providing, as You know, production not only on the Kashagan, but also the South Jambay, Tyub-Karagan and Atash projects.
Development of which offshore projects is a priority, how many projects does KazMunayGaz realize in the shelf and which projects are planned to realize?
NC KazMunayGaz has passed to the active stage of study of the South Jambay - South Zaburunye sites. Our subsidiary Jambay has run 2D geophysical explorations within the minimal working programme. Kazakhstankaspiyshelf company carried out regional seismic-exploration activities at strict control of the Special ecological requirements to the state-reserved area in northern part of the Caspian Sea and the Special ecological conditions for geophysical researches in Kazakhstan part of the Caspian Sea. Thus, for the first time the necessary exploration was carried out exclusively by the national company and the ventures included in it.
In June 16 the seismic exploration activities commenced in the Tyub-Karagan and Atash sites (field users are our and Russian Lukoil's subsidiaries).
In addition, KazMunayGaz is running preparatory work for development of promising projects Jemchujina, Darkhan, Abay, Isatay, Jenis and the "N" site in south of the Kazakhstan sector of the Caspian Sea.
Development of the Kurmangazi and Central fields and Central is supposed to start (jointly with Rosneft) in near future.
Development of offshore fields is basically our primary task. Probably, the most important is as before the biggest of them - Kashagan. However in the North Caspian consortium Kazakhstan has no share yet. I say "yet", because the Kazakhstan government is presently negotiating on purchase of BG's share - 1/7. However already now the NC KazMunayGaz is connected with the project directly, for it is the Authoritative Body representing government interests in this project.
How is the Dostik block exploration going on?
We have no block with such a name. Apparently, the speech is going about the projects we are realizing jointly with the Russian company Lukoil, which include exploration in the Atash structure and exploration with further development of the Tyub-Karagan site. The work is continuing on schedule.
Currently 2D seismic activities in the Tyub-Karagan and Atash sites are realized in the deepwater and shallow water areas. The total offshore seismic exploration activities are correspondingly 655 and 1057 km.
The operations are carried out by the specialized company Kazakhstankaspiyshelf by means of air guns. Modern 24-bit telemetric station Sersel-408 UL registers the seismic signals with application of ground spits at shallow water and streamer in the deepwater areas.
The results of the seismic exploration activities will specify the location of the first exploratory well in the Tyub-Karagan site to be drilled in 2005.
What is the reason of the delay of the Kurmangazi project, is the political decision on this issue adopted?
The political decision on the given issue has long been adopted and confirmed at the highest level, when heads of Kazakhstan and Russia signed the Intergovernmental Agreement on the so-called middle line.
However in view of that the amendments and additions on taxation of the field users to the Tax Code of the Republic of Kazakhstan entered into force in January 1, 2004, there occurred a necessity of reappraisal of the earlier technical and economic accounts. In this connection the negotiations on the project between the NC KazMunayGaz JSC and the NC Rosneft OJSC keep on. Besides, the work with employees of the RK Finance Ministry Tax Committee is continuing. The sides have agreed to fulfill the ultimate appraisal of the project's economic efficiency within the acting tax legislations.
Which work is KazMunayGaz doing for realization of strategic export transport directions of Baku, China, Iran and other directions?
Kazakhstan has long recognized the route Aktau-Baku and further the Turkish port Ceyhan as one of the most promising.
The efforts of the NC KazMunayGaz JSC are currently targeted at creation of necessary conditions for the project's realization.
In particular, preparation of the Intergovernmental Agreement between the Republic of Kazakhstan and Azerbaijan Republic on transportation of Kazakh oil via the Aktau-Baku-Tbilisi-Ceyhan route is finishing. On the major points of the IA the two national companies - KazMunayGaz and SOCAR - have achieved understanding. There are a number of questions still needing coordination at the level of the government of the Republic of Kazakhstan. The work on coordination of separate previsions of the IA with the RK state bodies is keeping on.
