Continued Growth and Cooperation in the Oil and Gas Sector

The domestic oil sector has played a key role in the establishment of independent Kazakhstan. After independence, the oil and gas industry received a powerful impetus for development in the form of large-scale exploration and production work launched in the country’s Caspian Sea sector. Previously explored fields of oil and gas are also being developed.

1369771341Kazakhstan is among the top 15 countries in the world in proven oil reserves and possesses 3.3 percent of the world’s hydrocarbon reserves. The lion’s share of this black gold is concentrated in the Tengiz, Kashagan and Korolevskoye fields, which have been developed or are being prepared for development, and the oil and gas deposits of Karachaganak, Zhanazhol and Urikhtau.

The oil industry provides more than a quarter of Kazakhstan’s industrial output, more than a third of its taxes and half of its export earnings. For two decades, the country has seen growth in the production of liquid hydrocarbons: in 2012, about 80 million tons were produced, exceeding by more than three times the level of production in 1991.

Today, the oil and gas industry aims for further growth. If in 2013 we expect to produce 82 million tons of crude oil and condensate, by 2020 this figure could reach 130 million tons. It should be noted that achieving this output largely depends on the implementation of projects in the Kazakhstan sector of the Caspian Sea.

Kazakhstan has three oil refineries (in Atyrau, Pavlodar and Shymkent cities), the total annual processing capacity of which is about 15 million tons. In 2012, these enterprises processed 14.2 million tons of crude oil, 103.6 percent of the previous year’s production. This year’s planned volume is 14.4 million tons.

However, even when fully loaded, the existing refineries are only capable of satisfying the domestic market’s needs for AI-80 gasoline and diesel fuel. Their capacities are insufficient for the production of high-octane gasoline, and we have to import 30-40 percent of the domestic demand for AI-92, AI-95 and AI-98 gasoline.

In order to ensure a fuel supply that meets international standards of environmental protection, the government has adopted a programme of modernisation for all three domestic refineries. The upgrades and renovations will increase the volume of petrochemicals by increasing the depth of oil refining and will also raise the production of light petroleum products and improve their quality up to Euro-4 and Euro-5 standards. Working at full capacity, the plants will process 18 million tons of petrochemicals per year, fully covering the needs of the domestic market for these products. The projects will be implemented from 2011-2016. The branch programme for the oil and gas sector’s development provides for the construction of another refinery after 2020.

In view of the predicted increase in oil production in the country, the expansion and diversification of oil and gas transport infrastructure will be of great importance in the near future. Kazakhstan will need a stable supply of oil for export as well as for use in domestic refineries via the domestic oil pipeline system.

During the years of independence, we have built about 6,000 kilometres of oil pipelines. Today, the main active export destinations are the oil pipelines Atyrau-Samara, the Caspian Pipeline Consortium (CPC) pipeline, the Atasu-Alashankou pipeline and the port of Aktau. The volume of exports of crude oil and gas condensate in 2012 amounted to 68.6 million tons. The largest importers of Kazakh oil are China, Italy, the Netherlands, France, Austria, Romania and Canada.

One of the major ongoing projects is the expansion of the CPC pipeline, which will increase the pipeline’s capacity from the current 28.2 million to 67 million tons per year, of which Kazakhstan’s oil will account for 52.5 million tons. The project, being implemented in three phases, is expected to be completed by 2015.

Another ongoing project is the expansion of the Kazakhstan-China pipeline, the first phase of which (Atasu-Alashankou) was put into operation in 2008 with a capacity of 10 million tons per year. The second phase involves the expansion of its capacity to 20 million tons. According to preliminary estimates, the project is expected to be realised over the period from 2012 to 2017.

A medium-term project, the Kazakhstan Caspian Transportation System (KCRS), consists of two segments, the Yeskene-Kuryk pipeline and the Trans-Caspian System/Project (TCS). The latter includes an oil terminal on the Kazakh coast, tankers and ships, an oil discharge terminal on the Azerbaijani coast and connecting facilities to the Baku-Tbilisi-Ceyhan pipeline.

The capacity and stages of development of the system will be determined based on the volume of oil production at the Kashagan field (phases two and three). It is assumed that at the initial stage, it will be 23 million tons per year and at a later stage it may increase to 35-56 million tons per year.

Improving the legislation in the oil and gas industry is an ongoing process. The law “On state regulation of production and turnover of petroleum products” allows the use of retail and wholesale price regulation for petroleum products, the establishment of qualification requirements for access to the market of wholesale distribution of petroleum products and the introduction of a new mechanism for regulating production and trafficking of petroleum products, thereby boosting the economy.

The head of state has also signed the law “On the main pipeline,” which is intended to provide for the efficient, reliable and safe operation of the pipeline; strengthen the economic, energy and environmental security of the country and establish the state’s pre-emptive right to participate in projects of newly created pipelines, as well as improve legislation in this area. The document was designed to strengthen the economic and energy security of the country by regulating relations regarding the main pipeline, which is of strategic importance to the economy.

The governments of Kazakhstan and the Russian Federation signed an agreement on trade and economic cooperation in the field of oil and petroleum products in Kazakhstan on December 9, 2010, in Moscow, within the framework of the Common Economic Space. This document, ratified by Kazakhstan on April 3, defines the framework of trade and economic cooperation between the two countries regarding the formation of common markets for crude oil and petroleum products and the conditions for the supply of petroleum products to Kazakhstan to meet domestic requirements, all in volumes approved by the parties in accordance with indicative balances.

Also, the Kazakh side carries out the oncoming supply of Kazakh oil to the Russian Federation. In turn, the supply of oil products in Kazakhstan from Russia will be in the amounts approved in accordance with the indicative oil balance.

The author is Vice Minister of Oil and Gas of Kazakhstan.

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