KAZAKHSTAN AND EU,  TRADITIONAL AND LONG-RANGE  PARTNERS

 

Caspian Energy (CE): Mr. Izmuhambetov, how would you estimate Kazakhstan's oil & gas development in the context of integration and strategic partnership with the EU? What projects are there within this strategy? How will they be implemented?

Bahtikoja Izmuhambetov, Minister of Energy and Mineral Resources of Kazakhstan: Kazakhstan's national interests in the international arena include the whole range of its concerns along with strengthening the country's positions at the stage of its entering the world market and developing equal and mutually beneficial relations with all countries and integration associations.

The 7th session of Republic of Kazakhstan-EU Cooperation Council took place on July 19, 2006 in Brussels. The Council confirmed the Kazakhstan-EU strategic partnership orientation as well as the intention to proceed with the efficient dialog within the Partnership and Cooperation Agreement. In this context, Europe welcomed Kazakhstan's approval of additional protocol to the Agreement that covers all 25 member-countries of the EU.

The EU's enhanced interest in broadening cooperation with Kazakhstan is caused by the growth of traditional and long-range partnership relations between Kazakhstan and the EU in trade and economic areas with energy dialog as a core subject. The guidelines of Kazakhstan's energy policy were identified energy security, energy efficiency and ecological safety of energy sector where the bridges for cooperation need to be formed.

 

CE: What are the priority tasks set to the Ministry for the current year?

Bahtikoja Izmuhambetov: In 2007 it is planned to raise oil production (as per indicative plan) to 65 MT and oil processing at oil refineries (as per indicative plan) to 12 MT. Moreover, the action plan within the State-run Program for Development of the Kazakh Sector of the Caspian Sea (KSCS) for 2006-2010 (Phase 2) will be implemented.

It is also planned to compile the feasibility study for rehabilitation of Shymkent Oil Refinery, upgrade Pavlodar Petrochemical Plant and complete the project of construction of Second Generation Plant and associated gas injection at Tengiz field.

 

CE: How will the Kazakhstan's oil & gas industry be upgraded?

Bahtikoja Izmuhambetov: The primary objective is to strengthen the Kazakhstan's positions in foreign markets and join the world's largest suppliers of energy stock and its deeply processed products through introduction of advanced industrial technology.

Reconstruction of Atyrau ORP was completed in August 2006. As a result, environmental conditions at the plant were improved due to the reduced emission.

The 20,000 m3/hr capacity hydrogen unit is currently being erected at Pavlodar PP with scheduled completion in 4Q2007. The unit's startup will enable to solve the problem with hydrogen supply of diesel fuel hydro refining unit and enhance the extent of stock products refining from sulfur compositions and, as a result, adjust the production quality to European standards.

The task plan of Shymkent ORP development is being drawn up with scheduled completion term of feasibility study (concerning the plant rehabilitation) late 2007 and the following construction during 2008-2009. It is suggested to tailor the production quality to meet high international standards, and broaden the range of oil products with high additional value.

One of the largest ongoing projects is Tengiz development. Under TCO project, 124.3 MT of crude oil was produced in 1993-2006, 13.3 MT in 2006 alone (98.2% of 2005's). In 2007 it is scheduled to produce 14.6 MT of crude oil. Since 2003 we have been implementing the Second Generation Plant (SGP) and Associated Gas Injection (AGI) projects that cost $5.5 bln. Upon bringing these projects online the oil production at Tengiz field will reach 22 MT per annum.

It is worthy to mention that Karachaganak project has been successfully implemented as well. 10.38 MT of oil with gas condensate was produced at Karachaganak in 2006 (101.0% of 2005's). Under the Karachaganak project it is planned to upgrade operated equipment to raise liquid hydrocarbons production to 11-12 MT per annum and increase processing capacities at Karachaganak Oil Refinery Facility (ORC) through the construction of 4th condensate harmonization process line. We are also studying the increase of reverse gas injection to formation in order to raise the annual liquid hydrocarbons production at the field to 14 MT.

 

CE: How is the State-run Programme of Development of the Kazakh Sector of the Caspian Sea (KSCS) proceeding? In particular, the matter concerns Kazakhstan's oil&gas projects in the Caspian Sea (Kashagan, Kurmangyzy, Tub-Karagan, Atash, N, Zhambay, Zhambyl, Abay, Isatay, Darkhan, Satpayev, as well as Khvalinskoye and Tsentralnoye).

