TRANS-CASPIAN GAMBIT
KAZAKHSTAN AND TURKMENISTAN HAVE A REAL CHANCE TO PROVIDE DIRECT GAS SUPPLY TO EUROPE
The present situation caused by necessity to provide diversification of gas supply to the European market stimulates construction of new routes (North European Gas Pipeline) and reconstruction of old ones that do not operate due to some reasons as well.
The project of the Trans-Caspian Gas Pipeline (TGP) has been widely discussed since late 1990s. Then, the sides considered it too large and cumbersome for the intended purposes. Improper conditions of formation of a reliable source of raw materials and unstable conditions offered by the European customers prevented its implementation.
The consortium of Amoco Corporation (this company and BP merged in a year’s time). I.Capital and Bechtel Enterprises were established in 1998 to construct the Trans-Caspian gas-main system (TGS) project providing technical and engineering works, projection, maintenance supply and construction of a gas pipeline from the dispatch point near Turkmenbashy City to Baku and further through the territory of Georgia to Erzurum. The 1,738 km pipeline was expected to pump from 10 billion cub. m. up to 35 billion cubic meters of natural gas a year. Its capacity is planned to be increased up to 35 billion cub. m. a year.
Earlier in 1997, Shell, the British-Dutch Company, offered a similar project of exporting the Turkmen gas to Turkey by transiting it through Iran. Unlike the earlier initiated projects today Ankara and Baku offer to a shortened option of Trans-Caspian gas main system, which means laying a gas pipeline through the the Caspian Sea bed from Turkmenbashy to Baku. Turkmen gas will directly arrive at the Baku-Tbilisi-Erzurum (BTE) gas supply network that will be put into operation this year.
The second option is to construct a separate pipeline for Kazakh gas that will be pumped directly from Aktau to Baku. Its length will be 540 km, 480 km of which will pass through the sea bed.
The third route can be a pipeline along the coast of the Caspian Sea from Kazakhstan to Turkmenbashy where the Turkmen gas will be mixed with Turkmen unprocessed oil and further to Azerbaijan. The length of this route will be 720 km, 285 km of which is underwater.
Today BTE is being constructed to extract gas from the Azerbaijan field Shah Deniz (1 trillion cub. M. of recoverable resources). Technically the maximum capacity can go up to 35 billion cub. m. The highest point in the volumes of Azerbaijan gas exported through BTE will not exceed 20 billion cub. m.
Kashagan field in Kazakhstan and fields of the Chekele-Livan zone and neighbouring structures in Turkmenistan can be used as additional sources of raw materials for BTE. The total minimum level of production of these operators is over 5 billion cub. m. of gas by 2010, the maximum volume can be much higher, at that growth depends upon the market conditions (the sales market rather than geological conditions). Taking into consideration the beginning of the projects in Kazakhstan and Turkmenistan, construction of the Trans-Caspian gas supply system is a necessity present-day Europe requires direct gas supply. As all other both already existing and projected directions, either they are not oriented at the open markets at all or it is difficult to implement them because of political reasons or they provide construction at unsafe territories from the point of view of terrorist attacks.
Gas of Kazakhstan represents great potential and narrow markets
In compliance with the Program on Development of Gas Industry of Kazakhstan for 2004-2010, from 2004 to 2006 the governmental agencies will deal with organizational and project-technical activities. Some companies will work on creation of the production basis to increase extraction volumes, processing and export of domestic gas and transit of gas from other countries. The created infrastructure will be intensively expanding from 2007 to 2010 thus promoting new objects to be into operation.
Kazakhstan plans giant investments estimated in billions of dollars in all segments of the industry to reach the set targets. The government considers foreign investors and money of bowels users as the primary sources of funds and financial resources for program implementation. Budget financing and inner loans are additional less significant sources of financing.
Today the Kazakh geologists estimate proved and evaluated reserves at 3.3 trillion cub. m., hypothetical reserves at 6.0-8.0 trillion cub. m. The large amount of reserves of the first category lay in subsoil areas of the land and the considerable amount of reserves of the second category are under the Caspian Sea. These reserves lie at the depth exceeding 5,000 metres and contain a high percent of hydrogen sulfide (up to 19%).
