Gas realities: growing market, increasing demand
One of the results of the three decades of Kazakhstan’s independence was the creation of innovative, cost-effective gas industry of the country almost from scratch. This is the path of reform and creation from disparate gas transportation enterprises and transit sections of main gas pipelines to own national gas company KazTransGas.
Established in February 2000, the national operator, under the leadership of such experienced and highly qualified top managers as Uzakbay Karabalin, Nurgali Ashimov, Abai Sadykov, Serik Sultangali, and others, who led it in turn, consistently increased assets, stabilized the financial situation of the gas industry and increased the level of country's gasification.
More than 10 thousand kilometers of main gas pipelines were built and put into operation during this period. To date, KTG manages more than 20 thousand kilometers of main gas pipelines and more than 56 thousand kilometers of gas distribution networks. As of 2021, 12 out of 16 regions of Kazakhstan have already been gasified!
Today, KazTransGas JSC provides more than half of the country's population with "blue fuel". The share of gasification has almost reached 55%; 10.2 million people have access to gas. By 2025, this figure should grow to 60% or 11.7 million people. Over the past seven years alone, more than three million Kazakhstanis got the opportunity to use gas, the level of gasification of the population had increased from 30% in 2013 to 54% in 2020. The number of gasified domestic enterprises has doubled: from 23,725 to 51,285 business entities.
The work on the gasification of the country continues. It is financed from budget funds and funds of the national operator KazTransGas JSC. In recent years, the public-private partnership method has been actively used. Since the establishment of KazTransGas, more than 40 thousand kilometers of gas distribution networks have been put into operation.
During the years of independence, it was possible to solve an issue that had never been solved before in the history of Kazakhstan. This refers to the gasification of the country's capital and the central and northern regions of Kazakhstan. The first stage of the Saryarka main gas pipeline construction is almost completed. Gas has arrived in Nur-Sultan, Karaganda region, and there is an active connection of consumers. The second and third stages of construction involve the gasification of Northern Kazakhstan with the gas pipeline extension to Kokshetau and Petropavlovsk.
For the gasification of the East Kazakhstan region, the possibility of supplying Russian gas from Barnaul is being considered. A joint working group has been established with experts from the Ministries of Energy of Kazakhstan and Russia, specialists of KazTransGas JSC and Gazprom PJSC. Now they are studying and analyzing the technical, economic, and financial aspects of the construction of the gas transportation infrastructure. In October of this year, the Minister of Energy of the Republic of Kazakhstan, Magzum Mirzagaliyev, met with the Chairman of the Gazprom Board of Directors, Alexey Miller, at which an agreement was reached to intensify work on the project.
Since October 2014, all these large-scale transformations have been carried out under the direct leadership of Kairat Sharipbayev, who held the posts of Chairman of the Management Board and Chairman of the Board of Directors of the company during these years. In November 2020, on the eve of the global reform of KTG, he was re-appointed by the country's leadership as Chairman of the Board of KazTransGas Joint Stock Company.
Gas: from second roles to priority
Traditionally, until recently, the issues of gas production in Kazakhstan were in second place, after oil. Mainly, gas in Kazakhstan is associated. There are few gas fields actually developed. The state regulates the cost of gas in Kazakhstan, and it was economically unprofitable for subsoil users to bring it to marketable condition and sell. It was easier to re-inject it to increase the production of liquid hydrocarbons or flare it.
In addition, hydrogen sulfide is present in the composition of gas produced in Kazakhstan, which increases the cost of building gas processing infrastructure.
But now the situation has changed dramatically, "blue fuel" has come out on top because of its environmental friendliness. In addition, Kazakhstan has legislatively introduced a ban on flaring. Today, by order of President Kassym-Jomart Tokayev, active work has begun to increase the investment attractiveness of the gas industry. As part of this work, KazTransGas, together with the government and the Kazakhstan Council of Foreign Investors Association, have developed a new, stimulating price formula for purchasing gas from subsoil users. It is proposed to buy new gas volumes from investors at the maximum export price, minus transportation costs. This should increase profitability and attract new investments in gas projects, thus increasing the resource base to prevent possible gas shortages due to consumption growth.