The export direction to China was as well one of the most promising. It received a new impulse following the official visit of the head of Kazakhstan to the Chinese People's Republic this May. During the visit the Chinese National Oil and Gas Corporation (CNOGC) and the National company KazMunayGaz JSC signed the Agreement on major principles of cooperation in construction of the Atasu-Alashankou oil line.
In June reps of both the sides created the joint project company Kazakhstan-China Pipeline (KCP), which will be the subject of the project's financing.
The KCP participating interests are subsidiaries of the NC KazMunayGaz and CNOGC - correspondingly the KazTransOil JSC and the China National Oil and Gas Exploration and Development Corporation - each possessing 50% of the shares.
The Atasu-Alashankou oil line is planned to commission in early 2006.
As to the Iranian direction, we are considering it as an alternative route for delivery of the Caspian oil to the Asian-Pacific markets.
But to speak about its realization is still early. Together with the interested petroleum companies the NC KazMunayGaz JSC is carrying out the given project's feasibility researches.
On which conditions is Kazakhstan going to export its oil via the Baku-Tbilisi-Ceyhan pipeline to come?
As I have already said, today we are at the preparatory stage of the IA. The questions mentioned in the IA include cooperation, land laws entitlement, the rights of passage, transit, guarantee of stability of the agreements concluded with investors, sea transportation etc.
Commercial conditions of oil transportation via BTC will be determined further at the negotiations of the NC KazMunayGaz and all the interested consignors with BTC Co.
For now only one thing may be said exactly: participants of the North Caspian project (ENI, Total, Inpex and Conoco Phillips) possessing totally 15% of interests in BTC will be entitled to transport their oil on the conditions applied to all the BTC participants.
How much oil is exported today to Iran, Baku, the port Olya, Astrakhan? Which direction of the sea export is most promising?
Kazakh oil is exported by tankers in three directions: the ports Makhachkala (Russia), Baku (Azerbaijan) and Neka (Iran). all of them are strategically important and significant.
One of the sea export transportation directions of Kazakh oil is Aktau-Makhachkala. About 3 mln tons of oil was supplied via this route in 2003, in the first half-year of 2004 - 1.8 mln tons.
The other export tanker direction is the port Baku. In 2003 2 mln tons of oil was delivered, in 2004 (1st half-year) - over 1 mln tons.
Oil deliveries to Iran are carried out in accordance with swap-operations scheme, which stipulates delivery of the Iranian oil to the world markets from the Kharg island port, Persian Gulf in exchange for Kazakh oil. In 2003 over 1 mln tons of crude hydrocarbon was delivered to the Neka port. In the 1st half-year 2004 the oil transportation to the Neka port totaled to 685,000 tons of oil.
The port Astrakhan in the Russian Federation is one of the biggest ports of the Caspian region, and the port Olya (Astrakhan district) is an important infrastructure asset of the international transit corridor North-South. However presently Kazakh oil is not transported to these ports.
What ecological requirements does KazMunayGaz put before its partners?
For the NC KazMunayGaz the basic principle is the priority of ecological safety at realization of industrial activity. Our company's major ecological requirements to the partners include the following.
First of all, it is necessary to observe the requirements of the RK nature protection legislation and the principles of international conventions in the sphere of environmental protection. Ecologically pure and low-waste technologies should be applied.
Another requirement is maintenance of zero discharge of industrial wastes to the sea and reservoirs. We insist as well on utilization or reverse transfer of the unused gas back to the underground strata.
Besides, a necessary condition is running of constant ecological production monitoring of the environmental state (atmospheric air, surface and underground waters, soil), sources of pollution and emergency situations. Our partners pay great attention to development and realization of the events aimed at constant reduction of negative influence of the oil operations on the environmental state; Indispensable condition - application of closed cycle water use and improvement of clearance systems of industrial and sewage waters, as well as neutralization and utilization of wastes.
And finally, the conducted oil operations and the facts testifying of their impact on environment should be available for general public.
Is it planned to reconstruct ORP to deepen oil processing, observe the ecological norms and improve its quality composition?
