Kazakhstan Chamber of Commerce in the USA

KazCham



$30 billion expansion of oil production at Kazakhstan’s Tengiz field 0

Posted on January 19, 2016 by KazCham

Colibri Law Firm BI@colibrilaw.com

The Kazakh Minister for the Economy, Yerbolat Dosayev, said on Monday that the preliminary cost of the expansion of oil production at the Tengiz field (second stage), a project that would increase the recoverable amount of hydrocarbons to 38 million tonnes per year by 2021, is estimated at $30 billion.

“There is a direct assignment of the head of state to accelerate the process of project implementation. That’s why we start the project in the spring of next year,” Dosayev said.

The Kazakh Minister for Energy, Vladimir Shkolnik, had earlier reported that a decision on the project to expand oil production at Tengiz would be made before the end of 2015. He stated that the basic requirement for the expansion project is to reduce the cost of its implementation.

Currently, the project partners are Chevron (50%), KazMunayGas (20%), ExxonMobil (25%), and LukArco (5%).

New investor is interested in Kazakhstan’s “Eurasia project” 0

Posted on January 20, 2015 by KazCham

Business Intelligence from Colibri Law Firm: Issue #100

The project is mainly aimed at exploring the deep geological structure of the region to discover new large deposits of hydrocarbons, as well as to define patterns of their bedding at large depths. The implementation of the Eurasia project will consist of three phases. The first phase envisages the collection and processing of materials from previous years. The second phase includes large-scale research. The last phase includes the drilling of a new support-parametric well called Caspian 1, at the depth of nearly 14-15 kilometers. The estimated cost of the three phases of the Eurasia project is about $ 500 million and the entire project will be taken up during the 2015-20 period.

Meanwhile Indian Oil and Natural Gas Corporation Videsh Limited (OVL) is closely studying the proposal to be part of the massive “Eurasia Project”.

According to officials in the Petroleum Ministry, OVL is looking deeply into the communication sent by the Indian Embassy in Astana about the new initiative and has advocated that OVL should closely look at being part of this project which posses a whopping 300 oil and gas fields in the basin including the super giant fields like Karachaganak, Tengiz and Kashagan in the territory of Kazakhstan.

 

Kazakhstan Daily News Brief – October 5, 2011 0

Posted on October 05, 2011 by Alex

Higher Oil Prices Are Not Enough 0

Posted on January 21, 2011 by KazCham

Anthony Robinson looks at what the government’s new tax laws, plans to modify production-sharing agreements, and higher oil prices mean for Kazakhstan’s oil industry

HIGHER OIL PRICES have come as a relief to Kazakhstan’s fast-growing oil and gas sector, which continued to invest heavily in major field development and infrastructure. Exports, whose value dropped sharply as oil prices fell from a 2008 peak of $147/barrel, are also rising – giving a boost to tax revenues and enabling the government to replenish the National (oil) Fund and rebuild central bank reserves.

Despite cutbacks at some of the higher cost, older fields, overall oil and condensate production is being boosted by the giant on-shore fields of Tengiz and Karachaganak. Overall production rose nearly 7 percent to 76.5 million metric tons last year, of which 68 million metric tons were exported, according to Sauat Mynbaev, the minister of oil and gas. He forecasts output of 80 million metric tons this year.

But a return to higher prices is not enough to allay the concerns of the international oil companies about the new tax code introduced in 2009 – and indications that the government wants to modify the long-term production-sharing agreements (PSAs) signed in thel990s to reflect the huge changes in oil prices and other factors since they were signed. The new tax code is specifically designed to raise the burden on energy and metals producers in order to lighten it on small and medium enterprises. The idea is to support diversification of the economy away from its current unhealthy reliance on the extractive industries, which require vast amounts of capital but employ relatively few people.

Government spokesmen have said that the Kashagan PSA is unlikely to be modified – reflecting the on-going nature of the investment, the technical complexity of safely operating the giant off-shore field, and the fact that KazMunaiGas (KMG), the state oil and gas company, negotiated a new deal two years ago which gives it an equal share with the four international oil majors running the project -Exxon-Mobil, ENI, Shell and Total, with smaller stakes for Japan’s Inpex and Conoco-Phillips. KMG also has

without a state equity share is Karachaganak – but this anomaly is not likely to last long. Both Oil and Gas Minister Mynbayev and KMG Chairman Kairgeldy Kabyldin have confirmed that the government wants an equity stake for KMG in Karachaganak.

