Kazakhstan Chamber of Commerce in the USA

KazCham



Oil and gas developments head south 0

Posted on April 22, 2010 by KazCham

AS NEW FIELDS are developed in the northern Caspian  over the coming decades, they will be connected to  the main trunk lines running south through the  Kazakhstan Caspian Transportation System (KCTS)  corridor. All three of Kazakhstan’s giant fields lie in the prolific ‘Pricaspian basin’, which extends beyond  the Kazakh-Russian border to Astrakhan in the  west and Orenburg in the north-east. But the bulk  of future discoveries is expected from offshore oil and gas wells further down the Caspian Sea, where  seismic and other surveys have revealed hundreds of  potentially commercial deposits.

The biggest and most prospective of the southern  blocs is the ‘N’ block currently being developed by a  consortium led by KMG with Conoco-Phillips, which  owns 20 per cent of Russia’s Lukoil, as its main partner. It is still not clear how much oil or gas lies in the  ‘N’ block. Hopes are high for another Kashagan-type  giant field. But, even if some of the more optimistic  expectations prove to be just that, there is little doubt h that the hydrocarbon potential of the central part of  the Caspian Sea justifies the KCTS strategy.

Thanks to the new energy corridor, and future  investments in improved road and rail links with  China and across the Caspian Sea, formerly isolated  Aktau expects a bright future as the future transport hub and administrative centre of the Caspian oil  industry, with Kuryk, 100km south of Aktau, as the  main port for oil and gas exports across the Caspian. Current plans call for the construction of a fleet  of 60,000 dead weight tonnes (dwt) tankers capable  of carrying up to 20 million tonnes of oil a year  across the 700km stretch of sea between Kuryk and  Baku. This should be sufficient for several years. But  recent confirmation by independent UK-based oil and gas auditors Gaffney and Cline, that Turkmenistan  has world-class gas deposits both onshore near its  southern border with Afghanistan and offshore,  coupled with growing interest by some European  Union members in the Nabucco gas project, have  revived plans for a trans-Caspian gas pipeline under  the sea.

Further offshore gas discoveries in the Kazakh  sector of the Caspian, particularly in the ‘N’ block,  which many oilmen suspect has more gas than oil,  would further increase demand for such a line, or  alternatively, an LNG facility.

Four years ago, a US-backed project to build a  trans-Caspian pipeline from Turkmenistan to Baku  was scuppered by Russian pressure. But times have  changed. Russia remains a big player in the region  and Kazakh diplomacy never forgets this. But China  is the new factor in Central Asian energy demand,  while the EU is seeking to establish direct energy  links to Central Asia and reduce its dependence on  supplies from and through Russia.

Supporters of the EU’s Nabucco project say that  a pipeline through Turkey and the Balkans to the  heart of Central Europe would be able to attract  sufficient gas from Central Asian and Middle Eastern  gas suppliers to fill a 30 billion cubic metre (bcm)  pipeline to a new hub near Vienna. Sceptics argue  that for Nabucco to move forward, the EU collectively will have to put up money to underpin private  funding from its Central European supporters, which, in turn, will only be forthcoming once guaranteed  supplies of gas are signed up for by potential Middle  Eastern and Central Asian producers.

While EU countries continue this ‘chicken and  egg’ debate on the relative merits of Nabucco or the  two alternative projects proposed by Russia, China is  pressing ahead with construction of a 3,000km-long  gas pipeline from Turkmenistan, through Uzbekistan and southern Kazakhstan, to the Chinese border,  the first lObcm capacity stage of which is due for  completion later this year.

China has demonstrated that it is serious about  increasing energy and other imports from the region, but Germany and Italy, which have both renounced  nuclear power and are heavily dependent on gas and  other imports, remain supporters of Russia’s rival  plans for a Nordstream gas line under the Baltic Sea  to Germany, along with the Southstream proposal  for a gas line under the Black Sea from Russia to the  Balkans and beyond.

Both projects were conceived when oil and gas  prices were high and Russia was flush with dollars.  In the light of the huge cost overruns at Kashagan,  however, there is growing scepticism about  Gazprom’s technical and financial capacity to develop the ambitious Shtockman gas field in the Barents Sea, 500km offshore from Murmansk, and the willingness of the international oil companies to commit to such h a risky venture.  Despite Russia’s own ambitious plans for sub-sea  pipelines across the Baltic and Black Sea, Moscow,  together with Teheran, remains opposed to any cross- Caspian pipeline, partly on ecological and legalistic  grounds, but mainly for political and economic  reasons. Both argue that nothing should be done  until the legal status of the Caspian Sea is settled.

Kazakhstan has bilateral agreements with both  Russia and Azerbaijan regulating oil, gas and related  issues in their respective sectors of the sea. But in the ^ absence of an international agreement on the legal  status of the Caspian as a whole – which hinges on its characterisation as a large lake or an internal sea –  building trans-Caspian pipelines across the southern  Caspian remains a problematic issue.

A possible face-saving formula, if one were needed,  would be to link a line from the eastern shore of the  Caspian to the existing pipelines that already carry  oil and gas from Azerbaijan’s Shah Deniz, and other  offshore oil and gas fields, to the Azeri coast south  ofBaku.

Even without a trans-Caspian pipeline, however,  full development of the KCTS corridor’s potential  requires massive matching investment on the

western side of the Caspian. Existing port facilities  in the Baku area need further development and  extra capacity will be needed in the existing export  pipelines. These include the Baku-Tbilisi-Ceyhan (BTC) oil line and the parallel gas pipeline, which carry oil  and gas through Georgia and Turkey. Other proposals h include raising capacity of the smaller oil pipelines  running from Baku to Supsa and to Batumi, Georgian ports on the Black Sea.

Plans for a large Kazakh-owned refinery in Batumi  and other Kazakh investments in Georgia have been  put on hold since the conflict between Russia and  Georgia erupted in August 2008. But Houston-based  KBR is quietly exploring the technical feasibility of an undersea pipeline between Kuryk and Baku, which  would cross some of the deepest sectors of the world’s largest inland sea.

The great attraction of such a pipeline is that, once constructed, its operation would be in the hands of  the two states which see most clearly the benefits  of cross-Caspian co-operation – Kazakhstan and  Azerbaijan. But the wider political obstacles remain  large – despite strong support from Washington and  growing interest in Brussels.

Invest in Kazakhstan An official publication of the Government of the Republic of Kazakhstan, 2009. Pages: 55-58.



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