Kazakhstan is important to world energy markets because it contains significant oil and gas reserves. In particular, the Tengiz oil field alone is estimated to contain between 6 and 9 billion barrels of proven oil reserves.
Note: information contained in this report is the best available as of April 2000 and can change.
Kazakhstan has three major oil refineries supplying the northern region (at Pavlodar), western region (at Atyrau), and southern region (at Shymkent). The refinery at Pavlodar is supplied mainly by a crude oil pipeline from Western Siberia, the Atyrau refinery runs solely on domestic crude from northwest Kazakhstan, and the Shymkent refinery currently uses oil from Kazakh fields at Kumkol, Aktyubinsk, and Makatinsk, but utilization is only 60 percent because it is unable to process other oils.
Because their pipeline networks are interconnected, Russia and Kazakhstan plan to swap 50,000 bbl/d of oil. Kazakhstan will deliver oil to Russian refineries on the Atyrau-Samara pipeline and Russia will deliver oil on the Omsk-Pavlodar pipeline for processing at Kazakh refineries.
Oil refining output fell during early 1999 because of an inability to pay for oil imports, resulting in a shortage of oil products that affected industrial production.
Russia is Kazakhstan's primary export outlet, with Kazakh oil transiting Russia via Kazakhstan's two export pipelines and by rail en route to world markets. Tengizchevroil shipped oil by rail to Finland and the Ukrainian ports of Odessa and Feodosia, and Embamunaigaz shipped oil by rail to Poland and Finland.
Kazakhstan's usage of Russian routes is projected to increase with the expansion of the existing Atyrau-Saransk-Samara export pipeline through Russia to 310,000 bbl/d.
In addition, oil from the Tengizchevroil joint venture will be exported by the Caspian Pipeline Consortium (CPC) to world markets via a 900mile/about 1500 km, $2.3 billion oil export pipeline connecting to the Russian Black Sea port of Novorosiisk.
The pipeline is expected to be commissioned in 2001 with a first phase capacity of 564,000 bbl/d, but it will not reach its full capacity of 1.34 million bbl/d until about 2015.
Chevron has estimated that during its 35-40 year expected life, the pipeline could bring in $8 billion in taxes for Kazakhstan, and development of the Tengiz field and operation of the pipeline would earn about $150 billion for Kazakhstan and Russia.
With the completion of Phase I of the CPC line in mid-2001 and the expansion of the Atyrau line, Kazakhstan will have about 1 million bbl/d of pipeline export capacity.
Other oil export pipeline options from the Caspian Sea region are also being explored. Trans-Caspian oil pipelines could be built that would connect with other export pipelines, such as the proposed Main Export Pipeline from Baku (Azerbaijan)-Ceyhan (Turkey).
Mobil, Shell, and Chevron are conducting a feasibility study on building a pipeline from Aktau in western Kazakhstan to Baku, Azerbaijan that would traverse the Caspian Sea bed from north to south. Capacity at Kazakhstan's Aktau seaport was increased to 160,000 bbl/d in 1999.
Kazakhstan has also discussed shipping oil from its Kumkol field to Turkmenistan's Caspian port of Turkmenbashi, with talks focusing on tariff rates. Oil and gas swaps with Turkmenistan are also a possibility.
Several proposed routes for Kazakhstan could bring oil towards markets in Asia instead of to European markets. One proposed pipeline would bring Kazakh oil via Turkmenistan to outlets in Iran and the Persian Gulf.
Kazakhstan and Iran could also continue their arrangement for oil swaps between the two countries, where up to 40,000 bbl/d of Kazakh oil would be delivered by tanker via the Caspian Sea to refineries in northern Iran in exchange for the delivery by Iran of a similar value of crude to Kazakh clients via the Persian Gulf.
In addition, the proposed Central Asia Oil Pipeline would bring oil from Kazakhstan to Pakistan and to other customers via the Arabian Sea.