Karachaganak Petroleum Operating Co. (KPO) will provide the main growth in gas production before 2010, international Tengizchevroil JV – at Tengiz/ Korolevskoye field, the North Caspian Consortium and Aktobemunaygaz JSC (the company almost completely belongs to the Chinese National Oil-and-Gas Corporation), which is developing Zhanazhol and Kenkiyak – at Kashagan field.
The second list of gas extractors includes Kazakh OilAktobe JV established by the national company KazMunayGaz (KMG) and the offshore company Nelson (Lukoil), which develops a number of onshore fields. Then comes the subsidiary of KMG – the national company KazTransGaz developing Amangeldi field and Stepnoy Leopard JV developing Chenarevskaya and Teplo-Tokarevskaya group of fields, and other investors.
One of the primary problems of the Kazakh gas market is low interest charged by investors to increase commercial gas production due to lack of commercially attractive conditions of sale. For instance, Tengizchevroil sells commercial gas to Kazakh consumers at the $12 per 1,000 cub. m. In 2005, Turkmenistan extracted 63 billion cub. m. of gas, which is 4.4 billion cub. m. more compared to 2004. However, in the year 2000, planned output was aimed at achieving 85 billion cub. m. in 2005. Presently forcasts for 2006 stand at 80 billion cub. m.
www.rusenergy.com writes, today the government sets the target before the state to increase reserves of gas up to 343 billion cub. m. by 2006-2010. According to estimations of the acting administration of Turkmengaz, present exporters Dovletabad and Malay will not be the main resource for development of the gas industry in the next 15-20 years. They will be substituted by the structures of Yujnaya Iolotan, Yashlar region. As the experts of the concern inform, it is necessary to prepare for production of gas at a depth of 7,000 m.
Gas agreements on these structures were signed long time ago; today they would have entered the active stage if they had been implemented. In 1992, Turkmenistan sold the license on development and prospecting of Yashlar structure with 750 billion cub. m. of gas reserves to Argentinian Bridas. In the late 1990s, first Gazprom and then Shell concluded gas agreements with Ashkhabad on prospecting and extraction of raw materials. Last year Russian Lukoil intended to purchase Dragon Oil but opted to make investments in Kazakhstan and bought Nelson Resources.
The last idea of President Saparmurat Niyazov was to offer Gazprom and Peking to prospect the right bank of the Amudarya River. Gas discovered here will be exported either to Russia or China.
But small companies recently operating at the Turkmen shelf have already started production of hydrocarbons. Contractual block Chekelen-2, which has been developed by Dragon Oil since 2000 on the basis of production sharing conditions, has total reserves in the volume of 70 million tons of oil and 62 billion cub. m. of gas. In 2006, the company will provide growth of production mainly due to expansion of the operating well stock. It is planned to drill and put into operation 4 wells of 4,000 m depth at the upgraded marine stationary platform Jeytun-10 in 2006. 3 wells will be drilled by two well bores that will virtually give effect of 7 wells. 8 wells will be complete restored. Besides the production drilling by the end of the year Dragon Oil intends to drill one evaluation well at the western undeveloped part of Jeytun field to discover hydrocarbons. Expanding of the operations base will be continued due to drilling of wells at Dzhigalybeg field (former Zhdanov). The old offshore fixed platform is being upgraded and a new platform is being constructed at Jeytun field now for this purpose. Such activities show that there are good perspectives of production growth at Chekelen field.
In the second half of 2005 Petronas started implementation of the project on pilot commercial development (PCD) at the fields of Eastern Magtymguly (Eastern Lebanon) and Central Magtymguly (Central Lebanon). The PCD Program will continue till 2008 and arrange construction of some infrastructural onshore and offshore objects as well as beginning of gas, condensate and gas production. According to the forecasts of the Ministry of Oil and Gas Industry and Mineral Resources of Turkmenistan, up to 20 million tons of oil and 5 billion cub. m. of gas will be extracted at the Turkmen shelf in 5 years. Thus, the Program on development of the marine shelf of Turkmenistan, which was approved in 2000, will be implemented by 2010. In compliance with the Program, over 30 perspective blocks should be handed to investors. Such companies as Wintershall (Germany), Berlanga Holding B.V. (the Netherlands), Buried Hill Energy (Canada), Russian Consortium Zarit are going to obtain licenses on free perspective blocks.
