Kazakhstan’s Hydrocarbon and Transportation Potential in Eurasia

The largest volume of the Kazakh oil in 2009 was exported by the oil pipelines of CPC – 27.5 mn tons and “Atyrau-Samara” – 17.5 mn. tons, maritime exports amounted to 11.1 mn tons.

Dear gentlemen, participants and guests of the forum,

Let me welcome you on behalf of JSC NC “KazMunayGas” to the 5th Eurasia Energy Forum, organized by the KazEnergy association.
This event is of special importance in the context of deepening international energy dialogue and promotes further confirmation of mutually acceptable principles of business cooperation and exchange of experience in the energy sphere.

Today, energy is one of the focal points in the global discussions. Of special topicality today are the matters of energy cooperation in Eurasia. Special attention of the present-day global community is paid to the matters of transit-transportation potential, as to part and parcel of the global and regional energy security.

Today, amidst the fast-growing global consumption of energy, the special strategic importance of any oil-and-gas region is in its energy reserves and location.

Kazakhstan, due to its geographic location and the presence of considerable reserves of natural resources, is under close attention of the geo-political and economic interests on the world energy arena.

Our state holds a unique position in Eurasia, being a “bridge” between the major markets of hydrocarbon feedstocks (Western Europe and Eastern Asia) and the countries – leading suppliers of hydrocarbon feedstocks (Middle East, Russia).

Since Kazakhstan has no access to sea, the exports of hydrocarbons to the world markets are a challenge and require efficient use of the existing and construction of new transportation infrastructure.

Kazakhstan has considerable reserves of hydrocarbon feedstocks, its recoverable oil reserves amount to around 5 bn tons, which is 3.2% of the world reserves. Recoverable gas reserves, taking into account the new deposits on the Caspian shelf, are over 3 trillion cub. metres.

Kazakhstan is in the world’s top countries in terms of hydrocarbon reserves and ranks next to the Russian Federation among the CIS countries.

In terms of oil and gas condensate production, Kazakhstan is in the top twenty oil-producing states. Over the years of independence, the level of hydrocarbon production in the republic has grown almost fourfold – from 20 mn tons in 1994 to 78 mn tons in 2009.

According to the long-term forecasts, the level of oil and gas condensate production may reach around 140 mn tons by 2020.

This slide shows the main flows of oil exports from the Caspian to the world markets.

Furthermore, I would like to note that Kazakhstan lays its hopes on exploitation of new prospective oil and gas deposits on the Caspian shelf.

Kazakhstan and Azerbaijan account for the bulk of oil exported from the Caspian region – over 56 and 37 mn tons respectively.

As of today, the main routes of oil exports from the Kazakhstan sector of the Caspian Sea are:

  • the oil pipeline of the Caspian Pipeline Consortium (CPC);
  • “Atyrau-Samara” oil pipeline
  • “Kazakhstan-China” Oil Pipeline (Atasu-Alashankou);
  • Aktau sea port.

The aggregate export capacity of these routes is over 60 mn tons per year.

The largest volume of the Kazakh oil in 2009 was exported by the oil pipelines of CPC – 27.5 mn tons and “Atyrau-Samara” – 17.5 mn. tons, maritime exports amounted to 11.1 mn tons.

7.7 mn tons were transported by the “Atasu-Alashankou” oil pipeline in the Chinese direction, including 6.2 mn tons of the Kazakh oil. The remaining oil exports were achieved by rail (around 5.0 mn tons).

Note that up to 80% of Kazakhstan’s oil is exported to Europe.

Since development of the transportation infrastructure is a strategically important matter for Kazakhstan, National Company “KazMunayGas” carries out work on a number of oil transportation projects, among which there are:

  • the CPC pipeline expansion project;
  • the project for creation of the Kazakhstan Caspian Transportation System;
  • the project for creation of the Kazakhstan-China oil pipeline system.

A milestone in the history of Kazakhstan’s petroleum industry was commissioning of the Caspian Pipeline Consortium oil pipeline in 2001, which is one of the top-priority directions of Kazakhstan’s oil export deliveries.