Bahtikoja Izmuhambetov: The State-run Programme of Development of the Kazakh Sector of the Caspian Sea is based upon the principles of international mutually beneficial cooperation and observance of interests of the Republic of Kazakhstan.

The Government of the Republic of Kazakhstan approved the Action Plan for 2006-2010 (Phase II) for implementation of the State-run Programme of Development of the Kazakh Sector of the Caspian Sea.

The Phase 2 covers launching offshore production of hydrocarbons and raising economic figures under the first KSCS oil & gas projects. 

The core actions under Phase 2 are: commencing offshore production of hydrocarbons in KSCS, scheduled contracting new offshore areas, as well as the national oil & gas company's performing as an operator under offshore projects. Alongside, under Phase 2 the special attention will be paid to environmental aspects, in particular modernization of environmental requirements in accordance with the corresponding world practice, monitoring of all offshore projects, development and introduction of additional environmental actions in compliance with toughened environmental requirements. Furthermore, under Phase 2 it is planned to train and retrain Kazakhstan's specialists for oil&gas industry and associated branches, create infrastructure for onshore support of offshore operations and install additional pipeline capacities.

22 wells have been drilled throughout the contract period under the North Caspian project (Kashagan). 3 producers and 2 appraisal wells are being drilled at the moment.

The Production Sharing Agreement (PSA) under Kurmangyzy Project was signed on July 6, 2005 between the Ministry of Energy and Mineral Resources of the Republic of Kazakhstan, OOC KazMunayTeniz JSC and Rosneft. Under this PSA, contracting companies shall perform a mandatory amount of exploration work that suggests drilling 2 exploration wells of 2,000 and 1,300 m deep.

By the results of drilling exploration well #1, the second exploration well was postponed after performing an additional set of geological and geophysical studies for identification of most promising oil & gas structures. These studies aimed at drawing reasonable recommendations on the location and depth of scheduled exploration well #2.

Concerning the Tub-Karagan project, 668 running km long 2D exploration seismic survey was performed in 2004. In 2005 the first exploration well was drilled to the design depth of 2,500m. Cretaceous, Jurassic and Triassic sediments were struck as planned. All project studies were made.

In order to identify and contour the known structures related to hydrocarbons deposits in Jurassic and Cretaceous sediments, the work is currently being performed on the analysis and summarization of geological and geophysical data at Tub-Karagan field for identification of the second exploration well drill site and estimation of oil and gas prospects of Central-Mangyshlak elevation area adjacent to Tub-Karagan structure.

Geological surveys in the range of 1,450 running km have been performed at Atash, Zhambay Yuzny - Yuzhnoye Zaburunye structures; the data obtained are being processed and interpreted and the preparation for exploratory drilling is underway.

The Production Sharing Agreement under Zhemchuzhini Project was signed December 14, 2005 between the Ministry of Energy and Mineral Resources of the Republic of Kazakhstan, Oman Pearls Company Limited and KazMunayGaz NC JSC. Under the Zhemchuzhini Project, 2007-2009 plans include the construction of a well at Zhemchuzhina 1 area and construction of a well at Zhemchuzhina 6 area.

Khvalynskoye and Tsentralnaya projects are implemented in accordance with the Protocol (dated May 13, 2003) to the Agreement between the Republic of Kazakhstan and the Russian Federation about delimitation of the bed of the northern part of the Caspian Sea to enforce the sovereign rights of subsoil use dated July 6, 1998. In accordance with this protocol Khvalynskoye field and Tsentralnaya structure shall be under the jurisdiction of the Russian Federation. Kazakhstan has the right of tender-free participation in related projects with 50% share.

 

CE: Kazakhstan sets the primary objective of its export policy diversification and multi-directional approach to energy resource delivery. What directions are given preference in this respect?

Bahtikoja Izmuhambetov: Indeed, the Kazakhstan's oil transportation strategy is based upon that multi-directional approach.

One of the main directions of oil transportation for Kazakhstan is Russia. Kazakhstan's oil is being transferred both to the West: via CPC system, via Russian pipelines, in tankers; and to the East: via the Atasu-Alashankou pipeline. We have already confirmed Kazakhstan's oil to be delivered to Baku-Tbilisi-Ceyhan pipeline system.