There are fields in the country that, if they are developed, can produce an additional 6-8 bln cubic meters of gas per year. For this purpose, it is planned to transfer fields with high gas production potential to KazTransGas, which were not developed due to low priority or lack of financing from oil-oriented subsoil users. For example, the Urikhtau oil and gas condensate field, located in the Mugalzharsky district of the Aktobe region.
Geological exploration is being carried out in the Shu-Sarysu basin, which is poorly studied. Also, within the framework of the state program for the study of subsoil resources, options for the joint research of other poorly studied basins are being considered. KazTransGas JSC has ambitious expectations from the Aral sedimentary basin.
The national operator also intends to intensify work on the Caspian shelf. At the October meeting of the Minister of Energy of Kazakhstan, Magzum Mirzagaliyev, and Chairman of the Gazprom Board of Directors, Alexey Miller, among the topical issues, the issue of resuming negotiations on the development of the Khvalynskoye and Imashevskoye fields and gas processing was considered.
The agreement on the principles of joint development of the Khvalynskoye field in the Caspian Sea was signed between KazMunayGas and LUKOIL in April 2003. In 2005, a joint venture was established, but the development of the field has not yet begun. In 2013, an intergovernmental agreement was signed on the development of the Imashevskoye field site in the border zone between the Atyrau region of Kazakhstan and the Astrakhan region of Russia. The transformation of KazTransGas into an independent national gas company will give a new impetus to the implementation of these projects.
The industry needs money
The Ministry of Energy of Kazakhstan predicts that the share of gas in the country's energy balance will grow rapidly, and by 2030 the needs of the domestic market will almost double to 30.2 bln cubic meters. Demand will increase not only due to the rapid pace of gasification of the regions, but the gas chemistry industry developing in the country will also require raw materials. KazTransGas does not have its gas chemical projects yet but participates in such projects to provide commercial gas following the approved gas balance. For example, a project for carbamide production in the Zhambyl region, implemented by the United Chemical Company LLP and the Chinese Huajin.
There are no carbamide production facilities in Kazakhstan today. Imports from Russia and Uzbekistan meet all demands. According to statistics, the volume of imports increased from 21 thous. tons in 2016 to 74 thous. tons worth 15 mln US dollars in 2020. The project requires commercial gas of about 550 mln cubic meters per year. To date, the project is at the stage of transition to basic design and the creation of a joint venture between the project participants.
Kazakhstan's gas has a stable sales market in the world. By the end of 2020, 38% of the total volume of gas produced was exported. Having a sufficiently robust mainline gas transportation system and based on the principles of multi-vector supply of hydrocarbons to the domestic and foreign markets, Kazakhstan strives to open economically promising routes for transit and export commercial gas supplies. Today, thanks to the implementation of a carefully verified investment program, KazTransGas JSC can diversify export routes in any direction.
It is worth noting that the national operator sells gas to domestic consumers below producing cost while incurring enormous losses. Thus, the number of subsidies for the last three years amounted to more than 255 bln tenge. And the company manages to cope with this financial burden due to other operations, such as transportation and export deliveries.
However, from an economic point of view, such a situation carries enormous risks. Today, the national gas operator is ultimately fulfilling its mission. However, it is crucial to think about tomorrow. This means, first of all, the extreme deterioration of the infrastructure that Kazakhstan inherited from the unified Soviet gas transportation system. Some of the equipment which KazTransGas JSC currently operates was produced back in the 60s of the last century. It is so outdated that there are simply no factories that would produce spare parts for it. This is a big problem for the company in terms of maintaining the infrastructure in working order.
In addition, there is not enough capacity of the main gas pipelines to continue the gasification of the regions, the development of gas exports, and the provision of gas to new industrial consumers, including the transfer of Almaty's CHP to the gas. The primary task is to expand the main gas transportation artery of the country – the Beineu-Shymkent gas pipeline, to which the Saryarka main gas pipeline and distribution networks of the southern regions of the country are connected. And the modernization of the old and the expansion of the capacity of the new networks require enormous financial resources, which, with today's profitability, or rather, its absence, of domestic supplies, is not so easy to find.
