Special Energy Issue on Kazakhstan

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Special Energy Issue on Kazakhstan June 2018 CONTENTS GENERAL...1 OIL & GAS EXPLORATION & DEVELOPMENT...2 OIL & GAS PRODUCTION...2 OIL & GAS EXPORT & TRANSPORTATION.

1 Special Energy Issue on Kazakhstan June 2018 CONTENTS GENERAL...1 OIL & GAS EXPLORATION & DEVELOPMENT...2 OIL & GAS PRODUCTION...2 OIL & GAS EXPORT & TRANSPORTATION...3 OIL & GAS INFRASTRUCTURE...4 PROCESSING & REFINERY...4 RENEWABLE ENERGY...5 UPCOMING INDUSTRY EVENTS...7 CONTACTS...7 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 China prolongs grace period for Kashagan loan Kazakhstan and China have agreed to extend the maturity period of the loan provided by the Industrial and Commercial Bank of China (ICBC) for the acquisition of a stake in KMG Kashagan B.V. by the Kazakhstan National Welfare Fund Samruk-Kazyna until 2022, the Fund said in a statement. The relevant agreement was reached during the meeting of the Chairman of the Board of the National Welfare Fund Samruk-Kazyna Akhmetzhan Yessimov with the Chairman of the Board of Directors of ICBC Yi Huiman. Yessimov also agreed to reduce the interest rate on the loan. In addition, the parties signed a Memorandum of cooperation and discussed further prospects. Huiman noted that the Industrial and Commercial Bank of China (ICBC) is interested in cooperation in three areas: placement of bonds, participation in the program of privatization of the Fund s assets, as a strategic investor and financing of specific projects. In 2015 the National Welfare Fund Samruk-Kazyna attracted a five-year syndicated loan to finance the acquisition of 25% of the shares of Private Limited Liability Company KMG Kashagan B.V. in the amount of $1.5 billion, in which ICBC acted as the authorized representative of one of the leading arrangers of the financing, according to AzerNews. OIL & GAS EXPLORATION & DEVELOPMENT Lukoil aims to invest $270 million in exploration at Kazakhstan s Zhenis block Russia s second-largest oil company Lukoil plans to invest $270 million in exploration at the Zhenis license area in the Kazakh part of the Caspian Sea, Lukoil s president Vagit Alekperov said in Astana. Lukoil and Kazakh state oil company KazMunaiGas signed an agreement in principle on Tuesday for possible work on the Zhenis license area which lies at a depth of 75 to 100 meters and is located 180 kilometers from Kazakhstan s Aktau port. The two companies will establish a consortium after completing procedures needed for the agreement to enter force, Lukoil said. They will then negotiate with Kazakhstan to be approved to explore and produce at the block. The first stage (of prospecting) envisages investments of around $60 million - this is for drilling a well and for seismic work. The second stage of prospecting is $210 million, Alekperov said. Alekperov said a contract was due to be signed in autumn and that exploration could begin in 2019, Reuters reports. OIL & GAS PRODUCTION Kazakhstan boosts oil, gas condensate output Kazakhstan increased production of oil and gas condensate by 6.4 percent to 37.7 million tons in January-May 2018, the deputy Energy Minister of Kazakhstan Makhambet Dosmukhambetov said at the government meeting, Kazakh media outlets report. Production of oil at Kazakhstan s three major oil fields amounted to 22.7 million tons, including 5 million tons at Kashagan field, 12.5 million tons at Tengiz field and 5.2 million tons at Karachaganak field, said Dosmukhambetov. He added that the oil exports, in the mentioned period, amounted to 30.6 million tons of oil, which is 5.7% more compared to the same period of the previous year. In 2017 Kazakhstan increased oil and gas condensate production by 10.5% to million tons. The government of Kazakhstan forecasts that in 2018 oil and condensate production will amount to 87 million tons, AzerNews reports. 2