It is noteworthy that the system enabling to transport oil to various countries and in different directions is virtually complete, thus letting almost all oil producing companies operating in Kazakhstan choose most attractive and stable markets to sell Kazakhstan's oil.

CPC throughput increase project is considered the matter of great importance. CPC pipeline is the largest route of Kazakhstan's oil export and amount of oil transfer is growing stably.

The second largest acting route for Kazakhstan's oil export is Atyrau-Samara pipeline.

Concerning the development of new markets, we shall mention the launch of Atasu-Alashankou pipeline. Its throughput is 10 MT per annum, and it is planned to enlarge it to 20 MT per annum.

 

CE: What tasks are the results of the recently signed Memorandum of Understanding on major principles of cooperation within the Kazakhstan-Caspian Pipeline System project (KCPS)?

Bahtikoja Izmuhambetov: On June 16, 2006 the Republic of Kazakhstan and the Republic of Azerbaijan concluded the Agreement so as to create conditions for successful implementation of the KCPS project. The Agreement provides promotion and support of oil transportation from Kazakhstan via Azerbaijan to world markets through the Baku-Tbilisi-Ceyhan (BTC) system.

Under the KCPS project it is planned to construct Eskene-Kuryk oil pipeline, oil discharge terminals in Kuryk port located on the Kazakh coast of the Caspian Sea, tankers and vessels, oil-loading terminals on the Azerbaijan coast of the Caspian Sea and tie-up structures to the BTC system so as to ensure Kazakh oil transportation from Kashagan and Tengiz fields to the BTC system.

The KCPS project will initially provide transportation of 25 mln tonnes of oil a year with gradual increase to 38-60 mln tonnes.

On January 24, 2007 KazMunayGaz NC JSC and subsidiaries within the North Caspian Production Sharing Agreement (Agip Caspian Co BV., ExxonMobil Kazakhstan Inc., Impex North Caspian Co. Ltd., Philips Petroleum Kazakhstan Ltd., Shell Kazakhstan Development B.V., KMG Kashagan B.V., Total AP Kazakhstan, Chevron Limited) and Tengiz Group  (Chevron Limited, KazMunayGas NC JSC) signed the Memorandum of Understanding on main principles of cooperation within the Kazakhstan-Caspian Pipeline System project.

The MoU aims is to prepare the KCPS project's implementation through establishment of a business structure for the Eskene-Kuryk pipeline (Business-structure) and creation of a Sponsorship group for the Trans-Caspian project so as to obtain approval and powers on the KCPS project's implementation from the Government of the Republic of Kazakhstan and the Republic of Azerbaijan.

 

CE: Is it planned to enhance its throughput capacity and, on the whole, set up export towards the north in the near-term outlook?

Bahtikoja Izmuhambetov: The 1,510-km CPC pipeline is the largest export route for Kazakh oil. It joins Tengiz oil field of Kazakhstan and the oil terminal located on the Russian coast of the Black Sea near the Novorossiysk port.

One of the most urgent targets within the CPV project is to reach its design capacity (67 mln tonnes a year) including Kazakh oil in the volume of up to 50 mln tonnes a year.

At the moment the partners within CPC are coordinating the CPC Expansion Project's conditions. They offer to approve a Memorandum of Understanding between the CPC Parties that covers the principles of implementation of the CPC Expansion Project (Memorandum) and includes two addendums - CPC Project Economic Efficiency Management Conception and Regulations of CPC-R.

To date the CPC shareholders have completely coordinated the Memorandum and Addendum 1 to the Memorandum (CPC Project Economic Efficiency Management Conception).

Addendum 2 (Regulations of CPC-R) requires additional coordination in order to set a number of members within the Board of Directors.

Kazakhstan completely supports implementation of the CPV Expansion Project and offers to make a final decision related to the CPC Expansion Project on the basis of reached commercial understandings.

 

CE: Do you plan to ramp up export of Kazakh energy resources to China?

Bahtikoja Izmuhambetov: The oil pipeline is necessary to master one of the important oil export routes that promotes perspective development of the local economy, diversification of sales markets and provides possibilities to ensure integration of oil pipeline systems of Kazakhstan, Russia and China.

