Gov’t Acts to Meet Domestic Refined Fuel Demand

ASTANA – After commissioning its fourth refinery, Kazakhstan will stop importing high-octane fuel and will be able to export oil to its southern neighbours, Uzbekistan, Tajikistan, Kyrgyzstan and Afghanistan. However, the country will have to compete in these markets with Russia, said Sayat Mynbayev, head of KazMunayGas, at a March 4 Central Communications Service briefing.

Rising gasoline prices, measures taken by KazMunayGas to end chronic fuel shortages, the impact of production delays at Kashagan field and other issues were the focus at the briefing.

Kazakhstan remains in the paradoxical situation of being an oil-producing nation that needs to import high-octane fuel. With the increasing number of car owners in the country, high-octane gasoline has become popular despite high prices.

The country is unable to create a sufficient high-octane fuel supply because its three existing refineries are technologically outdated and cannot produce enough gasoline to meet demand. The state programme to modernise these companies lags behind the growing needs of the domestic market. Today, according to official figures, Kazakhstan imports 1.6 million tonnes of light oil.

“Upon completion of the modernisation programme in the second half of 2016, the capacity of the Pavlodar refinery will rise to 7 million tonnes annually, the Shymkent processing plant to 6 million and the Atyrau oil refinery up to 5 million. From that moment, the needs of domestic market will be met 100 percent,” said Mynbayev.

But from 2022, the total capacity of these refineries will not be able to satisfy the needs of Kazakh consumers. The fourth oil-processing plant is meant to improve the situation and allow Kazakhstan to transition from light oil importer to exporter.

“It is inexpedient to build a plant with a processing capacity of less than 5.6 million tonnes of crude oil per year. With this scenario, we will have to export the lion’s share of the products of the fourth plant, and in this case we will face the problem of finding potential markets for the sale of Kazakh gasoline,” he said.

“Export to neighbouring Russia is hardly possible because they produce this fuel in abundance. Chinese plants are also competitive enough. Access to western markets is complicated by logistics. And if we choose routes across the Caspian Sea, there is Azerbaijan, which has its own refining capacities,” Mynbayev said.

In his opinion, the most attractive export market for Kazakhstan’s fuel lies to the south: Uzbekistan, Tajikistan, Kyrgyzstan and Afghanistan.

“Our specialists, together with the Ministry of Oil and Gas, have begun thorough calculations and discussions of all details of this project. Right now, it is difficult to say where the future plant will be placed and how much it will cost,” he said.

Two years ago, the problem of fuel shortages in the domestic market was planned to be resolved through tolling operations with China: KazMunayGas would supply their border factories with around 1.5 million tonnes of crude oil and get back the petroleum products they needed.

But, the head of the national company said, the solution of two years ago isn’t right for today.  “After the agreements we reached with Russia in late 2013 on the duty-free import of goods, I do not see an economic basis for tolling operations. This year, tolling will continue as a result of inertia, but in small quantities. I think that with time, this scheme will come to naught,” he said.

According to Mynbayev, it is easier to import duty-free volumes of light oil products from Russia. As for fuel prices, he said, they are the prerogative of the antimonopoly agency and questions about price should be addressed to its authorities.

In October of last year, oil production at Kazakhstan’s most promising project, the huge Kashagan oil field, was suspended because of a leak in the pipeline. Some foreign media reported on the possible need to replace the entire troubled system, which would require billions of new investment.

Mynbayev couldn’t give an exact answer, he said, as final expert conclusions about the accident have not yet been drawn.

“We expect to receive the final conclusion from experts by the end of this month and, therefore, it is premature to speak about any expenses associated with full replacement or repair of the pipeline,” he added.

Mynbayev was also cautious about when production at Kashagan would resume, although a day earlier, Minister of Economy and Budget Planning Yerbolat Dossayev had said that the country planned to receive 2.5 million tonnes of crude oil from the Kashagan deposit in the second half of 2014. Mynbayev wouldn’t comment on that, saying any discussion of resuming production at Kashagan could only cover probabilities.

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