3 Kazakhstan plans to maintain the current level of oil production by the end of the year According to Vlast, Kazakhstan plans to keep oil production at 1.8 million barrels by the end of the year, Energy Minister Kanat Bozumbayev said. We have a daily production of 1.8 million barrels, we are not going to reduce it, the average daily production will remain approximately until the end of the year, Bozumbaev told journalists. According to him, Kazakhstan s partners are sympathetic to the fact that the country has a large Kashagan field. If we deduct Kashagan from our oil production, then this year we exceed our 800,000 barrel reduction commitments. There are no serious claims to us, Bozumbaev said. On June 23 in Vienna, participants in the OPEC+ deal decided to return to 100% implementation of the agreement. This will give the necessary balance in the market, Bozumbaev said. He recalled that earlier the OPEC+ countries decided to reduce production to the level of 1.8 million barrels per day. Overstrained. Due to a strong decline in Venezuela, a strong decline in some African countries, Mexico, it turned out 2.8 million barrels decrease, an extra one million. This could in reality lead to the fact that by the end of the year there will not be enough crude oil in stocks among traders to ensure the continuous receipt of crude oil for processing at the world s refineries, Bozumbaev explained. OIL & GAS EXPORT & TRANSPORTATION CPC increases oil exports by 12% in January-May 2018 In January-May 2018, the Caspian Pipeline Consortium (CPC) exported million tons of oil, which is 12.01% more than in the comparable period a year earlier, Kazinform cites CPC. In May this year, the oil exports amounted to 5.29 million tons in contrast to million tons in May The Caspian Pipeline Consortium was established to build a pipeline and export Kazakhstan s oil through Russia. CPC owns the Tengiz-Novorossiysk oil pipeline for a total length of over 1,500 km, connecting Western Kazakhstan fields with the Russian Black Sea coast. In 2017, CPC oil export was million tons, or 24.4% more than in CPC s shareholders are the Russian Federation 24%, JSC National Company KazMunaiGas 19%, Chevron Caspian Pipeline Consortium Company 15%, LUKARCO B.V %, Mobil Caspian Pipeline Company - 7.5%, Rosneft-Shell Caspian Ventures Limited - 7.5%, and CPC Company 7%, BG Overseas Holding Limited 2%, Eni International N. A N.V. 2%, Kazakhstan Pipeline Ventures LLC %, and Oryx Caspian Pipeline LLC %. CPC may accept additional volumes from Kashagan Caspian Pipeline Consortium has the technical capacity to accept additional volumes from the Kashagan field in the case of production growth of up to 16 million tons by 2024, Kursiv reports. This was announced by the Deputy Director General of the CPC for relations with the Government of Kazakhstan Kairgeldy Kabyldin. The opportunity is always there, it is present. If Kashagan shareholders announce in the established order that they will use the CPC, they can use this route, he said. The speaker added that in case of an increase in production at Kashagan, Kashagan probably uses the CPC system first. But in the end, the decision which direction to use to transport their products is made by the participants of Kashagan, Kayyrgeldy Kabyldin explained. The CPC General Director Nikolai Gorban, in particular, explained that the CPC shareholders do not discuss the creation of an alternative oil transportation system for production growth at the Kashagan fields in Kazakhstan, if necessary, the consortium has the technical capability to increase the capacity of the main pipeline. Our system for today is the most optimal and most profitable route. We do not discuss any other system. If an increase in mechanical power is required, then we are ready for this, we will not need huge capital-intensive investments, because the system is built with perspective. This will require only a number of technical measures with a small investment, Nikolai Gorban said. 3

4 The annual volume of oil production at Kashagan, according to the forecasts of the Ministry of Energy of Kazakhstan, by 2024 is planned to increase to million tons. In 2018, oil production at Kashagan is planned at the level of 10.8 million tons. As reported, in January-May 2018, the volume of oil production at Kashagan amounted to 5 million tons. Last year the republic produced 86.2 million tons of oil, including 8.35 million tons of oil at Kashagan. In 2018, Kashagan is planned to transport up to 13 million tons through the CPC system, 1 million tons via the Atyrau-Samara-Novorossiysk pipeline. OIL & GAS INFRASTRUCTURE ABB Ability lands deal for nine heavy lift vessels ABB Ability Marine Advisory System OCTOPUS marine software will map the safest and most efficient routes for a fleet of heavy lift vessels servicing the expansion of a giant oil field in Kazakhstan. ABB has secured a series of contracts for nine heavy lift vessels transporting modules for the Tengiz oil field expansion by Tengizchevroil (TCO). OCTOPUS will enhance the safety and efficiency of the heavy-lift vessels carrying out the transportation work by indicating the optimal route based on weather and forecasted vessel motions. TCO has contracted China s biggest shipping company, COSCO SHIPPING Co. Ltd., to carry out the transportation work, which will see modules weighing up to 1,800 tons moved from fabrication yards in Korea and Europe to the transshipment ports in the Black and Baltic seas. From there, the modules will be further transported to western Kazakhstan. COSCO SHIPPING Co. Ltd. has subcontracted part of the work to its partners NYK Group, Chung Yang Shipping, Dongbang Transport Logistics, Hanjin Transportation and CJ Korea Express which resulted in a string of new orders for OCTOPUS. As part of the delivery, ABB will also install sensors on each vessel to generate real-time roll and motion data for both the cargo and vessel. This information, accessible to officers on the bridge and support teams ashore, is critical to ensuring high levels of safety and cargo protection. As part of the implementation, ABB will, through its ABB Ability Platform, make defined data points available for the expansion project through Cloud-to- Cloud Integration, enabling TCO to monitor specific KPIs and project progress. The contract demonstrates once again that OCTOPUS has become the industry standard solution for predicting and measuring motions on semi-submersible heavy lift vessels, said Juha Koskela, Managing Director, ABB Marine & Ports. One of the reasons for the system s popularity is that it can be easily scaled. This means that more functionality can be added to meet the requirements of different owners and operators, as well as for specific transportation contracts. The deal further strengthens ABB s leading position as a provider of integrated software solutions for semi-submersible heavy lift vessels. ABB estimates that 90% of vessels in this sector already use OCTOPUS in their operations, Marine Link reports. PROCESSING & REFINERY Three Kazakh oil refineries can process 18 million tons of crude a year Three Kazakhstan oil refineries can process 18 million tons of input in crude oil each year, deputy chairman of the board for oil transportation, refining and marketing of KazMunaiGas Daniyar Tiesov said. After the release of all the process units to full production capacity, we literally recounted the total volume of processing, and we are talking about the so-called balanced processing, that is, that we do not produce or produce small quantities of dark oil products... We calculated that three refineries, if they are loaded at full capacity, will be able to process 18 million tons in a balanced way, he said at the Argus Oil and Gas Market of Kazakhstan and Central Asia 2018 conference on 27 June. 4

