The energy sector of Kazakhstan is largely based on the production of oil; the country is the main producer and exporter in the region of Central Asia. The development of natural gas production is also promising: in recent years the country has ceased to be a net importer of this raw material, and is gaining importance as a key transit corridor between Turkmenistan and both Russia and China. In 2012, oil production in Kazakhstan reached a ceiling of 1.605 million barrels per day (of which less than 87% was exported), but the potential is many times larger – proven gas resources number 30 billion barrels, with the potential for as many as 60 billion barrels. They are the object of interest of the largest global corporations. Unfortunately for the ambitions of Astana, the oil transmission pipeline network inherited from the Soviet Union led the majority of exports to Russia. In order to reduce this dependence, Kazakhstan has been developing alternative strategies, such as: building a pipeline to China, adopting new methods of transportation (also by ships across the Caspian Sea) and increasing the level of raw material-processing. Kazakhstan’s foreign policy has been shaped by the increased production of hydrocarbons as well as the diversification of their markets. Kazakh authorities would like to gain the greatest possible control over the routes of supply to consumers. The struggle of various interests in this sphere generates tension in relations with investors and states. In addition to the political issues surrounding export routes, a strategic challenge for Kazakhstan is making its own industrial districts, located far away from the main domestic deposits (these are located on the west of the country), independent of the supply of imports. Today, despite the richness of the Caspian deposits, the northern part of the country is mainly supplied by oil from Russia, while the South is supplied by gas from Uzbekistan. It is in the vital interest of Kazakhstan to change this state of affairs, which, of course, does not always go hand-in-hand with the interests of corporations. In the current balance of power, Russia’s position is weakening, while China’s position is strengthening, as China’s investors were not deterred by the global crisis – by 2014, up to 40% of oil may be extracted with the participation of Chinese companies. The position of Western countries, the main recipients of Kazakhstan’s oil at present, remains uncertain (in 2011, 25% of oil production from Kazakhstan was imported by Italy, 16% by China, 12% by the Netherlands, 8% by France, 7% by Austria and 65% by Switzerland).
Which fields have the greatest potential?
The largest and most promising deposits are located in the western part of the country, in the Caspian Sea area. Oil production in Kazakhstan (mainly condensate) in 2012 reached 79.2 million tonnes – below the expectations of the Ministry of Oil and Gas who forecasted the culminative total of 81 million tonnes a year before. The projected totals could not be met due to problems with the operation of the Tengiz field, and delays in launching the Kashagan field. More than 68.6 million tonnes were directed for export. In 2013, the authorities expect an output of 82 billion tonnes. The most important deposits on the map of those which have already begun oil production, are located in the hinterland: these are the fields Tengiz, Aktobe, Karachaganak, Uzen and Mangistau.
Key oil deposits in Kazakhstan
- 520 thousand barrels per day were extracted in 2012, by 2020 it could reach 840 thousand. The extraction is carried out by the Tengizchevroil consortium (TCO), a joint venture, which includes Chevron (50% of shares), ExxonMobil (25%), Kazakh state-owned KazMunaiGas (20%), and LukArco(5%), owned by the Russian company, Lukoil. The route for raw material exportation is a thread of the Caspian Pipeline Consortium (CPC), which leads to the Russian port of Novorossiysk on the Black Sea. A small portion (approx. 10%) of oil from the Tengiz field is loaded on to freight trains in Atyrau and transported.
- Karachaganak: 250 thousand barrels of condensate per day in 2012. It is possible to increase the amount to 340 thousand. The Karachaganak field, which is located on the border with Russia in north-western Kazakhstan, remains at the disposal of the joint venture Karachaganak Petroleum Operating (KPO), whose shareholders are: BG Group (29.25%), ENI (29.25%), Chevron (18%), Lukoil (13.5%) and KazMunaiGas (10%).
- AktobeMunaiGas: 120 thousand barrels per day in 2012. The Chinese CNPC holds 85.42% shares in the deposit in Aktobe, hence its full name is CNPC-AktobeMunaiGas.
- Mangistau: 115 thousand barrels per day in 2012. The field is operated jointly by CNPC and KazMunaiGas.
- Uzen: 100 thousand barrels per day in 2012. The Uzen ffield is in the hands of OzenMunaiGas, a company whose shares are 100% owned by KazMunaiGas Exploration Production.
Among the most important fields which are yet to play a role, but are already generating no less conflicts of interest with the state and mining companies, are Kashagan and Kurmangazy offshore deposits.
