Kazakhstan Chamber of Commerce in the USA


Turkmens set to start work on new gas pipeline 0

Posted on May 31, 2010 by KazCham

(AP) – Energy-rich Turkmenistan will start later this month building a pipeline linking its natural gas-rich fields in the east to the Caspian Sea coast in an effort to increase its export potential, a state newspaper said Monday.

Turkmens set to start work on new gas pipeline

Turkmenistan set to start building new gas pipeline needed to boost exports to Russia, Europe

AP News

May 24, 2010 11:39 EDT

Energy-rich Turkmenistan will start later this month building a pipeline linking its natural gas-rich fields in the east to the Caspian Sea coast in an effort to increase its export potential, a state newspaper said Monday.

Rebuffing numerous offers by Russian companies to construct the 1,000-kilometer route, President Gurbanguli Berdymukhamedov said work on the pipeline will be carried out by Turkmen state companies, Neutral Turkmenistan reported.

Russia and Europe are both vying for a share in Turkmenistan’s gas riches, but transporting those resources to either market will require a new route traversing the Central Asian nation to reach the starting points of proposed export pipelines from the Caspian coast.

Neutral Turkmenistan said building the East-West pipeline is “a practical step in the implementation of large-scale plans for Turkmenistan to diversify its energy export routes to world markets.”

The newspaper said the pipeline will have an annual capacity of 30 billion cubic meters. Deliveries through the route are expected to start in June 2015.

A major contributor to the East-West pipeline will be the vast Southern Yolotan-Osman field, located near Afghanistan’s western border, the newspaper said. Independent auditors Gaffney, Cline and Associates said earlier this year that the field may hold up to 16 trillion cubic meters of gas, making it one of the largest in the world. Output at the field could reach 30 billion cubic meters of gas annually within three to five years, the auditors said.

The United States and European Union are seeking to channel Central Asian gas into the planned Nabucco pipeline, which would run from the Caspian Sea to Europe, circumventing Russia.

Ensuring Nabucco’s viability would likely require Turkmen gas carried through a subsea pipeline across the Caspian Sea. But delimitation of the Caspian Sea remains a point of contention between the five nations that surround it and could thwart prospects for Nabucco.

Meanwhile, Moscow has pinned its hope of cornering the Turkmen gas market on the creation of a new pipeline from Turkmenistan’s Caspian coast, running through Kazakhstan and linking up with Russian state company Gazprom’s grid. The presidents of Russia, Kazakhstan and Turkmenistan signed off on an agreement to build the pipeline in May 2007, but no real progress has been made on the project so far.

Energy ties between Russia and Turkmenistan were damaged in April 2009, when a pipeline explosion blamed on Moscow by Turkmen authorities interrupted supplies. After an almost eight-month standoff, Turkmenistan began to supply 30 billion cubic meters of gas annually — a substantial reduction from the 50 billion cubic meters that Russia was buying before the blast.

China also made a dramatic entry into the competition for Central Asian gas last year, when a new pipeline joining Turkmenistan and China began operating in December. Turkmen gas deliveries to China through the pipeline are expected to increase annually until reaching 40 billion cubic meters in 2015.

Source: AP News


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.

Maintaining the flow 0

Posted on March 05, 2010 by KazCham

FOR LANDLOCKED KAZAKHSTAN, oil and gas pipelines  are its main export arteries. They will become even  more important once the giant Kashagan field comes -on stream, doubling oil production and opening up  a new era of offshore Caspian Sea oil and gas exports  within the next five years.

Ensuring that another 1.5 million barrels a day of  export pipeline capacity, together with new tanker  routes across the Caspian Sea, are ready by 2015 at  the latest are among the government’s most crucial  strategic goals at a time of intensive infrastructure  development in this vast, thinly populated country.

In Soviet times, and until very recently, virtually  all Kazakhstan’s oil and gas exports were transported -north through Russia. So were the more than 50  billion cubic metres of natural gas, which transited

the country from Turkmen and Uzbek gas fields en  route to eventual markets in Ukraine and Russia  itself, where state-controlled Transneft and Gazprom  stubbornly defend their near-monopoly status against  all comers.

Chevron-Texaco and its partners in the  Tengizchevroil consortium – Exxon-Mobil with  25 per cent, KMG with 20 per cent and the LukArco  joint venture between Lukoil and BP with 5 per  cent – were the first foreign companies to breach the  Russian gas transit company’s monopoly on exports  from Central Asia, when President Yeltsin reluctantly  agreed to the construction of the Caspian Pipeline  Consortium (CPC) pipeline in the late 1990s. In  return for putting up the money, the oil companies  demanded, and were granted, management control of the line to ensure it was run in the interests of  the investing partners, who were also the main  users of the pipeline. At the time it looked like a  revolutionary step – but it did not last long.

