Kazakhstan is unquestionably one of the CIS region’s hydrocarbon giants. With proven reserves of 30 billion barrels (bbl) and daily production of more than 1.5 million barrels per day (bbl/d), the Central Asian republic ranks second after Russia in the CIS region and accounts for 2% of global production. Currently the 19th biggest oil exporter in the world, Kazakhstan is projected to play a more significant role in global oil production when the Kashagan field starts production. As for gas, Kazakhstan is on the way to becoming a net exporter as a result of its steadily rising gas production. Further development of the country’s giant Tengiz, Karachaganak, and Kashagan fields is expected to at least double current production levels in the new decade. Lastly, Kazakhstan contains Central Asia’s largest recoverable coal reserves, and is the second largest coal producer in the CIS region after Russia. Activity is high in the country, with 241 fields and 142 companies operating in the sector, comprising 20 joint ventures, 48 foreign companies, and 74 local companies. The energy sector is the biggest contributor to the economy, and oil and oil products make up 59% of the country’s exports.
Western Kazakhstan hosts the country’s main onshore and offshore oil reserves. The five largest onshore oil fields, namely Tengiz, Karachaganak, Aktobe, Mangistau, and Uzen, account for about half of current proven reserves. The
offshore Kashagan and Kurmangazy oil fields are located in Kazakhstan’s sector of the Caspian Sea and are estimated to contain at least 14 billion bbl. Tengiz is Kazakhstan’s largest producing oil field; its recoverable crude oil reserves are estimated at between 6 billion and 9 billion bbl. The Tengizchevroil (TCO) joint venture has been developing the field since 1993 according to a 40-year production-sharing agreement (PSA) agreement signed with the Kazakhstani government. The shareholders of the joint venture are Chevron (50%), ExxonMobil (25%), KMG (20%), and LukArco (5%). By the Russian border in northwestern Kazakhstan, the Karachaganak field is estimated to hold reserves of around 8 billion to 9 billion bbl of oil and gas condensate and 47 trillion cubic feet of natural gas. The field is operated by the KPO consortium, including Agip and BG (each with 32.5%), Chevron (20%), and Lukoil (15%). KPO has the right to develop for 40 years according to a PSA signed in 1997.
Located in southwestern Kazakhstan in the Mangistau region, the Uzen field has been in operation since the early 1960s and is operated solely by KMG. Through rehabilitation of the field and development of the bordering Karamandybas field, KMG plans to increase production.
The Mangistau oil field is also located in southwestern Kazakhstan, and has estimated reserves of 500 million bbl. KMG and China National Petroleum Corporation (CNPC) jointly operate the field, which produced 115,000 bbl/d in 2009. CNPC holds the majority stake in the Aktobe oil field, which is located in northwestern Kazakhstan. The field produced 120,000 bbl/d in 2009, more than twice what it produced in 1997, and is estimated to have over 1 billion bbl of oil in its reserves.
Kazakhstan has about 2.5 trillion cubic meters of proven natural gas reserves. The Karachaganak field alone produces about half of Kazakhstan’s total gross gas production and its natural gas output is mainly exported to Russia. The Tengiz oil and gas field comes in second, having produced 14 billion cubic meters (bcm) in 2008, and according to TCO annual gas production could be increased to 22 bcm by 2015. The remaining gas production comes from other smaller fields.
Although the country’s hydrocarbon sector is primarily export oriented, energy self-sufficiency is of equal importance—especially with regards to gas—to ensure energy security. KMG and Spain’s Repsol are developing the Amangeldy field, located in southern Kazakhstan, and the gas output from the field is geared for domestic consumption. The field reportedly produced about 1 bcm in 2010 and has an estimated 25 bcm of recoverable reserves.
With production from the Kashagan field, Kazakhstan can attain the targeted 71 bcm by the end of 2015. However, Kashagan’s gas output will depend on the degree of re-injection of gas from the field back into the reservoir to increase production levels.