During several years the main oil producer Turkmenneft Concern covered reduction of production at such oil fields located in the west of Turkmenistan as Okarem, Chekelen, Goturdepe, Barsa-Gelmez due to active prospecting of Akpatlauk, Keymir, Southern Gamyshlydja, Korpedje fields. Now the rates of production at these fields decrease due to exhausting of shallow horizons and difficulties related to implementation of prospecting at deep lying horizons, as it requires modern technologies and equipment.
In order to increase its production Turkmenneft Concern has to drill over 35 oil and 15 gas wells to the 6,500 m depth at Akpatlauk, Keymir, Chekelen and other fields. Among them Korpedje field is the main source of gas supply for export and domestic market of this country. According to German Company Dresser, in 2006 volumes of gas extracted by Turkmenneft in the west will go down by 2010 and decrease to 4 billion cub. m. compared to around 7 billion cub. m. in 2005. It will be difficult for Turkmenistan to construct a new gas pipeline and fulfill previous contractual obligations because of present conditions.
TREASURES OF TURK-MENISTAN
Offshore
Turkmenistan's sector of the Caspian Sea covers 78,000 sq km and is one of the most prospective parts of the coun-try and of the Caspian region as a whole even though boundaries remain in dispute. According to estimates of experts from UK Western Geco, the hydrocar-bon potential of the Turkmen shelf of the Caspian Sea in 2,000-7,000 m of water totals 11 billion tons (80 billion bbl) of oil and 5.5 trillion cu m (194 tcf) of gas.
To date, more than 113 offshore wells have been drilled with the drilling volume standing at 445,000 m depth. Prospective zones were identified and classified in terms of their potential, and a new geological model of the Turkmen offshore sector was developed.
The best-explored offshore portion is the Cheleken-Livanov high, with all hydrocarbon deposits discovered by the Azerbaijan oilmen back in 1960s. Over 100 exploration wells of com-bined drilling length of 380,000 m have been drilled there.
The degree of exploration of the rest of the offshore strip is low. Only 11 ex-ploration wells have been drilled in the South Caspian Province, and no deep exploratory drilling has been carried out in the Middle Caspian-Garabogaz Province. Seismic exploration densities are 1.5 km/1 sq km in the South Caspian zone and 0.12 km/1 sq km in the Middle Caspian.
Average depths of productive layers at offshore deposits vary widely. For in-stance, productive layers at Dzhigalybeg (Zdanov) offshore field close to shore occur at 2,300-2,500 m, while produc-tive layers at Diyarbekir (Barinov) and Magtymguly (Livanov) fields far-ther offshore occur at 4,500 m.
Taking into account that over 80% of hydrocarbon resources are found in deposits that occur more than 3,000 m deep, new large oil and gas deposits are highly probably to be discovered. These prospects are primarily associated with the develop-ment of the Pliocene oil-and-gas bear-ing complex in the South Caspian de-pression and Mesozoic-Paleozoic de-posits on the slope of Middle Caspian.
In 2000, the government enacted a program of licensing on Turkmenistan's sector of the Caspian Sea covering the period until 2010. That program en-compasses 32 license blocks with a to-tal area of 78,000 sq km. Geological and geophysical data packages on the size of reserves and economic models have been prepared for these blocks.
Western Turkmenistan. The region covers 138,000 sq km.
According to Turkmen geologists, the follow-ing figures characterize the geologi-cal potential of the region: commercial oil reserves are estimated at 154.8 mil-lion tons (1.1 billion bbl), prospective reserves (C2+C3) at 126.3 million tons (921 million bbl), and expected re-serves (D1+D2) at 2 billion tons (14.6 billion bbl).
Of the total explored oil reserves in western Turkmenistan, foreign license holders account for 11%. All other reserves are included into the balance sheet of the State Concern Turkmenneft. Some 1,670 exploration wells for a combined 5 million m well (over 50% of total drilling in Turkmenistan) have been drilled in western Turkmenistan. Exploration well depth averages 3,900 m. Exploration maturity in western Turkmenistan stands at 122 m/1 sq km and seismic density at 1.5-2.5 km/1 sq km.