The CPC line runs from the giant onshore Tengiz  oil field in northern Kazakhstan, developed by  Chevron and partners, across southern Russia to the Black Sea port of Novorossiisk. A 600km-long spur  line from the giant Karachaganak gas condensate  field to the north east taps into the line to allow  access for BG, ENI and other investors, including  Russia’s Lukoil.

Unlike most Russian pipelines, CPC is run on a  quality bank system. This ensures that high-quality  Central Asian light crude oil and condensate can  be sold at a premium and not suffer the Ural crude  discount. This affects oil delivered through Russia’s  ageing main pipeline system, which mixes the good  with the bad to deliver a lower grade final product.  This is a major disincentive for using the ageing

Soviet-era trunk pipeline system, which Russia did  not upgrade sufficiently during the years of high  oil prices.

Chevron and partners put up more than $2 billion  to build CPC and associated facilities and the Yeltsin  administration allowed Chevron to manage it,  overruling Transneft’s opposition. The Russian and  Kazakh governments received 24 and 19 per cent  stakes in the pipeline and shareholders included  Lukoil through its Arco joint venture with BP.  Stakeholder companies gained access to the pipeline  for their oil exports in proportion to their investment.

But this arrangement did not survive President  Putin’s ambitions to make Russia an ‘energy super- derzhava’ (energy super-power) and the foreign  oil company stakeholders lost both their original  combined majority of shares and their managerial  rights as Moscow bought up the 7 per cent of  shares formerly owned by the Gulf State of Oman  and insisted that management pass into Russian  hands. Moscow argued that the former management  had run a low-tariff regime, which favoured the  international oil companies at the expense of  the Russian treasury. Once in control, Transneft  proceeded to raise tariffs.

Moscow has also made CPC capacity expansion  conditional on support for Transneft’s desire for a  controlling 51 per cent stake in the proposed Burgas- Alexandropolous pipeline. This 220km-long route  is designed to bypass the crowded and ecologically  sensitive Turkish Bosphorous and carry Caspian and  Russian oil from the Black Sea to the Greek port of  Alexandopolous in the northern Aegean, through  Bulgarian and Greek territory.

BP, which has concentrated its Caspian investments  in the Azeri section of the sea much further south,  recently sold to KMG for $250 million the 1.75 per  cent stake in CPC it inherited from its LukArco joint  venture. When added to the 19 per cent already held  by KMG on behalf of the Kazakh state, the state energy h corporation now holds a 20.75 per cent ownership  stake and has the right to export 14.3 million tonnes a -» year through the line, once capacity expansion to  67 million tonnes a year is completer

The BP sale to KMG completes a radical shift in  the power balance within the CPC consortium, with  the Russian and Kazakh state now holding a clear  majority of 54.75 per cent in the pipeline – paving the way for Moscow to give the green light for the long  promised expansion.

Oil started to flow down the CPC line four years ago and some 32 to 34 million tonnes a year can now be  transported down the pipes, thanks to the addition of chemicals to speed the flow. From the start the CPC  project was conceived as a two-stage affair. Technical  plans to double capacity to 67 million tonnes a year,  through additional investment in new pumping  stations and other facilities as production built up  from new onshore and offshore fields, have been  approved, but not the final go-ahead.

Ironically, Russian resistance to expansion proved  a blessing in disguise for the Kashagan consortium.  If Kashagan had come on stream as planned in 2008,  there would not have been the pipeline capacity  to take the oil to export markets. This is a problem  already facing Chevron and partners who have had  to invest heavily in railcars and barges to get rising  volumes of oil from Tengiz to export markets; and  the ENI/BG-led Karachaganak consortium, which  is similarly struggling to find export outlets for  rising production of high-value gas condensate.

Doubling capacity of the CPC oil pipeline and  raising capacity on the traditional Russian export  pipelines north via Samara to connect with the  Druzhba, and other ageing Soviet-era pipelines,  remains an essential part of the planned doubling  in overall export capacity from the North Caspian  basin. Russia will continue to play an important  transit function – and earn increasing transit  revenues – from central Asian oil and gas exports.

But the development of alternative, non-Russian export routes has been accelerated by Moscow’s  delaying tactics over CPC expansion. Moscow will

shortly lose an export pipeline monopoly, which is  a legacy of Soviet times and increasingly resented  throughout central Asia and the Ukraine.

Until now, Moscow has gained most of what it  sought, but at a potentially high longer-term price.  Some analysts say that had Russia kept to the spirit of the original CPC deal and allowed the pipeline to be  expanded as planned, central Asian governments and h oil companies might have been far less determined to h seek alternative export routes. They might also have  been less responsive to the growing interest shown  by China to acquire oil and gas assets in Central Asia,  and build and finance new oil and gas pipelines from  Central Asia east to the Chinese border.

Invest in Kazakhstan An official publication of the Government of the Republic of Kazakhstan, 2009. Pages: 44-50.

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