The CPC oil pipeline with the total length of 1,510 km. connects Kazakh oil deposit “Tengiz” with the oil terminal “South Ozereyevka” on the Black Sea, next to the port of Novorossiysk.

In the context of the resolution, passed by the CPC shareholders to authorize the CPC Expansion Project, the oil pipeline throughput capacity will reach 67 mn tons per year by 2015, including the Kazakh oil – 52.5 mn tons per year.

In accordance with resolution of the CPC shareholders, Transneft, KazMunayGas and Chevron will act as managing companies organizing through their designated affiliates implementation of the project on the territory of Russia, Kazakhstan, and sea terminal, respectively.

The final investment decision is planned to be made by the shareholders until the end of 2010 in order to begin the construction works in 2011.

Currently, the eastern export direction is being most actively developed. JSC NC “KazMunayGas”, jointly with the Chinese National Oil Corporation, is carrying out work on the Kazakhstan-China Oil Pipeline project, which has made it possible to join two stand-alone oil pipeline systems of the Republic of Kazakhstan and ensure hydrocarbon feedstocks supplies to the prospective China market.

The total length of the oil pipeline is over two and a half thousand kilometers (2830 km), and due to its large scale the project has been divided into 2 stages.

The first stage was implementation of the Atasu-Alashankou oil pipeline project with the capacity of 10 mn tons per year that was brought on line in July, 2006.

The second stage of the Kazakhstan-China oil pipeline project includes the following scope of main works:

  • construction of the Kenkiyak-Kumkol oil pipeline;
  • reconstruction of the JSC “KazTransOil” oil pipeline on the Kumkol-Atasu section;
  • expansion of the Atasu-Alashankou oil pipeline up to 20 MMtpa;
  • expansion and reverse of the Kenkiyak-Atyrau oil pipeline.

Construction of the first train of the second stage was completed in October, 2009 – the Kenkiyak-Kumkol oil pipeline with the length of 794 km, and the throughput capacity of 10 mn tons per year.

The lead times of the remaining segments of this project depend on the oil production growth rates, including the Kashagan deposit, and will be tallied with creation of a sufficient resource base, guaranteed from the shippers’ side.

The main and most topical to date is the Kazakhstan Caspian Transportation System (KCTS) project.

This project is intended for exporting the increasing volumes of the Kazakh oil produced at the Kashagan (Phase2) and Tengiz (future growth project) deposits across the Caspian Sea to international markets through the Baku-Tbilisi-Ceyhan oil pipeline and oil transportation systems located on the territory of the Republic of Azerbaijan and other transit countries.

The Kashagan oil volumes, planned to be produced during the second phase of the deposit development, are the foundation for ensuring economic viability of the project.

KCTS is comprised of two segments – the Yeskene-Kuryk oil pipeline and the Trans-Caspian System. Initial throughput capacity of KCTS will be 23 mn tons per year (500 thousand barrels of oil per day), and will be further increased to 35-56 mn tons per year (800-1200 thousand barrels per day).

The project implementation schedule will be tallied with the creation of a sufficient resource base.

Taking into account the complete expansion of the CPC oil pipeline by the end of 2014, the requirement for the Yeskene-Kuryk oil pipeline emerges when implementing Phase 2 of the Kashagan deposit development tentatively in 2018-2019.

Dynamic development of Kazakhstan’s oil and gas complex will be also determined by the development of gas-transportation systems.

Production of sour gas in Kazakhstan was 36.0 bn cub. m in 2009. The main increase in the gas output is ensured through development of the new and major basic hydrocarbon deposits, such as: Karachaganak, Tengiz, Zhanazhol, Tolkyn and a number of other deposits owned by JSC NC “KazMunayGas”, and the Caspian shelf deposits (Kashagan and others). Considering the fact that the extracted gas is mainly associated gas, the dynamics of extraction and production of marketable gas is determined by the oil production rate and the technology solutions adopted for development of a deposit (for example, gas re-injection).

The gas mains system was created as part of the Soviet gas-transportation system and remains functionally oriented at natural gas deliveries from the Central Asia to Russia and the republics of the Caucasus region; that is why Russia remains the principal direction for Kazakhstan’s gas exports.