- Kashagan: the reserves of this deposit, discovered in 2000, number 38 billion barrels, but, according to the U.S. Energy Information Administration (EIA), it is possible to extract approx. 15-25% of the total, i.e. 9 billion barrels. Investors expect that production will reach 1.5 million barrels per day. Since 2009, under the banner of North Caspian Operating Company (NCOC), the development of Kashagan and other fields on the Caspian shelf was conducted by seven companies – Eni (16.81%), Royal Dutch Shell (16.81%), Total S.A. (16.81%), ExxonMobil (16.81%), KazMunayGas (16.81%), Inpex (7.56%) and ConocoPhillips (8.4%). In recent months, the latter sold off its shares. The possibility of withdrawal has been announced by ExxonMobil and Royal Spirit Shell, who complain of government policies, unfavourable for them.
- Kurmangazy: estimates state that there are about 5 billion barrels of extractable reserves. The shareholders of the project are KazMunaiGas (50%) and the Russian Rosneft (25%). Although the available resources are vast, they attract less attention from Western companies than Kashagan.
Oil transmission pipeline network – the fewer middlemen, the better
Since Kazakhstan has no infrastructure by which it can independently export through deep-sea ports, the dynamics of the development of oil transmission pipeline networks and the directions of export and transit of hydrocarbons through its territory are crucial for its economic well-being and geo-political position. The growing importance of directions, alternative to Russian and which allow safe passage to the final recipient, can be observed especially in the export of oil. Individual transport threads maintain separate dynamics and political significance.
Key oil transport routes in Kazakhstan
- Uzen-Atyrau-Samara: traditionally the most important oil transport route from Kazakhstan through Russia. Its further branches lead to Eastern Europe and the West. Before the CPC was created, it had been the main route for oil export from Kazakhstan. Raw material from the Uzen fields journey to refineries in Atyrau and further north towards the border by pipelines, belonging to the state-owned KazTransOil (1232 km altogether), and used jointly by the company and Privolzhsknefteprovod. In Russia, from the border (150 km to Samara), the outright owner of the network is the Russian Transneft, and so, for Kazakhstan this is not a promising means of transportation. The pipeline currently transports 15.75 million tonnes. The maximum capacity, after some improvements, would allow for the transport of up to 30 million tonnes of raw material, but the authorities do not plan to distribute more oil in this direction.
- The Caspian Pipeline Consortium (CPC): this oil transmission pipeline network is used to transport a half of all current production in Kazakhstan, mainly from the Tengiz fields. The largest shareholder is the Russian Federation, represented by the Transneft company (24%) and Kazakh KazMunaiGas (19%). As for Western companies, the greatest per cent of shares is owned by Chevron Caspian Pipeline Consortium Company – 15%, and LUKARCO B.V. – 12.5%; 7.5% belong to Mobil Caspian Pipeline Company and Rosneft-Shell Caspian Ventures Limited, 7% is owned by the CPC Company, 2% – by BG and Eni, and 1.75% is in the hands of Kazakhstan Pipeline Ventures and Oryx Caspian Pipeline. What is important and unique is that it is the only pipeline that runs mainly through Russian territory, over which Transneft does not exercise full control – hence, for Astana, the development of this pipeline is perceived as lucrative. Currently, the thread is 1510 km long. Its development will require the construction of 10 pumping stations, of which two will be located in Kazakhstan, the development of the terminal in Novorossiysk, as well as a complete reconstruction of nearly 90-km section of the pipeline in Kazakhstan. In 2012, the CPC pipeline was utilised to export 29.7 million tonnes of oil condensate. According to the announcement of the company’s management at the beginning of this year, by 2014, the network should be able to increase this amount by 10 million tonnes (i.e. by 210 thousand barrels per day). The development plans provide that the main thread of CPC will eventually be capable of exporting 67 million metric tonnes of oil per year (of which 52.5 million from Kazakhstan), i.e. 1.4 million barrels per day. Completion date is scheduled for the year 2015.
- The Kazakhstan-China pipeline is the longest (almost 2800 km) oil transportation thread in Kazakhstan and the most important tool in the diversification of export of raw materials. It connects the Caspian coast to the Chinese Xinjiang on the route Atyrau-Kenkiyak-Kumkol-Atasu-Alashankou. So far, the development of the project has been financed by the Chinese party, and the line is managed by the Kazakhstan-China Pipeline company, a joint venture KazTransOil (a subsidiary of KazMunaiGas) and the Chinese China National Oil and Gas Exploration and Development Corporation (CNODC), a subsidiary of CNPC. Work is underway to increase the line capacity from 240 thousand barrels per day (in 2012) to 400 thousand. In 2012, 10.4 million tonnes were pumped through the Atyrau-Alashankou line. In 2013, it is set to reach the amount of 12 million tonnes of raw material, and upon the completion of the development, expected by the end of 2014, the objective will be to supply 20 million tonnes of raw material annually. The working pipeline is used mainly to transport oil from the Kumkol fields, located in central Kazakhstan, but it is being developed so that it could also be used for the Kashagan deposits, and there are plans connect the Mangistau fields where extraction is already being carried out. These steps are of great strategic importance for the development of the Caspian Sea projects. Assuming an inexhaustible demand on the Chinese part, they give the Kazakh authorities leeway (a possibility) to redirect part of the production to China in the event of a conflict between other users of the aforementioned deposits and recipients. This line is also considered by Russia as one of their own transit routes of oil supplies to China, which are to be increased from 15 to perhaps 30 million tonnes. However, transit through Mongolia seems more likely.