Of the 30 hydrocarbon deposits dis-covered to date, most are multilayered, geologically complex fields. The largest of these fields are Goturdepe, Barsagelmes, Korpedzhe, Burun, South Gamyshlydzha, and Eastern Cheleken.
The gas resource base is made up of the Goturdepe, Barsagelmes, Kor-pedzhe, South Gamyshlydzha, Ekerem, and Ordekli fields (Fig. 1 and Table 1).
Central Turkmenistan. The region occupies 170,000 sq km. This is the least geolog-ically explored region in the country. Around 600 exploration wells have been drilled for a combined 1.6 mil-lion m depth (around 16% of Turk-menistan's total drilling volume). Ex-ploration maturity in central Turk-menistan stands at 9.4 m/1 sq km.
Exploration well depth averages 2,800 m, while most of the identified reservoirs occur at 600-4,000 m in depth. Deep layers remain largely unexplored.
Around 50 gas-condensate and oil-gas deposits have been identified to date in central Turkmenistan, the largest of them being Bovrideshyk. Tedzhen, and Karadzhaulak. Such fields as South Kyrk, Gutlyayak, Mydar, and Ilakly have produced commercial oil flows, thereby confirming good prospects for oil pro-duction. The region's oil and gas bear-ing prospects are associated with chalk and Jurassic deposits.
Eastern Turkmenistan. The region covers 180,000 sq km. This region is mostly rich with gas reserves.
Around 950 exploration wells have been drilled for a combined 3.4 million m depth (around 34% of Turkmenistan drilling). Exploration maturity stands at 17 m/1 sq km.
Over 60 gas and gas-condensate de-posits have been discovered in the re-gion, Dauletabad field being the largest. Other large deposits are Shatlyk, Malay, Naip, Odzhak, Samantepe, Achak, and Kirpichli.
Eastern Turkmenistan accounts for 80% of the country's annual gas pro-duction. Introduction of modern technolo-gies and equipment stimulated raising the hydrocar-bon production onshore. Among other things, Turkmenistan plans to introduce new technologies in geophysical and exploration, drilling, development, and production, well rehabilitation, and in-to other service operations. Long-term plans call for complete replacement of the drilling fleet.
Result:
While evaluating the outlooks on gas export in the region, it is necessary to consider "oil battles" that burst out during the last years at the territory of the post-soviet area, which factually represent "a visual aid" for an investor-beginner striving to work both in Kazakhstan and, to some extent, in Turkmenistan. As a matter of fact, today Moscow supports the external background stimulating inflows of only Russian cash into these states and operation of mainly Lukoil and Gazprom there.
It is indicative that the present largest oil exporter of Kazakhstan Tengizchevroil (the operator of Chevron) reduced the scheduled production to 16% for the first time during several years, the Russian mass media reports.
It turned to be a response to disagreement of Russia to increase the capacity of CPC due to unplanned growth of tariff rates for compensation of operation costs. As a result, in January 2006 Tengizchevroil reduced oil pumping through CPC for the first time since 2001 and staked on railway routes. KazMunayGaz failed to convince the government of the Federal Agency Rosenergo to agree to transit oil from Kazakhstan through the territory of Russia to Lithuania for processing at the Lithuanian refinery Mazeikiu nafta, the schedule of oil transfer for the first quarter is not coordinated. The final decision for entire 2006 has not been made yet. Thus, the largest national Kazakh Holding faced the problem related to loading of the refinery at the height of the tender on purchasing of 53,7%-share of Yukos in Mazeikiu nafta. Two more Russian companies TNC and Lukoil claim to purchase this refinery.
This statement was made in November 2005 immediately after announcement of Kazakhstan about agreement with Baku to transit 20 million tons bypassing the Russian territory. In response the negotiations with Baku turned to be more intensified, the sides announced about signing of the intergovernmental agreement already next month. Thus, considering higher risks of gas production compared to oil, with the view to provide non-stop supply for consumers and attract strategic investments in development of the gas industry, Kazakhstan and Turkmenistan should take into account geopolitical factor of Russia, hard political will and determination as well as serious support from the side of European consumers that are interested in diversification of gas supply sources as soon as possible after cold winter.