5 According to him, this volume of processing will be enough to completely cover the demand of Kazakhstani consumers for diesel fuel and gasoline. The factories in our country have reached the full provision of the republic with high-quality petroleum products, which meet the environmental standards of K-4 and K-5. That is, we can officially declare that for the main types of products such as for gasoline and diesel fuel, we cover 100% of the republic's needs in the required volumes, Daniyar Tiesov said, Kursiv reports. Kazakh energy minister hopes to attract $9 billion investments in petrochemical scheme Two projects for production of polypropylene and polyethylene in Kazakhstan will attract about $9 billion of investments, said Minister of Energy of the Republic of Kazakhstan Kanat Bozumbayev at the meeting of the public council, Kazpravda.kz reports. The volume of investments for these two significant projects will amount to $9 billion, Kanat Bozumbayev said. According to him, the planned capacity of the polypropylene production plant will be 500,000 tons of output per year. The cost of the project is $2.6 billion, and commissioning is planned for Capacity of the enterprise for polyethylene production will be 1.2 million tons per year. Its cost is $6.5 billion. Currently a feasibility study of the project is being developed; it is planned to be completed by autumn. After the projects will have reached the full capacity, the contribution to the country s GDP, according to preliminary data, will be 1.5-2%, and this is only from two plants, the minister said. According to statistics, sales of polypropylene will amount to 22 tons and polyethylene to 122 tons, there are about 44 large and medium-sized enterprises producing similar products for a total of 176 billion tenge. At present 5,000 specialists are working at these enterprises, said Kanat Bozumbayev. RENEWABLE ENERGY Renewable power in 2018 will amount to 490 MW The total capacity of renewable energy sources in Kazakhstan by the end of this year will reach 490 megawatts, Minister of Energy of Kazakhstan Kanat Bozumbayev said. In 2018 we intend to introduce another 138 megawatts of renewable energy sources, 58 enterprises using RES are operating in the country, their total capacity is 352 megawatts. As a result of 2018, the total capacity of renewable sources in Kazakhstan will be about 490 megawatts, Bozumbayev said at a government meeting. According to him, in 2017, about 1.1 billion kwh of green energy was generated in Kazakhstan, 5 projects of RES with a total capacity of 35.6 MW were realized in Almaty and South Kazakhstan regions and in Astana. In the long term, we attribute the decline in the cost of electricity from renewable energy sources to the introduction of the auction mechanism. On the one hand, this will make it possible to make the selection of projects and investors transparent and understandable, on the other, to rely on more efficient projects and technologies that minimize the impact on tariffs for end consumers from the introduction of renewable energy sources, the minister continued. Since May 23 of this year, the spring session of the first auction for the construction of renewable energy objects started, 1 gigawatts of capacity will be auctioned during the year. The first auctions showed interest of market participants, as during the spring session 250 MW were put up for auction, auction tariffs at the starting price of tenge for wind energy show a decrease in value to KZT, which comprises 23%. In the coming days, the 6 winners will sign a 15-year contracts for the purchase of electricity, the head of the Ministry of Energy concluded, according to Kursiv. Shell is considering the possibility of investing in RES in Kazakhstan Shell is considering investing in solar and wind power plant projects in Kazakhstan, Olivier Lazare, the chairman of the company s representation in Kazakhstan, said. 5