Of the three oil refineries in Kazakhstan the NC KazMunayGaz is the stockholder of the Atirau OR. This is the oldest oil refining plant of Kazakhstan. It was built in 1945 on the base of the equipment delivered from USA on "lend-lease".
Today the plant's crude oil processing capacity is 5.1 mln tons per year, but the plant's oil loading is 2.4 mln tons per year. The processing depth is 59%, which is less the average branch level of Kazakhstan and Russian plants. Basically heavy oil with high content of paraffin is used. Selection of light oil products is on the average 45.9%.
The low quality of the received oil products is an obstacle to achievement of the acceptable level of production profitability. Black oil with 40% in total manufacture is sold at low cost in the market, sale of low-bracket gasoline is as well significantly troubled. We are obliged to sell diesel fuel enjoying high demand at low prices for the high content of sulfur, and black products are exported as semi-finished products. All of these factors do not promote to the product's high competitiveness.
That's why in 1998 the Government of the Republic of Kazakhstan adopted a decision on realization of the Atirau OR reconstruction project together with a group of Japanese companies represented by the Marubeni Corporation. Preparation of the project's feasibility report and the necessary documents took some time. The contract on reconstruction of the AOR on turnkey conditions was signed in December 2001.
The total amount of investments in the project is $308.8 mln. $235 mln is the involved means of international financial institutions intended for construction of technical plants. $73.8 mln is own means of the NC KazMunayGaz JSC needed for upgrade of the plant's common service assets.
In March 17 2003 the turnkey Contract entered into force. It may be said that the actual realization of the Project commenced on this date.
The plant's reconstruction aims mainly at rising the processing depth, increasing the product quality up to the international standards, reconstruction of the morally and physically depreciated equipment, meeting of the technology and equipment to regional requirements of ecology and environmental wastes, increasing the enterprise's commercial efficacy.
The expected crude oil processing capacity following the reconstruction 3.1 mln t/y. The new complex is planned to commission in mid 2006. Further the plant's reconstruction, the oil processing depth will be not less than 82%.
Hydrofining of diesel fuel and gasoline will allow achieving such degree of product clearance that will meet the level of Euro-2005 standard demands. This will enable getting access to the product market, as well as the European. Winter diesel fuel of normal quality will be manufactured for the first time. The isomerization plant's commissioning will enable regulating output of the quality blank gasoline AI-95, A-80, AI-93.
What outlooks does the gas-processing branch of Kazakhstan have? This is an important and serious question. The volumes of produced gas keep on growing and already in the foreseeable future Kazakhstan will need significant improvement of the existing gas refining capacities.
What do we have today? Presently three gas refineries (GR) operate in Kazakhstan of total design processing capacity 6.85 bn c.m. of gas per year.
Kazakhstan gas refining plant in the Janaozen city, Mangistau district was built in 1973. The plant was intended for treatment of associated gas from the local adjoining oil fields (Uzen and Jetibay) with processing capacity of 2.9 bn c.m. of gas per year. In 1979 the plant was upgraded so as to supply the petrochemical plant with crude material for polyethylene manufacture in the Aktau city and construction of the pipeline for ethane transportation. Currently in view of the cut of associated gas production the plant is loaded by third of its capacities.
The plant is owned by the NC KazMunayGaz and presently we are considering different opportunities for using the plant's free capacities. At that we are most of all interested in the options linked with use of manufactured products, in particular, ethane for petrochemical output. One of these options is gas supply in the volume of up to 1 bn c.m. per annum from the Tengiz GR. The received ethane may be sent to plastic mass plant in the Aktau city via the existing ethane-line.
In general, at supply of crude material and partial reconstruction of the KazGR the real task is increase of the gas processing capacity up to 3-4 bn c.m. per annum.
Tengiz gas refining plant located in the area of Tengiz oil and gas field allows receiving up to 4.5 bn c.m. of treated gas per year. Associated gas from the Tengiz field is characterized by high content of ethane, propane-butane fractions and differs particularly for high content of hydrogen sulfide, as well as carbon dioxide and by-components requiring clearance and treatment.