UK-based BG and Italy’s ENI are joint operators of the Karachaganak field with each currently holding a 32.5 percent stake, and the balance held by Chevron with 20 percent and Russia’s Lukoil with 15 percent. Karachaganak is one of the world’s richest deposits of gas condensate, a high quality light oil, with an estimated 1.2 billion metric tons of oil and condensate and 1,350 billion cubic meters of gas. It was in a parlous state when the western partners inherited the polluted and badly managed Soviet-era field on which they have spent several billion dollars to turn into a well-run, profitable business.

Mindful of the damage done to Russia’s standing with foreign investors by Rosneft’s takeover of Yukos, BP’s struggles at TNK, and the forced purchase by Gazprom of the Shell-controlled Sakhalin liquefied gas venture, the government is seeking an agreed solution at Karachaganak. But it cites KMG’s stake in the other two large projects as precedents and argues the broader case for the state to hold substantial stakes in the nation’s richest resource projects.

The standoff at time of writing was accompanied by pressure from the government’s tax, environmental protection, labor and other agencies which presented the KPO consortium with a $1.3 billion cocktail of disputed tax claims and fines for alleged infractions of ecological, labor and other codes, which KPO disputes. Industry commentators, who recall similar pressure when KMG was seeking parity in Kashagan, suggest the claims could be at least partially dropped as part of a deal over the desired KMG stake.

On May 19 deputy oil minister Lyazzat Kiinov told reporters at an oil and gas conference in Paris that the government would not force an entry into the company, adding: “We are ready to repay the historical costs and contribute to our share equally with other other partners.” Mehmet Ogutcu, BG’s director for international and governmental affairs, later told Bloomberg that KPO shareholders wanted to resolve the tax and other issues with the government as soon as possible and were trying to work out a common position with regard to the future composition of the consortium.

What unsettles the international oil companies, who are about to embark on multi-billion dollar “third generation” developments, is that the Karachaganak saga is taking place against the background of increasing ambiguity about the government’s commitment to PSAs, and suggestions that the new tax laws should be universally applicable in the name of transparency and “leveling the playing field” for all foreign investors. Kazakhstan’s track record thus far indicates that changes will continue to be negotiated and ultimately be acceptable to both sides. Prime Minister Karim Massimov addresses these concerns in an interview on pages 22 to 25.

Meanwhile, the rapid development of new gas technologies, which have opened up vast shale deposits in the United States, Poland and elsewhere, is having a big impact on assumptions about future global gas prices and supply patterns -just as Kazakhstan’s associated gas output from the new deep oil fields is rising strongly.

Most Kazakh gas is associated with oil production and will be re-injected to keep up pressure in the oilfields. The government also imposes heavy fines on gas flaring, which fell by more than 60 percent in 2009 as oil companies invested in gas treatment plants to supply domestic customers and small power stations. Gas from the condensate field of Karachaganak is already exported to Orenburg in Russia for processing, and by the middle of 2010 Kazakh gas will also be exported to China via a new export line from Beinau to the Chinese border, which will also supply gas to southern Kazakhstan.

Looking further ahead, some Kazakh gas could also be exported to Europe. But this will require either building an expensive liquefied natural gas plant and liquefied gas tankers, or a gas pipeline to cross the Caspian to Baku. This investment will not be forthcoming until Europe makes up its mind whether to opt for the Nabucco project, entailing a new pipeline through Turkey to Central Europe, or Russia’s South Stream project under the Black Sea. Neighboring Turkmenistan, with vast on- and off­shore gas reserves, faces a similar dilemma.

Against this uncertain background, the government is also pressing ahead with plans to develop a domestic gas-based petrochemical industry and export value-added petrochemicals – mainly to China. ?

Anthony Robinson is a former Financial Times Moscow correspondent, and East Europe editor and originator of the Russian business newspaper Vedomosti.