Kazakhstan is also considering the Chinese market. Kazakhstan exported 50,000 bbl/d to China via rail in 1999 and Tengizchevroil has made test deliveries to China by rail.
Aktobemuniagaz, which is 60 percent owned by China's CNOOC, exported about 9,000 bbl/d of oil to China in 1999, with the total expected to increase to 10,000 bbl/d in 2000.
The oil is exported via rail to the refinerey at Urumchi, China. Kazakhstan has been building ties with China, and in June 1997, the China National Petroleum Corporation signed an agreement with Kazakhstan for a proposed $3.5 billion 1,800-mile pipeline to China .
Under this agreement, China is responsible for financing the project. A feasibility study was undertaken, but the study was halted near its completion date. Kazakhstan has stated that if China would not undertake the project, Kazakhstan would turn its attention to other projects.
Kazakhstan has said that it would not make a decision on another main route for its oil exports until it received the results of test wells in its sector of the Caspian Sea, and had a better idea of its export potential. By 2010, it is likely that only 3 or 4 large projects will be producing oil - Tengiz, Karachaganak, Uzen, and possibly OKIOC's Kashagan project.
More than 40 percent of Kazakhstan's reserves are located in one field, the giant Karachaganak field in northwest Kazakhstan that is an extension of Russia's Orenburg field.
In 1997, an international consortium signed a $7 - $8 billion final production sharing agreement to develop the field for 40 years, with a planned investment of $4 billion by 2006.
Development of the field has been hampered because the former Soviet Union intended for this gas to be processed at nearby Orenburg in Russia, and exported via pipelines from Russia. However, the Orenburg plant has accepted only a fraction of Karachagnak's potential output.
Although Russia's Gazprom had originally agreed to take a 15 percent stake in the consortium in exchange for processing and exporting the gas, it has left the project.
Because of the difficulties in processing output at the Orenburg plant, a new $600 million gas processing plant at Karachagnak has been planned to process the condensate with a target date of 2005. Liquids production is expected to exceed 300,000 bbl/d by 2006, with the output to be exported using the CPC pipeline, and gas output should reach over 883 billion cubic feet (Bcf) annually.
Kazakhoil, Kaztransoil, British Gas, Lukoil, AGIP, and Texaco have signed an agreement to construct a new 285 mile pipeline to transport the condensate from Bolshoy Chagan (southwest of Karachagnak) to Atyrau, where it will connect with the CPC pipeline. The pipeline will have an initial capacity of 140,000 bbl/d, rising to 240,000 bbl/d, and cost $440 million.
Kazakhstan's other significant producing areas include the Tengiz, Zhanazhol, and Uritau fields. In addition, rising associated gas production at the Tengiz field will result in Tengiz becoming the second largest producing field for natural gas in Kazakhstan.The undeveloped offshore areas are also believed to hold large amounts of gas.
While some of these fields are near the Russian gas pipeline system, they are not currently linked to it, and Russia's Gazprom is a potential competitor with Central Asian gas on world markets. Kazakhstan must either negotiate to connect its fields with the existing Russian gas pipeline system, or develop new ways of getting gas to markets.
Kazakh gas production has been hampered by the lack of infrastructure, with many oil producers flaring the gas instead of using it. Kazakhstan had considered constructing a pipeline network linking gas fields with consuming centers at a cost of over $1 billion.
Other investment needs include capturing previously flared gas, appraisal work for gas fields located near consuming areas, meter installation at cross-border locations, and environmental rehabilitation and protection.
In order to reduce the flaring of natural gas, Kazakhstan passed a new law in August 1999 requiring subsoil users (such as oil companies) to include gas utilization projects in their development plans.
Kazakhoil and Phillips, two of the partners in the Offshore Kazakhstan International Operating Company (OKIOC), have agreed to conduct a feasibility study on the construction of a proposed $500 million gas liquefaction plant at Atyrau. The proposed plant would be built by 2004, and liquefied gas would be transported to consumers by rail.
