Special Energy Issue on Kazakhstan November 2017

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Special Energy Issue on Kazakhstan November 2017 CONTENTS GENERAL... 1 OIL & GAS PRODUCTION... 3 OIL & GAS EXPORT & TRANSPORTATION... 5 PROCESSING & REFINERY.

1 Special Energy Issue on Kazakhstan November 2017 CONTENTS GENERAL... 1 OIL & GAS PRODUCTION... 3 OIL & GAS EXPORT & TRANSPORTATION... 5 PROCESSING & REFINERY... 5 RENEWABLE ENERGY... 5 INDUSTRY EVENTS IN CONTACTS... 8 The Economic Section of the in Kazakhstan intends to distribute this newsletter as widely as possible among Dutch institutions, companies and persons from the Netherlands. The newsletter summarises economic news from various Kazakhstani and foreign publications and aims to provide accurate information. However, the Embassy cannot be held responsible for any mistakes or omissions in the bulletin.

2 GENERAL Kazakhstan hopes for Karachaganak gas field deal by year-end Kazakhstan hopes to settle a dispute with global energy companies developing the Karachaganak gas condensate field in the coming weeks, Energy Minister Kanat Bozumbayev told reporters. I hope that before the end of this year we and the (Karachaganak) shareholders will invite you to a table where we will sign something, Bozumbayev said, adding that progress had been made in the talks in Kazakhstan s favor. Kazakhstan filed a $1.6 billion claim against foreign firms developing the Karachaganak gas condensate field in 2015, one of the companies has said. The Energy Ministry has said the row was over how each party s share in the field s output was calculated. Karachaganak field, located in the West Kazakhstan Region, is one of the largest oil and gas condensate fields in the world. Its reserve is estimated at over 1.2 billion tons of liquid hydrocarbons and 1.3 trillion cubic meters of gas. Karachaganak oil field is being developed within the Production Sharing Agreement reached between Kazakhstan and consortium of Western companies. The field gives almost 45% of the total gas and 16 percent of the total liquid hydrocarbons produced in Kazakhstan. Karachaganak is being developed within the production sharing agreement (PSA) reached between Kazakhstan and a consortium that includes Royal Dutch Shell (29.25%), Eni (29.25%), Сhevron (18%), Lukoil (13.5%) and KazMunaiGas (10%). In 2016 KPO produced million barrels of oil equivalent of stable and unstable liquids, raw gas and fuel gas compared to million barrels of oil equivalent in 2015, according to KazWorld. Shell eyes oil and gas projects in Kazakhstan President of Kazakhstan Nursultan Nazarbayev held a meeting with the Chief Executive Officer of Royal Dutch Shell, Ben van Beurden on 20 November, Kazinform reports with reference to Akorda press service. At the meeting, the sides discussed the current issues and prospects for the cooperation in Kazakhstan s oil and gas sector including further development of the Karachaganak and Kashagan projects. The Head of State highlighted the active assistance of Royal Dutch Shell in organizing the Astana Expo 2017 International Specialized Exhibition and thanked the company s senior management for the participation. For his part, Ben van Beurden thanked Nursultan Nazarbayev for the opportunity to meet and congratulated Kazakhstan on the success in hosting the international exhibition. He also expressed his admiration for Nur Alem sphere as the most attractive pavilion at the EXPO. The CEO reminded that 18 November will mark the 20th Anniversary of signing the production sharing agreements for the aforesaid fields, and underlined President Nazarbayev s role in implementing them. These projects turned out to be very good and effective. All the expenses were repaid in due time, and the projects are now operating to make profits, the Head of State responded to the words of Ben van Beurden. Shell is a global group of energy and petrochemical companies. Shell, a British-Dutch multinational oil and gas company, is one of the parties to the North Caspian Production Sharing Agreement signed on 18 November Kazakhstan, holding 3% of the world s oil reserves, is among the top 15 countries in the world in terms of proven oil reserves. Oil and gas bearing areas occupy 62% of the country s territory, and have 172 oil fields, of which more than 80 are under development. More than 90% of the oil reserves are concentrated in the 15 largest fields. The fields are located on the territory of six of the fourteen regions of Kazakhstan. These are the Aktyubinsk, Atyrau, West Kazakhstan, Karaganda, Kyzylorda and Mangistau regions. About 70% of hydrocarbon reserves are concentrated in the west of Kazakhstan, according to Trend. 2