SOURCE: Invest in Kazakhstan 2010

U.S. Companies Look for the Next Big Thing 0

Posted on January 13, 2011 by KazCham

U.S. companies have stood by Kazakhstan through times and bad. Peter Galuszka looks at the countries’ economic partnership and the role of U.S. investment

WHEN THE SOVIET Union fell apart in 1991, U.S. companies led the way in investing in newly independent Kazakhstan. The pioneer was Chevron, which began developing the Tengiz oil field in 1993. Since then, a host of other U.S. companies, ranging from energy and transportation to banking and legal services have flocked to Almaty, Astana, and Atyrau, among other places.

So far, U.S. investment totals about $23 billion, or nearly one-fifth of the $100 billion that foreign firms have invested in the country. The next largest group come from the European Union – the Netherlands, Britain, France, Germany and Italy – as well as from South Korea, with China coming on strong of late.

American corporations have stuck with Kazakhstan through good and bad. They have ridden out the regional controversies regarding placing oil pipelines, have rolled with the country’s double-digit inflation in its early years, and have helped with the formerly Communist government’s learning curve in developing laws and tax policies. Most recently, they have hung on as Kazakhstan considers changes in decades-old production-sharing agreements for petroleum and works its way out of recession.

At the nuclear summit meeting in Washington, D.C. in April, President Barack Obama and President Nursultan Nazarbayev “reconfirmed the importance of the long-term energy partnership between the two countries,” according to a joint statement, and pledged bilateral commercial cooperation in alternative energy and agriculture. Obama lauded Kazakhstan’s cooperation on nuclear non-proliferation, energy development, and allowing U.S. military flights over its territory to resupply troops in Afghanistan.

Kazakhstan has mitigated economic damage from the dip in world oil prices and positioned itself for more diverse and sustainable growth. Projections for 2010 show slow-but-steady improvement as foreign money flows into the country faster and key projects gather steam. Several major U.S. manufacturers and tech companies have been “taking this slow period to do due diligence,” says Richard E. Hoagland, the U.S. ambassador to Astana. “They’ve targeted Kazakhstan as a key strategic investment for the future.”

Doris Bradbury, executive director of the American Chamber of Commerce in Almaty, says membership applications were up 30 percent in the first few months of 2010, after falling during the recession. “They’re looking for the next big thing, and the next big thing is Kazakhstan,” she says.

The crown jewel of U.S. investment is the Tengiz oil field, the world’s sixth-largest with estimated capacity of 26 billion barrels. Development began in 1993 and has been led by Chevron (50 percent); ExxonMobil (25 percent); KazMunaiGas (20 percent); and LukArco (5 percent).

Chevron’s Tengizchevroil venture has so far put $36 billion – including wages, taxes, local sourcing, and other costs – into the country and has just completed a $7 billion upgrade to further eliminate sour gas common in Tengiz crude. Chevron and its partners are now contemplating billions more in investments that would take Tengiz output from 540,000 barrels a day today to about 900,000 within a few years. “The investment climate has been successful for long-term projects,” says Kurt Glaubitz, a Chevron representative. In 2009, Tengizchevroil reported income of about $4 billion before taxes or other expenses, Glaubitz notes.

Chevron is also a major investor in the Karchaganak field, one of the world’s largest deposits of gas condensate with reserves estimated to be 42.4 trillion cubic feet. The California-based company is the largest private shareholder in the $2.7 billion Caspian Pipeline Consortium (CPC), which takes petroleum from the Korolev and Tengiz fields to the Russian port of Novorossisk on the Black Sea, where it is transferred to oil tankers. CPC plans to double its current daily capacity from 700,000 million barrels a day to 1.4 billion within a year.

ExxonMobil has a 16.8 percent share in the offshore Kashagan oil field with estimated reserves of up to 16 billion barrels, scheduled to begin production in 2012.

Kazakhstan wants to exploit another natural advantage – uranium. Government nuclear agency Kazatomprom owns 10 percent of Westinghouse, the now Japanese-owned but still Pennsylvania-headquartered builder of commercial nuclear reactors. NUKEM Inc., a Danbury, Connecticut-based subsidiary of Germany’s NUKEM GmbH, which has been active in the country since 1992, has ten contracts with Kazakh concerns to market uranium. “We’ve had a very positive experience there,” says Tim McGraw, executive vice president.