- Transport by oil tankers across the Caspian Sea: In 2012, 7.06 million tonnes were dispatched from the port of Aktau during 2012. Kazakh authorities hope to change this state of affairs by commencement of the exploitation of the Kashagan fields. According to the plans, export of the raw material through the Caspian sea route to the West is to be ensured by the Kazakh Caspian Transportation System (KCTS), a subsidiary of the KazMunaiGaz. This project is particularly important for Western sstakeholders of the Kashagan oil project, as its implementations is closely linked to the development of the project, which at the turn of 2013 led to a crisis of confidence on the part of Western partners. According to assumptions, a new, 830-kilometre-long pipeline would lead from Esken near Atyrau to the new terminal at the port of Kuryk, located south of Aktau. From there, oil tankers with a capacity of 60 thousand tonnes would transport raw material to Baku, Azerbaijan and further by pipeline to the Turkish Ceyhan on the Mediterranean Sea. The network is to initially handle 23 million tonnes of Kazakh oil per year, and, will ultimately allow export of 56 million tonnes of raw material, mainly to the West, including the American continent and Southeast Asia, bypassing Russia and the Turkish Straits. The same port, Kuryk, can also be used as a point of export to the south, to Iran. However, it is obvious that the network will not be put in to operation during the next five years.
- The Iranian Direction: For years, the Kazakhstan-Turkmenistan-Iran line has been a proposal, waiting for a favourable political climate. Undoubtedly, the role of Kazakhstan as a host of international negotiations on Tehran’s nuclear programme, helped to boost confidence between the leaders of the two countries. This may translate into future joint projects. During the negotiations on nuclear issues, the President of KazTransOil, Kairgeldy Kabyldin, confirmed that the railway line Uzan-Gorgan-Etrek from Kazakhstan via Turkmenistan to Iran, which is scheduled for completion in the summer of 2013, can be used for transportation of the Kazakh oil. The implementation of this plan is currently hindered due to the sanctions regime, imposed on Iran. Still, Astana hopes, that the regime will be alleviated. The rail route, which has been established since 2011, will connect the Central Asian republics with the Indian Ocean. In 2012, Kazakhstan exported a total of 6.7 million tonnes of oil by rail. The biggest user of the railway network in the oil industry is Tengizchevroil.
- The Black Sea Direction: In 2008, KazTransOil has acquired the rights to manage the Black Sea port of Batumi, and became the owner of the oil terminal of the port, which exports more than 5 million tonnes of oil per year. In December 2012, Talgat Baitaziyev, a person experienced in the oil sector, was appointed director of the terminal; he is expected to speed up the works on the opening of the oil export route from Kazakhstan across the Caspian Sea, and further by pipeline to Georgia and by sea (via the Black Sea) to Europe. It is in the very context of entering the European market through the Black Sea that the acquisition by KazMunaiGas in 2007 of a majority stake in the Romanian Rompetrol, the company mainly engaged in oil refining and sale of fuels in the Balkans and Western Europe, should be assessed; it was the largest foreign investment in the history of Kazakhstan. The use of the Black Sea direction is also a matter of interest for Ukraine, which at the beginning of April 2013 offered Kazakhstan the transport of oil via their Odessa-Brody pipeline, leading towards Poland. The initiative of Ukraine, which has been losing its importance as a transit route of Russian raw materials, would give the country the possibility to use its own infrastructure. For Kazakhstan, this is another opportunity to diversify exports, and for Poland – to benefit from non-Russian sources of oil.