Re-injection of gas is also an indication of Kazakhstan’s advancement in environmentally friendly oil production. In 2004, Kazakhstan introduced measures aimed at reducing the flaring of gas associated with oil production. In October 2005 and January 2007 parliament prohibited this practice, although some exemptions were made in relation to industrial and environmental hazards and pilot projects involving experimental field development and tests. Kazakhstan’s government is targeting to completely eliminate gas flaring by 2012.
In oil and gas rich Kazakhstan, the lack of access to an ocean seaport means pipelines are the most economical means of transportation for the commodity to world markets. The Atyrau-Samara line links Kazakhstan to the Russian pipeline system, while the Caspian Pipeline Consortium line is connected to Russia’s Black Sea oil terminal at Novorossiysk. The Central Asia oil pipeline through Turkmenistan and Afghanistan transports oil from Kazakhstan to the Gwadar seaport in Pakistan. Lastly, the 970-kilometer long Atasu-Alashankou oil pipeline lies between eastern Kazakhstan and Xinjiang province in China, operating with an annual capacity of 20 million tons. Kazakhstan also facilitates exports from Turkmenistan and Uzbekistan as a transit state for pipelines.
As of end-2010, Kazakhstan has 20,181 kilometers of pipelines, of which 12,269 kilometers are for gas and 7,912 kilometers for oil. Since 2003, the country’s pipeline infrastructure has developed by 19%. The increase was 21% and 17% for gas and oil pipelines, respectively. The transportation of oil and gas through pipelines stands out as a good example of Kazakhstan’s role as a transit country for the commodities market. In 2010, of the 89.4 million tons of gas freight, 71.8 million tons was transit.
HYDROCARBONS & THE ECONOMY
The realization of Kazakhstan’s hydrocarbon potential is a main driver of growth and will continue to play a defining role as the country makes strides to enhance its production capabilities.
The IMF noted that in 2010, 75.5% of FDI into Kazakhstan flowed to the extractive industries sector, and oil took the largest share. In the same year, the value-added created by the oil
sector accounted for 11.5% of GDP and oil exports represented close to 60% of total exports of goods and services. Consequently, about 46% of government revenues came from the extraction and export of oil.
The increase in industrial and residential power consumption is not only a result of—but also a prerequisite for—economic growth, with an expansion in Kazakhstani power consumption reflecting this phenomenon. Over recent years the energy consumption in Kazakhstan experienced 5%-7% annual growth. As consumption has shown higher growth rates than production, the government has adopted an action plan for the development of the electric power industry for 2007-2015 to ensure a stable power supply. The plan is intended to focus on enhancing the investment attractiveness of the sector, developing the forecast of the energy supply and demand balance for 2007-2015, promoting energy saving technologies and sustainable energy resources management, developing the use of renewable energy in the country’s power balance, and laying the basis for and identifying the main trends for nuclear energy development.
The 10 key investment projects envisaged by the plan are estimated to cost $9.7 billion and involve the construction of about 1,300 kilometers of transmission line and 4,000 MW of power generation capacity. Special attention is also bring given to the modernization of the national electric grid, with a view to ensuring energy efficiency and security.
Although Kazakhstan has ample hydro, solar, and wind energy resources, almost all of Kazakhstan’s energy is generated through the use of coal, oil, and gas. To diversify its energy generation mix and to decrease dependency on imported electricity—especially in the south—Kazakhstan plans to capitalize on its wind base. Kazakhstan’s wind energy potential is estimated to stand at 500 MW of installed capacity, which should generate 1,820 GWh annually. By 2014, Kazakhstan is estimated to provide 250 MW of wind power and 2,000 MW by 2030.
In March 2011, Central Asia Green Power and state grid company KEGOC signed a memorandum to establish two wind farms—Zhanatas and Shokpar—with a capacity of 400 MW and 200 MW, respectively, in the Zhambyl region. The investment sum for the construction of the wind farms is estimated at around $1 billion.
Given the limited capacity of wind energy, the expected level of wind penetration is very low. UNDP estimates that less than 1% and about 4% of electricity will be generated by wind in 2015 and 2030, respectively.
© The Business Year