Transportation is another key part of Kazakhstan’s economic diversification. In July 2009, a new assembly plant for the 310 Evolution Series energy-efficient locomotive made by General Electric opened near Astana, with capacity for 100 locomotives a year for local and export markets. “Kazakhstan is an incredibly dynamic economy,” says GE spokesman Stephan Roller, “and that’s why we want to be there.”

American companies are also involved in Kazakh agriculture. North Dakota’s farm equipment manufacturers exported more than $40 million in machinery to Kazakhstan in 2009, making it the state’s fourth-largest trading partner – though that’s just one-quarter of the amount tallied by the largest exporting state, Texas, with $160 million out of $599 million total for all U.S. states. The North Dakota Trade Office has a representative in Astana working on equipment and livestock deals, and plans to announce a major investment this year. “North Dakota has a similar soil, climate and crops,” says spokesman Jeff Zent in Fargo.

There are problems, to be sure. BTA Bank, Kazakhstan’s second-largest, filed for bankruptcy protection from U.S. creditors in March while restructuring $11.6 billion in debt. Foreign

energy firms are reeling over plans by the Kazakh government to alter oil and gas production-sharing agreements.

But relatively speaking, Kazakhstan remains a good place for investment, having climbed the ranks of the World Bank’s ease-of-doing-business index last year. “It’s not just that [Kazakhstan] wants new investment, but it is creating conditions for it,” says Ambassador Hoagland.

Investors can find a country with a “modern outlook and youthful, broad-minded officials,” says Erlan A. Idrissov, the Kazakh ambassador in Washington. “The average age is 35.” ?

Peter Galuszka is formerly a Moscow-based correspondent for BusinessWeek, and is now based in Virginia.

SOURCE: Invest in Kazakhstan 2010

Kazakhstan Daily News Roundup – October 8, 2010 0

Posted on October 08, 2010 by KazCham

HEADLINES:

KazMunaiGas to borrow $14 billion to fund major investment program
(SRI) – KazMunaiGas, Kazakhstan’s national oil and gas company, may borrow up to $14 billion to fund its $20-billion investment program until 2014 and is unlikely to seek an Initial Public Offering (IPO), the company’s CEO Kairgeldy Kabyldin said in Almaty on Thursday.

KMG EP to continue acquisitions spree
(SRI) – KazMunaiGas Exploration Production (KMG EP) will continue to acquire assets from its parent, Kazakhstan’s national oil and gas company KazMunaiGas, the parent company’s CEO Kairgeldy Kabyldin said on Thursday.

Tengizchevroil to submit expansion plan in 2011 – Mynbayev
(SRI) – Tengizchevroil (TCO), the Chevron-led venture, is expected to officially submit an expansion plan for Tengiz, Kazakhstan’s largest producing oil field, in 2011, Oil and Gas Minister Sauat Mynbayev said in Almaty on Thursday.

ENERGY:

Kazakhstan crude oil output 58.9 million tonnes in Jan-Sep (SRI)

Firms seek assurance as Kazakhstan plans oil boom (Reuters)

Azeris say Total puts off Caspian drilling to 2011 (Reuters)

BUSINESS AND ECONOMY:

Kazakhstan introduces ban on export of buckwheat, oil (Itar-Tass)

National Bank of Kazakhstan: Exchange rates October 8, 2010 (Kazakhstan Today)

Indicators – October 7, 2010 (Reuters)

METALS AND MINING:

ENRC eyes platinum, working on Zimbabwe project (Reuters)

FTSE miners face Kazakh power grab (Telegraph)

POLITICS:

Coup rumor a sign of factional infighting in Astana (EurasiaNet)

REGIONAL:

BP signs deal with Azerbaijan on big Caspian gas field

(AFP)

Voice of America reporter on trial in Uzbekistan (AP)

Turkmen activist allowed into human rights meeting (AP)

SOURCE: http://silkroadintelligencer.com/2010/10/08/kazakhstan-daily-news-roundup-october-8-2010/

Tengizchevroil to increase production sharply following planned expansion 0

Posted on June 02, 2010 by KazCham

(SRI) – Tengizchevroil, the joint venture developing the Tengiz oil field, expects production to increase by 12 million metric tons of crude a year by 2016, following the planned expansion of the production facilities, Chevron Corp. Vice President Ian MacDonald said last week.