 

CE: What plans related to enhancement of oil & gas production in Kazakhstan up to 2020 do you have?

Bahtikoja Izmuhambetov: On the whole, in view of current conditions when we observe growing world demand for oil and oil products and favourable oil price conjuncture, we do not intend to fundamentally reduce or ramp up oil production.

Main prospects regarding enhancement of hydrocarbons production in Kazakhstan are linked to implementation of the State-run Programme of Development of the Kazakh Sector of the Caspian Sea along with some projects on Tengiz and Karachaganak fields that in turn promote increase in oil output on the above-stated fields.

 

Forecasted oil production in Kazakhstan to 2015
Period	Production volume
2007	up to 65 mln. tonnes
2008	up to 70 mln. tonnes
2009	up to 78 mln. tonnes
2010	up to 84 mln. tonnes
2015	up to 140 mln tonnes

 

KazMunayGas JSC's projects significantly promote development of the industry. In 2006 KMG's oil output made up 9.6 mln tonnes of oil or 102.2% to the figure of 2005. Major increase in oil production was provided due to the implementation of the Uzen Rehabilitation Project. KMG's oil production for 2007-2009 is expected to be at 9 mln tonnes.

KazMunayGas's major perspective investment projects are the development of Urikhtau field including construction of the Zhanazhol KS-13 gas pipeline, carrying out a geological survey and development of Kurmangazy, Zhambay, Abay, Isatay Darkhan fields, etc., as well as participation in Khvalynskoye and Tsentralnoye projects together with the Russian party.

Last year production of oil and gas condensate across Kazakhstan amounted to 64.9 mln tonnes (105.7% to 2005). This year we expect our production to reach approximately 65 mln tonnes of oil. Oil output for 2015 is projected to comprise 140 mln tonnes a year.

At the same time, the current oil production level is a bit ahead of the figure earlier forecasted by the ministry and petroleum companies due to high world oil prices, efficient implementation of oil & gas projects and oil transport infrastructure as well.

 

CE: What gas projects are viewed as priority in Kazakhstan so as to enhance the export potential of the country?

Bahtikoja Izmuhambetov: Due to the historical background the existing gas pipeline system of Kazakhstan, that used to operate as a part of the common All-Union gas transport system, mainly delivers transit gas flows from Central Asia to the European part of Russia and Trans-Caucasus states. Growing volumes of gas production promote searching of new export directions.

At the moment the Republic of Kazakhstan is considering several directions to develop its export potential. These are Eastern, Northern and Western directions. Calculations are being carried out in all directions. The primary direction will be selected as soon as all estimations are completed.

The formation of a joint venture on the basis of the Orenburg Gas Processing Plant between KazMunayGas JSC and Gazprom is underway now. It is going to enable Kazakhstan to process Karachaganak gas at the plant, the half of which will belong to KazMunayGas JSC. We plan to launch processing at the Orenburg GPP in the volume of over 15 bln m3 of crude gas in 2011. We closely cooperate with Gazprom JSC in the field of gas marketing. In 2002 KazMunayGas JSC and Gazprom JSC set up a joint venture to process and market natural gas from the Karachaganak field and other deposits of Kazakhstan.

The project on development of North Caspian's Kashagan field also reveals great perspectives in the field of gas production.

We intend to construct a contemporary petrochemical complex in the Atyrau region. Gas from Tengiz and Kashagan fields is projected to serve as raw material for the given plant.

 

CE: Is Kazakhstan interested to construct the Trans-Caspian gas pipeline so as to diversify export gas supplies or gives preference to expand the Central Asia-Center gas pipeline?

Bahtikoja Izmuhambetov: Kazakhstan adheres to the principle of diversification while selecting routes for hydrocarbons transportation.

If the Trans-Caspian gas pipeline is economically expedient for us and enables to deliver Kazakh natural gas to the European markets where we will be able to market it and enjoy good benefits, this direction will be interesting for Kazakhstan.

Alternative gas transport routes will provide us with a possibility of choice that is progress in itself. Having the possibility to choose between routes along with the entry to the competitive export markets, companies-subsoil users will have a strong motivation to develop gas production that is going to exert a positive influence on the gas industry and economy of Kazakhstan on the whole.

Thank you for the interview