3 Fuel crisis hits Kazakhstan hard Despite being the second-largest oil producer and exporter in the former Soviet Union, only behind Russia, Kazakhstan has been historically plagued by chronic deficits of fuel for domestic consumption. National energy security is at the top of the country s priority list, yet little progress has been made since independence to address this concern. The seriousness of the situation again came to light in late September, when the national air carrier, AirAstana, warned about an impending shortage of aviation fuel. The company come forward with accusations against Russian exporters that currently dominate the Kazakhstani market, widely relaying its message through the media. According to official statistics, four key Russian oil companies Rosneft, Gazprom Neft, Lukoil and Tatneft exported on average 44,000 metric tons of high-octane kerosene a month to Kazakhstan last year. This year s imports have dropped to around 15,000 metric tons on a monthly basis, or some 180,000 for the whole year. Meanwhile, the Shymkent oil refinery, one of three Kazakhstani refineries based in the south of the country, which is half-owned by China National Petroleum Corporation (CNPC), produced only 240,000 metric tons of aviation fuel in The rest was imported from Russia. In contrast, total demand from domestic air companies is due to exceed 800,000 metric tons in That leaves a hole of approximately 380,000 metric tons. Among Russian exporters, Gazprom reportedly notified the government in Astana of its inability to supply more because of unexpectedly high demand in Russia itself, which may last through mid-spring The month of October began with long queues at gas stations and growing grumbling over the government s inability to supply the domestic market in full. Kazakhstan depends on imported gas and diesel, mostly from Russia, for about 40% of overall annual consumption. Dependence on aviation fuel, whose production requires a higher degree of refining, is even greater, at 70%. The Ministry of Energy subsequently admitted its guilt by acknowledging that the fuel crisis had been exacerbated by the simultaneous shutdown of all three refineries for upgrade works and seasonal maintenance. The government has since promised a number of steps to bring the aggregate fuel dependence down to 30% in November and as little as 20% in December and thereafter. Among them are the import of up to 200,000 metric tons of the most popular fuel brand, AI-92, and increased domestic output, at the expense of other fuels. While the above plans may not materialize as quickly as forecasted, the latest fuel crisis has thrown Kazakhstani-Russian energy relations under a new spotlight. On the one hand, Russian producers stick to market logic when they refuse to sell fuel to Kazakhstan at unfavorable or slightly less favorable terms than they can expect domestically. On the other, energy is by far the largest source of bilateral trade between Russia and Kazakhstan as well as in the entire Eurasian Economic Union (EEU), of which both are founding members. Existing economic integration plans assume that a common energy market may emerge no sooner than The complexity of the situation is due to a number of factors, including fundamental ones such as supply and demand, the strategic importance of oil for national sovereignty, price differentials, available pipeline infrastructure, etc. Yet, the lack of cooperation on such a vital issue is one more irritant in the bilateral relationship, according to KazWorld. OIL & GAS PRODUCTION Kazakhstan sees rise in oil output The volume of oil production in Kazakhstan in January-October 2017 amounted to million tons, which is 12% more than for the same period in 2016, the Committee on Statistics of the Kazakh National Economy Ministry reported. During the reporting period, gas condensate was produced in the amount of million tons (showing an increase of 8.1% compared to the same period of 2016), natural gas billion cubic meters (14.6%), coal million tons (11.1%), copper ore million tons (24.7%), gold ore million tons (4.4%), chrome concentrate million tons (9%). Gasoline output in January-October 2017 amounted to 2,550 million tons, which is 7.1% more compared to the same period of