According to MacDonald, the decision whether to expand the Tengiz field may be taken in 2011. In 2009, Tengizchevroil produced 22.5 million tons of crude.

Kazakhstan President Nursultan Nazarbayev has given a “very clear assurance” that deals in the former Soviet Union country will be honored, MacDonald said.

“We don’t expect any changes to the terms,” he said.

Nazarbayev warned ealier this year that foreign ventures enjoying special protective status may lose their immunity from changes in tax legislation. Some of the country’s largest projects, including Tengizchevroil, operate under production-sharing agreements (PSAs) negotiated in the 1990’s. The agreements, signed when Kazakhstan struggled to lure foreign investors into the country, have provided the companies with stable tax regimes for the duration of the contracts, running as long as 40 years.

Chevron has a 50 percent stake in Tengizchevroil. The Kazakh national oil company KazMunaiGas owns 20 percent, ExxonMobil 25 percent and LUKArco 5 percent.

SOURCE: http://silkroadintelligencer.com/2010/05/25/tengizchevroil-to-increase-production-sharply-following-planned-expansion/

Kazakhstan overview 2010: Oil & Gas 0

Posted on March 17, 2010 by KazCham

Kazakhstan has the Caspian Sea’s largest recoverable crude oil reserves. The Government of Kazakhstan and foreign investors continue to focus heavily on the hydrocarbons sector, which so far has received approximately 60% of the estimated $76 billion in foreign direct investment in Kazakhstan since 1991, and constitutes approximately 53% of its export revenue. Existing oil extraction sites offshore in the North Caspian, combined with onshore fields currently under development, mark Kazakhstan as a potentially major near-term oil exporter. Over the past seven years, oil
production in Kazakhstan has more than doubled and reached 1.62 million barrels per day (bbl/d) in 2009. Major producers include Tengiz, Karachaganak, CNPC Aktobemunaigas, Uzenmunaigas, Mangistaumunaigas, and Kumkol, all of which account for 1 million bbl/d. Output solely from the country’s three major fields (offshore Kashagan, onshore Karachaganak, and onshore Tengiz) is set to grow to 1.7 millionbbl /d by 2011 and to 2 million bbl/d by 2015.

Kazakhstan now accommodates significant investment in its vast upstream oil and gas resources and government forecasts predict that oil exports could reach as much as 3.5 million barrels per day in 2015. Most of this year’s production increase will come from the onshore Tengiz and Karachaganak fields.

The huge offshore Kashagan field, with an estimated 7-9 billion barrels of recoverable oil, is expected to come on stream by the end of 2012, but first commercial oil production will not exceed 100,000 bbl/d. The magnitude of the resource could result in Kazakhstan becoming one of the world’s major energy exporters by the end of the next
decade. This jump in production has also stimulated planning for processing plants and pipelines to come on-line in time for the start of production.

Best Prospects/Services

Return to top Oil industry sources estimate that Kazakhstan could eventually attract up to $140 billion of foreign investment in its oil infrastructure. The current market for oil and gas field equipment and services slowed in 2009 due to, 1) low oil prices and the economic crisis and 2) cuts in capital expenditures by oil and gas exploration and production companies.

But overall demand remains strong with opportunities for U.S. companies in virtually every sub sector associated with oil extraction, processing, and transportation. Best prospects include: drilling, research and data management, laboratory studies, oil spill cleanup technologies, and pipeline equipment and services.

Kazakhstan as yet has no experience in offshore production and operations. This experience gap offers many opportunities for U.S. service companies in rig work, support infrastructure, and environmentally sensitive technologies. The Caspian Basin’s oil-bearing formations are generally quite deep (15,000 feet), under considerable
pressure, and often contain a high degree of sulfur and other contaminants, making special Western-made drilling and processing equipment necessary.