In 2009 the volume of the Kazakh gas exports was 7.0 bn cub. m, the volume of international gas transit across the territory of the Republic of Kazakhstan amounted to 73.3 bn cub. m, including the Russian gas – 48.0 bn cub. m, Turkmen – 11.9 bn cub. m, Uzbek gas – 13.4 bn cub. m.

Gas transportation and transit across the territory of the Republic of Kazakhstan is effected along the key main gas pipelines: “Central Asia-Center”, “Bukhara Gas-bearing Region – Tashkent-Bishkek-Almaty”, 1st section of the “Kazakhstan-China” gas pipeline, “Orenburg-Novopskov”, “Bukhara-Ural”.

As part of the development of the gas-transportation systems, I would like to mention a new successful project being implemented within the framework of interstate cooperation.

Last December, jointly with our Chinese partners, we completed the first stage of the project for construction of the “Kazakhstan-China” gas pipeline with the length of 1,308 km that is a part of the largest international project for construction of the “Turkmenistan-Uzbekistan->Kazakhstan-China” cross-border gas pipeline.

The designed capacity of the gas pipeline is 30 bcm per year, with an option of further expansion to 50 bcm.

As the second stage of this project, construction of the “Beineu-Bozoi-Akbulak” gas pipeline is considered, implementation of which is carried out in compliance with the instruction of the Head of the State to ensure energy security of the countries southern region.

In the context of other prospective strategic investment projects, KazMunayGas is considering the matter of continuing work on the “Circum-Caspian Gas Pipeline”, aimed to development of steady and reliable transportation of natural gas to the European countries across the RF’s territory.

As regards the Nabucco Project, there are no uncommitted gas resources in the republic.

Furthermore, ensuring transit of the Central Asian and Russian gas to the world markets, we are continuously increasing the reliability and safety of transportation, investing in modernization and reconstruction of our gas-transportation system.

The geography of Kazakhstan’s hydrocarbon feedstocks deliveries depends on a variety of factors, which include the economics of deliveries, the subsoil users’ interests, the government policy, the policy and terms of the transit countries etc.

The foundation for making decisions on the use of any given route for the subsoil users-shippers will in the first instance be the transportation costs that influence the economic component.

Another important condition of the appeal of routes is the opportunity to maintain the quality of the light Caspian crude during transportation to consumers, steadiness, safety, and reliability.

If we touch upon the government policy when forming the export routes, I would like to mention that all the existing and prospective opportunities for creating export routes should be taken into consideration.

Meanwhile, the transportation networks should provide a means for diversification of the sales markets of the feedstocks, flexibilities in terms of optimum utilization, maximum efficiency of the oil-and-gas-transportatio>n systems utilization and creation of favourable tariff terms for the Kazakh exporters of oil and gas.

In planning and implementation of the oil and gas transportation projects it should be considered that there is a number of risks on the open and competitive energy markets.

In this context, the following matters take on special importance:

  • Forming cross-border energy flows in Eurasia.
  • Analysis of geopolitical risks around exploitation and exports of energy resources.
  • Strategic positions and goals of the stakeholders involved in the pipeline policy.
  • Possible positive and negative changes in the policies of the transit countries and stakeholder countries.
  • Analysis of the motivation of the producer companies and other key players of the global oil and gas market against the export strategies of the producing countries.

By virtue of these factors, Kazakhstan’s policy in respect of the development of export routes should be determined by a special, flexible approach, and this approach is seen in diversification of the directions hydrocarbon exports and the maximum efficiency of the oil-and-gas-transportatio>n systems utilization.

Dear ladies and gentlemen!

Let me highlight that we are interested in development of equitable, partnership relations with neighbouring countries and international companies.

At the same time, we strain for the terms that will enable us to promote the state’s national interests in the petroleum industry and energy security of the Republic of Kazakhstan.

I would like to wish the participants and guests of the forum interesting meetings, fruitful discussions and success in implementation of your plans!

Thank you for attention!




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