4 In December 2016, Kazakhstan, supporting the OPEC initiative to reduce oil production, agreed to reduce the volume of oil production in the first half of Later in May 2017, Kazakhstan joined the agreement on the extension for another nine months of the period of the contract on the reduction of oil production. In 2017, the forecast for the export of oil from Kazakhstan is 67 million tons. For 2018, the figure is set at 69 million tons, according to Trend. Kazakhstan sees Kashagan output at 250,000 barrels per day by year-end Kazakhstan s giant Kashagan field is expected to produce 250,000 barrels of oil per day by the end of this year, Kazakh Energy Minister Kanat Bozumbayev said, after first attempts at reinjecting gas into reservoirs brought no results. Bozumbayev told reporters the consortium of global energy majors developing the Caspian offshore field faced no penalties for delaying the planned output ramp-up to 370,000 barrels per day until the end of next year, Reuters reported. Kazakhstan s Kashagan oilfield will produce 370,000 barrel per day by 2018 Kazakhstan s giant Kashagan oilfield will reach production capacity of 370,000 barrels per day in 2018 rather than this year, the North Caspian Operating Company (NCOC) said. With the start-up and optimisation of the raw gas reinjection process, it is planned to ramp up oil production to a capacity of 370,000 barrels per day into 2018, a NCOC representative said in an . Earlier plans called for a production level of 370,000 barrels per day by the end of A unit of Kazakhstan s third-biggest oil producer, KazMunaiGas, said in September that the oilfield will produce 270,000 barrels per day in the last quarter of this year. That forecast was lower than that given by Energy Minister Kanat Bozumbayev, who said the field would increase production to 300, ,000 barrels per day by the end of this year from the 200,000 barrels per day currently. Production was expected to be boosted by raw gas re-injection, which started in August, but it failed to bring about immediate results, while flooding at the oilfield disrupted work, industry sources said. NCOC said that it was testing the systems and are gradually increasing and optimizing the amount of gas being re-injected so that more oil can be produced from Kashagan. In September CPC Blend loadings of Kashagan oil were cut by 400,000 tons due to production problems, and traders expect November s loading plan to be reduced. The revised loading plan for November is expected this week, according to Reuters. Tengiz produces 21.4 million tons of oil within 9 months Tengizchevroil LLP produced 21.4 million tons of oil at the Tengiz field from January to September 2017, Kazinform reports. In 2008, TCO completed the Sour Gas Injection Project and the Second Generation Plant. As a result, the field daily oil and natural gas production reached nearly 75,000 tons (600,000 barrels) and 22 million cubic metre (750 million cubic feet), respectively. From January to September 2017, the crude oil production in Tengiz amounted to 21.4 million tons (171 million barrels), the company s press service said. As compared to 2016, the production in Tengiz has slightly increased: 20.3 million tons of oil (160 million barrels) was produced in January-September last year. TCO exports crude oil through various routes, delivering it via the Caspian Pipeline Consortium to Novorossiysk, by rail to Odessa, Taman, and Aktau, and further to Batumi and Kulevi. Presently, Tengizchevroil produces million tons of oil per annum at the Tengiz field. After Tengizchevroil s capacity expansion at Tengiz, the production rate will reach 39 million tons per annum. 130 wells have been drilled at the field, and bringing-in of 100 more wells is planned by 2022 according to the drilling programme, Kazinform reported. 4

