2013 Brought Advancements to Kazakh Oil and Gas Industry

Development of the Caspian Shelf and new geological exploration will dominate headlines surrounding the domestic oil and gas industry in the coming years.

Achievements and forecasts

It is well known that the oil industry provides the lion’s share of the national budget. Nevertheless, the country’s leadership intends to change this and to move the country from being a raw material source for the developed world to being one of the planet’s stronger economies. President Nursultan Nazarbayev has repeatedly said that the oil and gas industry, which should bring all other sectors of the economy to a new, higher level, is to become the engine driving this change.

In the past year, there were several important achievements in the domestic oil industry which will set the tone for the coming years. First, the long awaited start of oil production at Kashagan field in the Kazakh sector of the Caspian Shelf finally took place and a new shareholder, the Chinese Petroleum Corporation CNPC entered the project. The second development is the beginning of a new major project titled “Eurasia”, which is set to double the oil potential of Kazakhstan by deepening wells in the Caspian Basin. The third initiative is the Government’s approval of the project for the future expansion of the Tengiz field, which will increase oil production there from the current 26 million to 36 million tons in the next five years.

According to experts, the era of so-called readily retrievable oil is coming to an end. Therefore, the main trends in Kazakhstan’s oil and gas sector in the near future will include: the further development of offshore fields in the Caspian Sea and the acquisition of resources found at even greater depths.

By 2030, oil production in the country, according to forecasts from the Ministry of Oil and Gas, could exceed 110 million tons, which puts Kazakhstan on the path to join the top 10 oil producing countries. Kazakhstan is currently ranked 12th in the world in terms of proven recoverable oil reserves (3.9 billion tons) and 20th – in gas reserves (1.3 trillion cubic metres).

According to government and industry estimates, oil reserves are potentially 17 billion tons and for gas – 3.9 billion cubic meters. Over 20 years, oil production in Kazakhstan increased more than 4-fold, reaching 80 million tons (17th place in the world) and gas – by more than 5 times, up to 40 billion cubic meters (29th in the world). According to official data, in the last 5 years, about 20 billion dollars was invested in the oil and gas industry and over the 20 years since independence, about 60 billion dollars was invested in the area. Overall, in 2013, the country produced about 82 million tons of oil and condensate, which exceeded 2012 levels.

“Eurasia” Project Prospects

Another important highlight of last year was the announcement of the new “Eurasia” project, which will be no less important and profitable than the Kashagan field. It involves the exploration of the deep horizons of the Caspian Basin, both on land and at sea in both Kazakhstan and Russia. Undoubtedly, this project created serious interest among representatives of global oil companies, experts, and bankers. Everyone understood that the implementation of this idea opens up new possibilities.

Kazakhstan’s government recently linked new investments and the further economic development of the country with oil exploration. According to Kazakhstan government experts, the resource potential of the Caspian region, especially of the Caspian Basin, is about 40 billion tons of oil equivalent.

Minister of Oil and Gas Uzakbai Karabalin, when speaking about the “Eurasia” project, said that its implementation will double Kazakhstan’s hydrocarbon reserves. According to him, prospectors will have to explore deeper layers of subsoil.

“The depth of the Caspian Basin is 20-25 thousand meters and there are huge amounts of oil-generating formations there. In Soviet Kazakhstan, there were attempts to drill ultra-deep wells – Aralsorsk and Bikzhalsk. In those years and with the technology of the time, wells reached a depth of almost 7,000 metres which was considered a good success. Now, the basin’s potential shows that additional deposits of interest can be found even deeper,” Karabalin said in October 2013.

“Eurasia” will consist of three stages. The first involves the collection and processing of material from previous years. The second includes large scale studies. The latter includes drilling of a new support-parametric well – “Caspian-1” with a depth of about 14-15 km. The estimated cost of the three phases of the project is about US$500 million.

The project may be implemented by an international consortium comprising of a number of major oil companies which have already expressed interest in it. This includes  companies from Kazakhstan, Russia, Japan, South Korea and China, as well as Western firms. Future members of the consortium will have to jointly create a research programme and provide financing. At the same time, the project will be managed in Kazakhstan. The launch of “Eurasia” is scheduled for 2015. Until then, a group will be established to negotiate with potential project participants.

Tengiz grows steadily

If Kashagan and “Eurasia” are the projects of the future, the Tengiz deposit is the present of Kazakhstan’s oil and gas sector. Almost one third of all crude oil in the country is produced at the field, and it is one of the “youngest” in the country. The start of production there was accompanied by similar difficulties that Kashagan is currently facing. As we see, the Kazakh oilmen, together with specialists from world oil companies, successfully overcame all problems of the initial period.

The head of state stressed that the Tengiz project is one of the most striking examples of international cooperation. Last year was marked by the fact that a month ago, Kazakhstan’s government and Tengizchevroil (TCO) signed a memorandum of understanding, under which the parties assumed obligations to increase production at Tengiz from the current 26 million to 38 million tons of crude oil a year.

The project of future expansion is estimated at 7-8 billion dollars. Its implementation is tentatively scheduled for 2017-2019.

“The importance of the signed memorandum of understanding is that it covers things valued by the country such as the environment and increasing the project’s local content,” Karabalin said.

According to him, domestic companies working with steel structures are involved in the Tengiz project. Their volume is 60,000 tons per year. Consequently, the share of Kazakh content in the TCO is set to reach 44 % of total investments.

The author is a reporter and analyst with the Kazakhstanskaya Pravda newspaper.

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