Oil and gas of Kazakhstan: prospects and tasks. Expert’s opinion

Kazakhstan annually increases oil and gas production. Realization of large oil and gas projects is under way and is planned in the Republic, which will allow to boost production. Whereas prices for hydrocarbon commodities remain unstable. What are prospects of the industry and what tasks shall set market players for themselves? This was told in the interview to petrocouncil.kz by Yaromir Rabai – director of the department for development of oil and gas and energy industries of KAZENERGY Association.

Now it is fashionable to say, or maybe it is reality, which we have to face, that era of oil is fading away, that oil will never rise above 100 US dollars per barrel. Electric cars are being promoted, internal combustion engines are being replaced, which means reduction of demand for petroleum products. What is real tendency on the world oil market?

— Yes, in fact oil world prices forecasts of international rating agencies presume 80 US dollars for 1 barrel of oil in the medium-term perspective. But we cannot say that demise of oil era is coming up.

Over the last decade the world oil market experienced not only crisis but, what is not less important, shares of countries-participants were re-distributed on the world arena. Including due to the USA sanctions against Iran and Venezuela, growth of shale gas production in the USA. Slowdown of economic growth of the largest countries of the world such as PRC and USA also has an adverse impact on price increase. As a positive event OPEC+ agreement related to reduction of oil production can be noted.

In the given situation the relevant issue is preservation of adequate balance between demand and supply of energy resources including oil. This will allow to retain the prices within a certain corridor between 50 and 70 US dollars per barrel of oil and to preserve further development of oil and gas industry in the future. Whereas the key task is reduction of unit cost of expenses on production through development and implementation of new technologies, digitization and implementation of new achievements in the area of information technologies such as processing of large arrays of data, artificial intelligence and other.

Of course against a background of initiatives related to reduction of emissions to the environment the world tendency of development of renewable energy sources and gradual replacement thereof with traditional fossil fuels is supported by significant number of developed and developing countries. But it should be noted that in the nearest decade we should not expect full domination of renewable energy sources regardless that it is to significant extent promoted by Paris agreement on climate ratified by Kazakhstan also.

Nevertheless transnational oil and gas companies set a course for diversification of energy resources through investments to renewable energy resources and energy storage technologies as well as implementation of green technologies for traditional production and processing of hydrocarbons.

Kazakhstan has similar tasks as a whole. In the Republic the programs were adopted at the state level for development of renewable energy sources, reduction of greenhouse gases emissions, transition to green economy, implementation of digitization and etc. But the key challenge for us is availability of own modern technologies, sufficient scientific and technical potential and highly qualified specialists. I.e. in Kazakhstan it is necessary to shift the focus from commodity export to export of technologies and value added products.

— Currently they forecast that during next 30-40 years demand for gas will grow drastically. Will it be in demand more as fuel or as commodity for manufacture of chemical industry products? Does Kazakhstan have sufficient reserves and resources in order to independently develop gas deposit fields, to produce gas and to receive large revenue from sale thereof?

— Demand for gas will be relevant to the same degree as fuel and as commodity for gas chemistry, everything depends on domestic conjuncture and economy of this or that country. For example at the moment gas in Kazakhstan is mainly spent for coverage of domestic needs as fuel in housing and utilities sector and in industrial sector as well as it is exported as raw material.

Whereas with the purpose of receiving products with larger added value the major work is performed related to development of gas chemical industry. The largest project is construction of factories for production of polyethylene and polypropylene in Atyrau region.

In my understanding the state in current situation shall carry out fine adjustment of state policy concerning fuel and energy balance of Kazakhstan i.e. gradual increase in share of gas and renewable energy resources in relation to traditional coal fuel with consideration of keeping the tempo of country economic development.

When we speak of development of gas deposit fields the issue is not definitive. Lion share of gas reserves is concentrated in large oil and gas fields such as Tengiz, Karachaganak, Kashagan and Zhanazhol, where gas is produced along with oil and gas-condensate. And taking into consideration forecast of gas production growth from 55,5 billions of cubic meters in 2018 to 84,4 billions of cubic meters by 2040, commercial volumes of market gas will increase insignificantly. It is related to back injection of gas and problems of further commercial utilization. It is secret to nobody that our gas market is regulated concerning supplies and price forming. Currently liberalization of price forming is carried out only of liquefied petroleum gas market.