Conoco is moving forward with a plan to ship 1.5 million metric tons of LNG/year from Kazakhstan and Turkmenistan across the Caspian to Baku, where it would then be shipped by rail to Georgian ports en route to Turkey and other Mediterranean customers.
Conoco has set up a joint venture with Georgia's Ajargazi railway and a Turkish partner, and has also spent $600,000 to install facilities at the Georgian port of Batumi.
Alternatively, other gas export pipeline options from the Caspian Sea region are being considered. One option is a proposed 5,000 mile China Pipeline that would bring 1 Tcf of gas from Central Asia annually to China; this line would pass through Kazakhstan. Another alternative is to export gas westwards to Turkey and other European markets.
A preliminary feasibility study of this route was conducted by Exxon, Mitsubishi and CNPC. In December 1998, Royal Dutch/Shell, Chevron, and Mobil signed an agreement with Kazakhstan to conduct a feasibility study for twin oil and gas pipelines that would pass across the Caspian Sea from Kazakhstan to Baku.
During the first few years of Kazakhstan's independence, the country's electricity sector was operated by state-run Kazakhstanenergo. Non-payment by domestic customers used to forgiveness of debt has been a problem for Kazakhstan's power sector, and Kazakhstan has had frequent power shortages since 1992 because of a lack of a reliable transmission and distribution network.
As part of Kazakhstan's move to a market-based economy, Kazakhstanenergo was divested of its power generation facilities on July 14, 1997, and renamed the Kazakhstani Electricity Grid Operating Company (KEGOC). However, Kazakhstan's history as part of the former Soviet Union has resulted in KEGOC's transmission and distribution system being connected to separate networks: to the Russian network in the northwest (to European Russia) and north (to Siberian Russia), and to the Central Asian network in the South (Kyrgyzstan and Uzbekistan).
In the summer of 1998, Kazakstan's grid was split into northern and southern parts as part of an agreement between Kazakhstan and Kyrgyzstan. KEGOC cooperates with RAO ES (Russia) in the western and northern parts of Kazakhstan and with the national energy companies of Kyrgyzstan, Turkmenistan, Tajikistan, and Uzbekistan in the south.
Overall, national power consumption has declined annually since 1990, with 1998 demand little more than half of 1990 levels, primarily because of a drop in Kazakhstan's industrial electricity demand as its industrial output fell following the collapse of the Soviet Union.
Although Kazakhstan currently generates enough electricity to meet most of its demand, the separation of networks has resulted in Kazakhstan becoming both an exporter and importer of electricity in accordance with regional needs. Imports from Russia and Kyrgyzstan account for over 10 percent of domestic consumption, with Uzbekistan also exporting small amounts of power to Kazakhstan.
Payment for imported power has been an issue, and Russian suppliers have cut power several times to encourage payment of unpaid bills. Kazakhstan owed Kyrgyzstan over $20 million for electricity by mid-1999. Kazakhstan would like to become more independent in power generation in order to reduce the power curtailments and to reduce the need for relatively costly imported power.
Kazakhstan has 54 fossil-fuel powered plants, five hydroelectric power stations, and a nuclear plant at Aktau. Much of Kazakhstan's generating equipment is old, inefficient, and lacking in modern pollution controls. Over 90 percent of gas turbines, 57 percent of steam turbines, and 33 percent of steam boilers have been in place for 20 years or more.
Kazakhstan's industrialized north consumes about 70 percent of the country's electricity, and most of Kazakhstan's electricity is generated by coal-fired plants concentrated in the north that burn a dirty high-ash coal. Kazakhstan has not taken full advantage of cleaner sources of power such as hydroelectricity, and only 10 percent of the country's hydroelectric potential of 60 terawatt-hours has been developed.
Plans have been made to construct five new combined heating and power stations: the 150 MW Uralskaya TETS, the 450 MW Aktyubinskaya TETS, the 300 MW Mainakskaya GES, the 1280 MW Yuzhno-Kazakhstanskaya TETS, and the 500 MW Zapadno-Kazakhstanskaya TETS-1. In addition, Kazakhstan plans to build a new nuclear power station near Lake Balkash, with three units of 640 MW costing $2 billion each.