U.S. oil and gas field equipment suppliers have the potential for solid growth over the next decade as new fields are brought on-stream and secondary recovery methods are introduced to existing deposits. The most promising sub-sectors are the following: offshore/onshore oil and gas drilling and production equipment; turbines, compressors
and pumps for pipeline applications; measurement and process control equipment for pipeline applications; industrial automation, control and monitoring systems for refineries, gas processing and petrochemical plants, seismic processing and interpretation, petroleum software development, sulfur removal and disposal technologies, well stimulation and field abandonment services.

Plenty of other opportunities exist for U.S. companies producing oil and gas field equipment and machinery such as drilling and wellhead equipment, Christmas trees, valves, pumps, motors, compressors, electrical submersible and jet pumps, underwater repair equipment, and oil spill containment equipment. Good prospects also exist for U.S. small- and medium-size firms offering downstream engineering and services such as fabrication, welding, engineering services and testing in accordance with API and ASME standards.

Opportunities

The Government of Kazakhstan is pursuing a development program for oil fields in the Caspian Sea that calls for increasing offshore oil production to about 2 million bpd by 2015, and for development of terrestrial infrastructure. The offshore development program also calls for more than 100 offshore blocks to be privatized through open
tenders. These future projects, combined with current production and exploration, should provide opportunities for interested U.S. exporters over the next few decades.

Resources

North Caspian Operating Company: http://www.ncoc.kz/
Atyrau Oil & Gas 2010 – http://www.oil-gas.kz/ru/
Caspian Pipeline Consortium: www.cpc.ru/
Kazakhstan International Oil & Gas Exhibition and Conference (KIOGE) 2010 – http://www.kioge.com/2010/
Kazakh Institute of Oil and Gas (KING): http://www.king.kz/
Kazakhstan Petroleum Association: www.kpa.kz/
KazEnergy Association: http://www.kazenergy.com/
KazMunayTeniz: www.kazmunayteniz.kz/
KazStroyService: www.kazstroyservice.kz/
KazTransGas: www.kaztransgas.kz/
KazTransOil: www.kaztransoil.kz

SOURCE OF PUBLICATION: Kazakhstan O&G overview 2010 by Country Commercial Guide for U.S. Companies. http://www.buyusainfo.net/docs/x_7387330.pdf

Tengiz on the rise 0

Posted on March 05, 2010 by KazCham

PAYBACK TIME HAS arrived at last for the two biggest onshore oil and gas fields in the prolific Pre-Caspian basin in north-west Kazakhstan – Tengiz and  Karachaganak – which are now delivering nearly  half the 70 million tonnes of oil produced annually  by the oil industry in Kazakhstan.

For the best part of a decade, some of the world’s biggest oil and gas companies have been pouring  money, labour and technology into the two complex fields, laid down over several geological time  periods, before being covered by a vast ocean. All that remains of that ancient ocean are the Caspian and Aral seas and the western half of Lake Balkash.

The salt domes and rock reservoirs of the ancient coral reefs, which hold the oil and gas, are now up to 5km below the land surface. But it was the later ocean that laid down the thick cap of flexible, but  impermeable, salt and kept the oil and gas in place.  There it remained under great pressure and mixed  with a lethal cocktail of hydrogen sulphide and  other gases. The rich soup includes ‘mercaptans’,  the volatility and revolting smell of which requires  extensive processing before either oil or gas  can be transported thousands of kilometres to  export markets. Just to make things difficult, Moscow has so  far stubbornly refused to give its assent to the  planned doubling of the 1,600km Caspian Pipeline  Consortium (CPC) export pipeline, specifically  designed to run from Tengiz across southern Russia -» to Novorossiisk on the Black Sea. Karachaganak,  which is closer to the Russian oil and gas town of  Orenburg just over the Russo-Kazakh border than  to Uralsk, the nearest Kazakh town, is linked to the  CPC by a 650km spur line.

A decision on doubling CPC’s capacity to 67  million tonnes a year is believed to be imminent,  but it will take at least two years to build and might  not even be finished in time to transport first oil  from the third giant Caspian project, the offshore  Kashagan ‘elephant’ field, due to start production  around the end of 2012.