Crude oil processing – towards reducing Russia’s share
The processing of raw materials in Kazakhstan is carried out by three major refineries: in Atyrau (on the Caspian Sea), in Pavlodar (in the north, supporting mainly Russian oil from Siberia) and in Shymkent (in the south of the country, refining oil from the Kumkol fields). Their current production capacity is about 4-5 million tonnes per year (in 2012, they refined a total of 14.2 million tonnes). The Pavlodar refinery is currently being rebuilt (modernisation should be completed in 2014) also, an extension of today’s small refinery in Almaty is planned. International investors have not evinced much interest in investing in refineries, and so – in the development of fuel production in Kazakhstan – due to the low prices on the internal market. The vision of developing the Black Sea routes (via Georgia and Novorossiysk) gives hope to supply Rompetrol refineries with unprocessed raw material from Kazakhstan. In March 2013, the representatives of KazMunaiGaz declared interest in the possibility of processing 1.5 million tonnes of crude oil in the Chinese Xinjangu refinery, on the basis of a tolling contract (duty-free), which would supply the domestic market with nearly one million tonnes of finished fuel per year and reduce (from 40% to the target 20%), Russia’s share in the import of Kazakh petrol.
Natural gas production – towards China and Almaty
80% of natural gas deposits in Kazakhstan are located in the Caspian Sea region, the largest deposits being in the beds of Karachaganak, Tengiz, Kashagan and Imashevskoye. While in the first two, gas production is carried out, in parallel to oil production, the last two are still in the preparatory phase of production. In the country, reserves of this raw material are in the amount of approx.3 thousand billion m3 (with predictable five thousand billion m3). Production in 2012 totalled 40.1 billion m3, which was 1.5% higher than a year earlier, yet the commercial gas production remained at last year’s level of 21.2 billion m3. 10.5 billion m3 was allocated to cover domestic demand (growth by 3.2%) and 8.8% for exports (growth by 3.7%). Kazakhstan provides gas produced in the region of Karachaganak, about 7 billion m3 per year, to the Russian refinery in Orenburg, and from there – as a result of exchange agreements – about 4.5 billion m3 are returned and supplied to the regions of Kostana, Western Kazakhstan, and southern regions of the country. The Kazakhstan party is not satisfied with the conditions of transport to Orenburg, therefore it plans to build its own refinery in Karachaganak in 2021, which will be capable to process 5 billion m3 of gas per year. At the same time, by developing its own pipeline project to China, it counts on the possibility of shifting its production currently exported to Russia in that direction. This maneuver should be made possible by implementation of the Beineu-Bozoi-Shymkent pipeline. This most important gas transportation project which is currently being implemented is treated as a priority by the authorities. As the Kazakh Minister of Oil and Gas, Sauat Mynbayev, announced at the beginning of March 2013, domestic gas from the vicinity of Aktobe will be able to reach Almaty late 2014 and it will reach China in 2015. Tensions between Astana and Moscow in the area of gas transport work for the benefit of China, which is able to offer alternatives. In March 2013, a proposal was also made on the part of India to amend the TAPI pipeline plan (Turkmenistan-Afghanistan-Pakistan-India) – in its modified version, it would begin in Kazakhtan’s Shymkent and thus provide for demand of Caspian gas in South Asia. At this stage, the proposal is hindered by security issues in Afghanistan, which – though it claims otherwise – is not able to ensure the smooth construction and operation of the pipeline on its territory. However, it is a signal testifying of the positive reception of the Beineu-Bozoi-Shymkent project in the region and of the impact of ideas based on progressive reduction of Kazakhstan’s dependence on gas exports to Russia.
Although the Russian direction is still the most important one for the export of unprocessed raw materials from Kazakhstan, there are indications that its importance will diminish in the future: Kazakhstan, by taking a position of the dominant country in the region will be trying, to the greatest possible extent, to free itself from the historically conditioned patronage of Russia. For this purpose, it will develop new directions for the export of hydrocarbons.
A direct connection between the Caspian Sea oil fields and China is the first and also the only possible direct connection point between Kazakh oil production and its final recipient. The benefits that will result from this system (as well as from the extension of Beineu pipelines to China) make it the highest priority. If the dynamics of the development of China’s interests in Kazakhstan are to continue, they could threaten the security of supplies to the West.
In the coming years, however, Astana’s interest in the European markets should not decrease, since these markets remain the most relevant consumers of Kazakh oil production. This feeling is reinforced by the KazMunaiGaz’s investment in Romanian Rompetrol, the oil port of Batumi, and by ambitious plans of developing the gas transportation system across the Caspian Sea and the Black Sea which would be independent from Russia. While Western oil companies show signs of impatience and disappointment with the real condition of the projects in the Kazakh Caspian Sea shelf, they remain their key partners in producing fields. The development of the southern direction (Iran, India) is being postponed due to political and military considerations, but Astana’s active diplomacy in Asia could pay off in the future.
By: Jędrzej Czerep
Jędrzej Czerep – Open Dialog Foundation analyst. Collaborates with renowned research centers (research fellow of the Kazimierz Pułaski Foundation) and international organisations (Council of Europe). He has worked with international mass media (Al-Jazeera English, The Guardian), human rights defenders (Amnesty International), lobbying organisations (Culture Action Europe, Brussels).