6 We are considering investing in solar and wind energy projects on an industrial scale and look forward to further support of this project by the government of the republic by creating an attractive legislative base for investors, Lazare said at the 2 nd Summit on Renewable Energy in Astana. He noted that Kazakhstan is taking active steps towards a new energy future and is making significant efforts to develop renewable energy sources in the country. Kazakhstan has a vast potential for renewable energy sources. There is no shortage of wind and solar energy. They can be used to implement sustainable projects in the field of renewable energy sources, the representative of Shell said. Shell conducts geological exploration and production of oil and gas in more than 80 countries around the world. Shell also owns, in full or in part, more than 30 refineries. In particular, the company owns one of the largest refineries in Europe, Pernis in the Netherlands, with a capacity of 10,000 tons per day, a Stanlow plant in the UK with a capacity of 12 million tons per year, three refineries in France with a total capacity of 40,790 tons per day. Shell owns the largest network of gas stations in the world, which has more than 43 thousand stations. In addition, Shell owns a significant number of chemical enterprises, as well as the production of solar batteries and other alternative energy sources, Kursiv reports. Eni to build first wind farm in Kazakhstan Italian firm Eni has taken the final investment decision (FID) to build, develop and operate a 50MW wind farm in the north-west of the country, Wind Power reports. Construction of the Badamsha project in the Aktobe province will start in the coming months, the oil and gas giant stated, with commercial operation and grid connection expected by the end of The project is the Italian company s first large-scale investment in wind power, having announced plans to expand into the renewables sector earlier this year. Eni added the FID also represents the first material step of a memorandum of understanding (MoU) signed with GE and the Kazakh minister of energy in June 2017 to promote the development of renewable energy projects in Kazakhstan. The company has been present in the country since 1992 and jointly operates the Karachaganak gas field in the north-west of Kazakhstan and is an equity partner in several projects in the northern Caspian Sea. Eni had previously signed a framework deal with GE in 2016 to develop renewable energy projects including onshore and offshore wind. In March 2018, it announced plans to install 1GW of new renewable energy capacity by 2021 and 5GW of clean energy capacity by The Badamsha project would provide the Aktobe region with about 198GWh/year, Eni stated. Kazakhstan currently has no online wind projects, but there are several in various stages of development. The government owns six 35MW sites in the north of the country, and a 78MW project in the east that it hopes to complete this year. It also awarded just under 100MW through a tender process in June Kazakhstan aims to source 50% of its power from renewables by The country currently meets most of its electricity demand with coal, gas and hydro, according to the International Energy Agency. Total interested in implementing renewable energy projects in Kazakhstan According to Kursiv, France s oil giant Total is interested in implementing projects for the development of RES in Kazakhstan, especially in the southern regions of the country. This was announced today at a press conference dedicated to the 10th anniversary of the strategic partnership between Kazakhstan and France, by Pascal Bréant, the General Director of Total in Kazakhstan. I could not tell you in detail about all the projects, because they are not complete enough to announce them. Regarding RES, Kazakhstan has a good potential for solar energy and the efforts 6

7 of the Ministry of Energy, and the conditions for investing in these projects are favourable, he said. Speaking of plans for the development of oil production, he said that we are satisfied with the level of production of oil in Kashagan and that this is in line with their plan. He refused to give more detailed information, referring to the terms of the contract. In turn, the general director of Kazakhstan-French joint venture Katko, Gérard Friès said that French companies show great interest in developing their business in Kazakhstan and vice versa, Kazakhstan companies regularly express their interest in developing communication with French companies. Ambassador of France to Kazakhstan Philippe Martinet said that France is also interested in cooperation in the space sphere, in particular in the creation of geo satellites, as well as the construction of helicopters. We very much look forward to solutions from Kazakhstan in this area. We, of course, would very much like to see the intentions of the government of Kazakhstan confirmed by the end of this year. In principle, this applies to satellites, new contracts for the delivery of satellites, helicopters. Here we are waiting for the final response from the government, he declared. UPCOMING INDUSTRY EVENTS KIOGE International Oil & Gas Exhibition and Conference 3 5 October 2018, Almaty Organizer: Iteca CONTACTS Embassy of the Kingdom of the Netherlands 62, Kosmonavtov str. Chubary mcrd, 3 rd floor Astana T: ast@minbuza.nl Embassy Office in Almaty 103, Nauryzbai Batyr Str Almaty T: alm@minbuza.nl 7

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