Frustrated by Moscow’s delaying tactics, Chevron- Texaco, the operator and 50 per cent owner of  the Tengizchevroil (TCO) consortium set up to  develop Tengiz under a 40-year production-sharing  agreement, has had to invest heavily in thousands of new railcars to export oil the expensive way.

In October 2008, Chevron sent a significant first shipment of oil from Tengiz by rail to the port of  Aktau and pumped it into a small tanker bound  for Baku in Azerbaijan on the western coast of the Caspian. From there it was fed into the 1,750km Baku-Tbilisi-Ceyhan (BTC) pipeline, which runs  through Azerbaijan, Georgia and Turkey.

As capacity builds up in the northern Caspian oil fields, Chevron expects to export up to 5 million tonnes a year to the Turkish port on the eastern  Mediterranean through the BTC pipeline in coming  years, although the bulk of oil from all three of the  giant fields in the Northern Caspian will continue to flow through Russia, once the CPC line’s capacity  is doubled.

Until that symbolic first shipment to Baku and beyond, Chevron shipped surplus oil from Tengiz by rail to Aktau and across the Caspian to  Machachkala, in Russia’s Dagestan province. From there, the oil passed through Russia, either by rail or the re-routed pipeline to central Russia that used to run through the Chechen capital Grozny, but now bypasses it.

This modest opening up of a new cross-Caspian route is the start of something much bigger – the development of an entire new export route to  the west which, for the first time, does not need  to pass through Russian pipelines, railways or  ports. TCO, together with the Karachaganak and Kashagan consortia, is preparing to play a key role  in developing the $3 billion Kazakhstan Caspian  Transportation System (KCTS), now at an advanced  state of planning.

The government’s ambitious southern energy  corridor will run from the giant Kashagan  processing plant at Eskene, 30km north of Atyrau,  more than 600km south to Aktau, and on to the  new oil and gas export facility to be built at Kuryk,  100km beyond Aktau.

From Kuryk, a growing fleet of tankers will take the oil across the Caspian to Baku for onward transit either through the BTC pipeline or by rail and smaller pipeline through Azerbaijan to the Georgian ports of Batumi and Supsa. “With  Kazakhstan expected to add a minimum of 1.5  million barrels a day over the next 15 years,  it needs a new, dedicated and reliable export  capacity, and it needs it urgently,” according to Ian -MacDonald, Chevron’s senior business development and transportation managers

Chevron’s partners in TCO are KazMunaiGaz  (KMG), the state oil and gas company, with 20  per cent and Exxon-Mobil with 25 per cent. The  remaining 5 per cent is held by the Lukarco joint  venture between Russia’s Lukoil and BP. Over the  last five years the partners have invested more than  $3 billion in their ‘second-generation development’  which was completed last year.

Tengiz is operated on the basis of a 40-year  production sharing agreement. The second stage  of its development involved building a small town  to house an army of 6,500 skilled workers. It also  required new road and rail connections, 39 new  drilling wells, a high-tech field production gathering system and eight sour gas re-injection plants.  These house powerful compressors to force sour  gas back into the field. This is required to keep up  the pressure needed to ensure that oil will flow for  decades. Re-injection and related investment has  virtually doubled oil output from 13 million tonnes  in 2004 when construction started, to the current  capacity of 25 million tonnes a year.

Last year’s collapse in oil prices to around $30  a barrel led to many oil companies cutting back  on investment, but Chevron’s board recently  committed to push ahead with ambitious global  development plans and specifically pledged not to  cut back in Kazakhstan.

A series of new wells are being drilled at Tengiz,  together with further exploration of the nearby  Korolyov field. TCO is also planning a state-of-the- art refinery at Tengiz , which fits in well with the  government’s strongly expressed desire to add  value to Kazakh natural resources and develop  downstream processing and refining. A new sulphur processing plant has also removed a source of  friction with the environmental protection agencies, and constant fines. The new pelletisation plant has  converted what used to be embarrassing mountains  of yellow sulphur, which runs blood red when mixed with rainwater, into a valuable by-product.

Invest in Kazakhstan An official publication of the Government of the Republic of Kazakhstan, 2009. Pages: 38-39.



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