5 OIL & GAS EXPORT & TRANSPORTATION Up to 5 million tons of Russian oil will be pumped to Uzbekistan through Kazakhstan Up to five million tons of Russian oil per year will be pumped across Kazakhstan and from there through the Shymkent-Djizak oil pipeline to Uzbekistan. This was reported in the Ministry of Energy of the Republic of Kazakhstan in response to an official request of Tengrinews. The Ministry noted that the amount of the project for both sides has not yet been determined. The cost of the project on the Kazakhstan section of the Shymkent-Dzhizak oil pipeline will be approved after the completion of the design and survey work at the end of 2018 and the completion of interdepartmental expertise of the project," the Kazakhstan Ministry of Energy explained. The benefits of the project for the economy of the Republic of Kazakhstan, as explained in the department, will be the following: Increasing the loading of the system of trunk oil pipelines of the Republic of Kazakhstan, obtaining additional tariff revenue through additional transit of Russian oil to a maximum amount of five million tons per year. It was not reported from which Russian fields oil will go via Shymkent through the territory of the South-Kazakhstan region to the neighbouring state. This will be determined by the schedules of oil transportation through main oil pipelines outside the territory of the Russian Federation, approved by the Ministry of Energy of the Russian Federation, and oil transportation schedules approved by the Ministry of Energy of the Republic of Kazakhstan, the department specified. The operator of the pipeline across Kazakhstan will become KazTransOil JSC, as the owner of the main pipeline. The estimated length of the planned Shymkent-Djizak oil pipeline along the Kazakhstan section will be about 200 kilometers. In spring 2017 it became known that Uzbekistan and Kazakhstan agreed on the use of the Omsk- Pavlodar-Shymkent oil pipeline for oil imports to the Uzbek side. On October 12, President of Kazakhstan Nursultan Nazarbayev, commenting on the results of talks in Sochi, also mentioned the construction of an oil pipeline to Uzbekistan. The relations between Russia and Kazakhstan are better than ever, an agreement was reached on joint implementation of the programme for Baikonur, and an oil pipeline to Uzbekistan is planned to be built, the head of state said, according to Tengrinews.kz. PROCESSING & REFINERY Kazakhstan will produce aviation fuel in 2018 Three Kazakh oil refineries will start producing aviation fuel in the second half of 2018 to provide Kazakhstani market 100%. This was announced by the Energy Minister Kanat Bozumbayev during the round table at the Ministry of Foreign Affairs of Kazakhstan, Kazpravda.kz reports. Discussing the issues related to the opening of the International Financial Center Astana (IFCA), Ambassador of the Netherlands Dirk Jan Kop asked how foreign investors will get to Astana, if flights to the capital of Kazakhstan are not possible from all the countries of the world. Kanat Bozumbaev said that after the completion of the upgrades, all the three refineries in Kazakhstan will produce about tons of aviation fuel that will be certified on the western standard. RENEWABLE ENERGY Kazakhstan to hold green energy auction in 2018 Kazakhstan plans to hold the first green energy auction in 2018 to purchase energy generated from Renewable Energy Sources (RES), said Kazakh Energy Minister Kanat Bozumbayev during a government meeting on environmental issues, Kazakh media reported October 31. 5