In spite of that resource potential related to provision of gas to the country with consideration of consumption growth and gas chemistry development is preserved as a whole, which requires in its turn activation of geological survey. Relevant instructions were given by the head of the country in this area and the work is carried out by governmental authorities.

— Will Kazakhstan invest in geological survey of new deposit fields? How will Kazakhstan shelve of the Caspian sea be developed?

— Concerning Caspian sea shelve besides North-Caspian project (NCOC) great prospects and expectations are related to Abai site. In the current year a contract was signed on exploration and production of oil with participation of KazMunaiGas NC JSC and ENI Italian company, for Kurmangazy site – KazMunaiGas NC JSC and Rosneft Russian company. Also promising projects are Kalamkas-more and Khazar deposit fields, from which Shell company (NCOC) withdrew.

— How will petroleum gas chemistry be developed in the Republic? To what degree is it feasible to release end products out of plastic, rather than to sell, let’s say, polypropylene or polyethylene to China? Now they talk a lot about purchasing of all products of petroleum gas chemistry facility, which is under construction in Atyrau region, by Chinese manufacturers.

— As I previously said, wide scale work is carried out aimed at development of oil and gas chemistry as a single cluster with facilities in Atyrau, Aktobe and Mangistau regions, in future also in south regions of the country. Only two projects related to production of polypropylene and polyethylene may annually make approximately 1,5% increment in gross domestic product and this will give significant impulse for development of related industries of country economy. And in this situation we can say that before petroleum gas chemistry a rather ambitious task is set to maximize added value regarding classic hydrocarbon commodities. The next step shall be foundation of enterprises, which manufacture finished items and products.

For example, it is rather profitable to manufacture plastic products from domestic polymers in Kazakhstan, which products are in demand in all sectors of economy. With consideration of scheduled scopes of 500 thousands tons of polypropylene and 1,25 millions tons of polyethylene per year domestic market does not ensure full consumption thereof. Currently it is equal to the following: concerning polypropylene – less than 100 thousands tons, concerning polyethylene – not more than 300 thousands tons per year. In this regard obvious is the export potential particularly to such nearby countries as China, India, Russia and etc. The form of export depends on state policy and investment conditions for enterprises manufacturing finished (end) products.

— Are Kazakhstan energy companies ready to invest into renewable energy sources? What kind of support is provided or is necessary from the state for players of this market?

— Unambiguously great interest here is from foreign as well as from Kazakhstan companies. Several projects of renewable energy sources are already realized directly by Kazakhstan market players.

We have created the most conducive legislative base, which has sufficient stable conditions for investors: rates are bound to indexation to the level of inflation and exchange rate difference, purchase of the whole volume of electric power produced, priority access to network, exemption from payment for transfer of electric power through networks and etc.

Starting from 2018 with the purpose of creating conditions for selecting of projects the auction mechanism was implemented, which has allowed to reduce rates for support of renewable energy sources. This mechanism is applied in many countries, which use renewable energy sources.

— When you were preparing the report on National energy for 2019 you had studied oil and gas industry market in detail, tell us, which opportunities do you see for Kazakhstan oil field service companies? What kind of recommendation could you give them?

— All of us have heard many times that 70-75% of all purchase of goods, works and services (GWS) in oil and gas industry fall to three large projects: Tengiz, Karachaganak and Kashagan. For Kazakhstan oil field service this is first of all a great opportunity of adapting to international standards and of gaining experience under conditions of realizing large scale projects such as Future Growth Project – Wellhead Pressure Management Project on Tengiz, Karachaganak Growth Project (KGP1) on Karachaganak and Phase 1 on Kashagan.

Thanks to correct vector from the government in the area of local content development it has become possible to involve more of Kazakhstan companies into such projects. KAZENERGY Association also carries out everywhere the work in this area, particularly Petrocouncil is one of joint initiatives.

It is important to understand that realization of any project has its completion deadline therefore I believe that Kazakhstan companies currently have a great opportunity of receiving invaluable experience and of coming in the future even to foreign markets of oil field services. For example, Russia, Middle East countries, African countries and etc. And as one of options for transfer of necessary technologies and experience in oil and gas industry I would recommend foundation of joint enterprises with foreign oil field service companies.

Critical is the issue of qualified Kazakhstan human capital assets, and we will need some time for training of local highly qualified specialists.

Therefore the state and the industry as a whole have the objective of establishing a training base with consideration of international standards for human resources training.