Tengizchevroil JV, in which our company owns 20% of shares, is planning to realize new projects for increase of oil production in the field from 13 to 20-23 mln tons since 2005. This will cause as well associated gas production growth by 2010 up to 14 bn c.m. per year. Additional financing of construction of second generation assets like oil and gas processing plant, gas reverse pumping plants of 2 bn c.m. per year capacity and new connecting gas line till the gas main Central Asia-Center will total to about $3 bn.
Janajol gas refinery was initially intended for treatment of 710 mln c.m. of gas per year. The plant's capacity following reconstruction by CNPC-Aktobemunaygaz reached 800 mln c.m. per year.
In September 2003 the second Janajol GR of 1.4 bn c.m. of treated gas per year capacity was commissioned and in 2004 it is planned to start building of the third plant of up to 2 bn c.m. processing capacity with commissioning in 2005.
Its construction will be accompanied by building of the connecting gas line till the gas main Bukhara-Ural, which will provide full treatment of the produced gas. This development of he project enables long-term realization of gas supply from the nearby fields Alibekmola, Kojasay and Urikhtau for processing on mutually advantageous conditions. Here the summary gas production can reach 1.2 bn c.m. per year in 2010. In addition to upgrade of the existing capacities, it is supposed to build new gas processing assets. One of them is the so-called Karachaganak gas project.
In the Karachaganak field gas condensate production is increasing. The necessary conditions were created with commissioning of the Karachaganak condensate processing complex and completion of the Karachaganak-Atirau oil line building. Naturally, the gas production also starts increasing. Therefore it is necessary to pass to the next stage of the Production share agreement stipulating building of the Karachaganak gas refinery. The project includes construction of two turns of the plant with capacity of 5 bn c.m. gas processing per year and building of export gas line for the treated gas transportation.
At that the Kazakh side is working out the project's feasibility report for appraisal of its investment attractiveness in order to accelerate realization of the Gas project. The case is that in accordance with PSA conditions, investors undertake financing not more than 40% of the needed cost of the Gas Project.
Development of the fields in the North Caspian as well requires additional gas processing capacities. The international consortium realizing the North Caspian project is planning to start hydrocarbon production from this field in 2008. This provides as well the necessity of starting construction of the Kashagan GR. Thus it is supposed that the plant will process annually up to 3 bn c.m. of associated gas with output of up to 500,000 tons of liquefied gas.
Thus, it is supposed that due to reconstruction and new gas processing assets building by 2010 the total growth of gas processing capacities will equal to about 28 bn c.m. per year. At that two tasks are solved - economic and ecological. On the one hand, by increase of commodity gas manufacture the oil and gas producing companies receive maximal economic profit, on the other - gas is not liquefied, but processed, which cuts the amount of harmful emissions to atmosphere.
Are You satisfied with today's state of negotiations on the Caspian status, does this problem obstacle inflow of investments to the Caspian shelf?
Really, suspense of the problem of determination of the Caspian Sea legal status somehow affects the hydrocarbon resource development rates. However this issue is out of the sphere of the National company, which is the managing structure. The negotiations on the given problem are conducted at the governmental level, and I hope they will produce a mutually acceptable result.
At the same time, there is a legal basis for development of Kazakhstan shelf of the Caspian, and in our opinion, it is a quite firm basis. First of all, bilateral agreements on demarcation of the Caspian bottom for realization of the rights on field using have been concluded between the Republic of Kazakhstan and the Russian Federation, as well as between the Republic of Kazakhstan and Azerbaijan. Secondly, the State Programme of development of Kazakhstan sector of the Caspian Sea has been adopted.
The practice of our negotiations with different foreign companies shows that these documents are quite enough for the process of investment in offshore exploration and production of oil and gas would not stop. I suppose, the flow of investments to the Caspian shelf will increase. It is conditioned by economic reasons. As to the political processes, let them coast along.