6 In 2018, we plan to hold the first auction on RES. I think ensuring attractive conditions for the winner of the auction would help us reduce the RES tariffs and attract major international investors, said Bozumbayev. He stressed that the auction is expected to result positively for the country, and the tariffs for the Kazakh green electricity would be more acceptable for the consumers. Previously such a practice was applied by Saudi Arabia when the Masdar company won an auction setting a price of 1.8 cents per 800 megawatt. The minister mentioned that Kazakhstan has agreements with international financial institutions on allocating funds for development of renewable energy sector in the country. In particular the European Bank for Reconstruction and Development will allocate 200 million euros to renewable energy projects in Kazakhstan, Trend reported. Kazakhstan may attract up to 480 million euro for renewable energy projects Kazakhstan may attract private investment worth up to 480 million euro from international financial institutions for the implementation of projects on renewable energy sources (RES), Kazinform reported. This was stated by Kazakh Energy Minister Kanat Bozumbayev during a round table on the theme 'Heritage of EXPO-2017 in Kazakhstan. On June 21, in the presence of the Prime Minister of the country, a memorandum of understanding on cooperation and support for the development of renewable energy in Kazakhstan between the Ministry of Energy and the EBRD [European Bank for Reconstruction and Development] was signed. The EBRD plans to invest up to 200 million euro in RES projects in the coming year, with the possibility of attracting private investments and financial injections of other international financial institutions for a total of up to 480 million euros, he noted. He recalled that this summer the International Specialized Exhibition EXPO-2017 was held with great success. Within the framework of the exhibition, the Ministerial Conference entitled Ensuring Sustainable Energy Development was held on June 11. During the event, an agreement on cooperation and support for the project Construction of a 50 MW SES-2 power plant in Zhualy district of Jambyl region was signed between the Kazakh Ministry of Energy, the EBRD and Burnoye Solar-2 LLP. Also, a memorandum of understanding and cooperation in the field of implementing projects for the development of renewable energy sources between the Kazakh Ministry of Energy, the companies of Eni International B.V. and General Electric International Inc. was signed. This agreement will make it possible to build a wind power station with a capacity of about 50 MW using world technologies on the territory of the republic, the minister said. We signed a mandate letter between the EBRD and Samruk Kazyna-United Green, in which the EBRD expresses interest in considering the possibility of providing long-term financing for the implementation of the investment project on construction of a 50 MW solar power plant in the Kyzylorda region, he added. In addition, an agreement to provide financing for the first start-up complex for the construction of the Astana EXPO-2017 wind farm with a capacity of 100 MW was signed between Development Bank of Kazakhstan, Green Energy LLP and BRK-Leasing JSC, Bozumbaev noted. Kazakhstan plans generating 50% of its electricity from renewable and alternative energy sources according to President Nazarbayev s ambitious 2050 strategy. This strategy is a part of the country s comprehensive initiative to transfer itself from one of the world s major hydrocarbon energy producers to the green economy model. Renewable energy production volumes will grow three times compared to current indicators, according to Kazakhstan s Ministry of Energy. In three years, more than 100 alternative energy facilities will operate in the country compared to the current 50. The facilities will include 23 wind energy plants, 17 solar power stations and 13 hydroelectric power stations, as well as several plants producing biogas, an alternative energy source. In addition to green energy, Kazakhstan s transition also focuses on water source conservation, waste management and reduction of carbon emissions. Special focus is currently being placed on wind power facilities, which is largely due to the unique natural conditions of the country s regions. For example, the average annual wind speed reaches 6

7 nine meters per second in the capital and Fort-Shevchenko, on the territory of the Dzungarian Gate and Shelek Corridor. The areas, which measure approximately 50,000 square kilometers or 2% of the country s total area, can produce a trillion kilowatt-hours per year, which significantly exceeds the nation s energy needs, AzerNews reports. Solar power plant to be built in Mangistau region In the Mangistau region near the village Batyr, a solar power station is planned to be built, 24.kz reports. The capacity of the future facility is 2 MW or 2 million kwh. This is enough to provide electricity to 3 villages totaling 50 thousand people. The engineering structure will occupy an area of 10 hectares panels will be installed there. The project is estimated at 1 billion 210 million tenge. Kazakhstan content of the socially significant facility is 90%. 10 people will be employed there. "The power plant is planned to be put into operation in February In addition, another 5- megawatt power plant will be built next to the village Batyr. The project will cost over two billion tenge; panels will be installed there, said akim of Munaily district Nurlan Tazhibaev. INDUSTRY EVENTS IN 2018 KAZNEFTEGAZSERVICE-2018 Annual Conference on Oilfield Construction and Engineering 16 March 2018, Atyrau Organizer: KazService Global Oil & Gas Atyrau Atyrau Regional Oil and Gas Technological Conference April 2018, Atyrau Organizer: Iteca Atyrau Oil & Gas North Caspian Regional Exhibition on Oil and Gas April 2018, Atyrau Organizer: Iteca KIOGE International Oil & Gas Exhibition and Conference 3 5 October 2018, Almaty Organizer: Iteca 7

8 CONTACTS Embassy of the Kingdom of the Netherlands 62, Kosmonavtov str. Chubary mcrd, 3 rd floor Astana T: F: ast@minbuza.nl Embassy Office in Almaty 103, Nauryzbai Batyr Str Almaty T: F: alm@minbuza.nl 8

Special Energy Issue on Kazakhstan

Special Energy Issue on Kazakhstan January 2018 CONTENTS GENERAL... 1 OIL & GAS PRODUCTION... 2 OIL & GAS EXPORT & TRANSPORTATION... 3 PROCESSING & REFINERY... 4 RENEWABLE ENERGY... 4 INDUSTRY EVENTS IN