The first unit is expected to come online by 2005, and the last by 2012. The nuclear plant will supply Almaty and export power to China and other central Asian states.
Kazatomprom produced and exported about 1,250 metric tons of uranium in 1998 to Russia, Western Europe and South Korea. In December 1998, Kazatomprom signed a contract with Bush Wellman and General Electric to export uranium, and Kazatomprom also reached a preliminary agreement with General Electric to process US uranium waste into uranium powder.
The export agreement also calls for a resumption of beryllium exports, as Kazatomprom plans to reinstate its beryllium production, which had been idle since 1992. Kazatomprom's future plans also call for it to be privatized in the near future.
Kazakhstan is a major coal producer, consumer, and exporter, with output centered in the Karaganda and Ekibastuz basins. Karaganda has 13 mines that are high cost because they are primarily underground mines that produce high quality coking coal. Ekibastuz is the largest producing area in Kazakhstan and the third largest coal basin in the former Soviet Union, and has three strip mines that produce mainly brown (sub-bituminous) coal for use in power plants.
Kazakh coal production declined from 143 million short tons (Mmst) in 1991 to 77 Mmst in 1998 as domestic demand declined by over 60 percent during this period.
Coal production for the first eight months of 1999 declined by 30 percent over the same period in 1998, in large part because of nonpayment by customers and the lack of incentives to export to Russia because of the high rail tariffs for transporting coal within Russia.
This decline is significant because coal has accounted for about half of all primary energy consumption in Kazakhstan during 1991-1998. In addition, net exports to other former Soviet republics declined by two-thirds from 1991 to 1995 before beginning a modest recovery from 1996 to 1998.
This decline in markets resulted in the halving of both coal production and the number of mines in Karaganda from 1991 to 1997. However, the three strip mines in Ekibastuz remained open, as they are competitive and have been largely privatized.
Despite the drop in net exports, Kazakhstan was the largest exporter of coal to the other former Soviet republics in 1997, accounting for almost half of the coal shipments among the republics. Russia remains the largest recipient of Kazakh coal at 16 Mmst, followed by Ukraine at 6 Mmst.
The Russian utilities Sverdlovskenergo and Chelyabenergo continue to be major consumers of sub-bituminous coal from the Ekibastuz basin in Pavlodar Oblask in Kazakhstan. Sverdlovskenergo should continue to import coal from Kazakhstan, as it acquired two mines (Severny and Bogatyr No. 9) in 1996 as payment for unpaid debts for power supplied to Kazakhstan.
Kazakhstan has also arranged to export coal to Kyrgyzstan in exchange for water, with 1999 shipments to equal 560,000 tons. However, no coal was shipped for months during the first half of 1999, resulting in cuts in water supplies.
Organization: Kazakhoil state oil and gas company; KazTransOil state oil pipeline company; KazTransGaz state natural gas pipeline company; Kazakhstanugol Corporation coal company; Kazakhstan Electricity Grid Operating Company (KEGOC)
Major Oil and Gas Fields: Tengiz (mostly oil), Karachaganak (mostly gas), Uzen, Korolev, Tenge, Uritau (gas), Zhanazhol
Major Oil Ports: Atyrau and Aktau on the Caspian Sea
Oil Export Pipelines: Uzen-Atyrau-Samara (Russia); Kenkyak-Orsk (Russia) line that transports oil from the Aktyubinsk fields to the Orsk refinery
Major Oil Refineries (crude oil refining capacity): Pavlodar (162,666 bbl/d); Atyrau (104,427 bbl/d); Shymkent (160,000 bbl/d)
Major Power Plants (capacity): Ekibastuz No.1 (4,000 megawatts or MW), Yermak (2,400 MW), Dzhambul (1,230 MW)
Source: United States Energy Information Administration.
© 2000 Mena Report (www.menareport.com)