The planned work to increase the resource base, build gas processing plants at Kashagan and improve own gas production by commissioning new fields still needs to be financed.
By order of President of the Republic of Kazakhstan Kassym-Jomart Tokayev, KazTransGas JSC participates in the project of full-scale development of the Kashagan field in terms of high-sulfur crude gas utilization and subsequent production of commercial gas. On the government's order, the company is implementing the Kashagan complex gas treatment unit project in the Makat district of the Atyrau region, next to the existing Bolashak plant owned by NCOC. One bln cubic meters of crude gas per year will be supplied for processing from the Kashagan offshore. The project has entered the implementation stage, the construction of the unit is expected to be completed by the end of 2023.
In addition, there are the 2nd and 3rd stages of this project, during which it is planned to process additional volumes of crude gas – 2 bln cubic meters and 6 bln cubic meters in 2026 and 2030, respectively. Thus, replenishing the resource of commercial gas for supply to the domestic market and export.
Green prospects of Kazakhstan
The world is changing before our eyes. Now the policy of most countries is aimed at changing the structure of the energy balance in favor of natural gas. It is the most promising of traditional energy sources and the only one with every chance to compete with renewable energy sources in the future.
Expanding the use of gas as one of the most environmentally friendly fuels is especially important in light of the decarbonization of the world economy and the Paris Climate Agreement, which Kazakhstan and Russia joined in 2016.
The gas industry plays a vital role in the transition to a green economy. Many countries and multinational oil and gas companies pay serious attention to global scenarios of the development of the world economy's need for hydrocarbon resources to develop critical guidelines for future development.
Currently, Kazakhstan is actively working on the transfer of industrial consumers to gas. This is vital for large manufacturers exporting their products abroad, including to the markets of the European Union, where it is planned to introduce a so-called carbon tax on "dirty products". The second important task is the transfer of the transport sector to gas consumption as a motor fuel, which will be accompanied by a significant socio-economic and environmental effect.
Any country needs to have fast and cheap ways of delivering goods in a mobile economy. Therefore, Kazakhstan, China, and Russia are jointly developing the transport infrastructure of the New Silk Road. On May 21, 2021, in Zhibek Zholy village, Akmola region, the first cryogenic automobile refueling station for transit equipment was opened in Kazakhstan. It was launched by Gazprom LNG Technologies, a specialized company for the implementation of Gazprom PJSC projects for the development of liquefied natural gas infrastructure. Accordingly, the station is supplied with fuel from Russian factories.
KazTransGas, according to the decree of the Government of Kazakhstan No. 797 dated November 29, 2018, participates in the implementation of the program for the construction of 85 new automobile compressed natural gas (CNG) stations using methane as fuel. Sixteen CNG stations are operating in the country, seven of which belong to KTG, one in Almaty to the municipal bus fleet, and eight to private companies on franchise terms. This year, three more such stations will be introduced in Shymkent, Taldykorgan, and Atyrau. It is planned to increase the number of CNG stations in the country to 100, including building them in Shymkent, Turkestan, Taraz, Zhanaozen, Aktau, Aktobe, and Uralsk. The projected volume of compressed natural gas sales is up to 50 million cubic meters per year. The main advantage of such fuel is environmental friendliness and low cost compared to other types of fuel.
On March 11, 2021, a government decree was adopted, and an agreement was signed on the transfer of a state-owned stake in KazTransGas JSC from NC KazMunayGas JSC to the trust management of the Samruk-Kazyna Fund. On November 30, 2021, KazTransGas JSC was granted the status of a National Company by the Decree of the Government of Kazakhstan No. 852. In addition, under the Code on Subsoil and Subsoil Use, the Government approved the delimitation of the activities of national companies in the field of subsoil use. According to this document, KazTransGas has been granted a preferential right for exploration and production at gas and gas condensate fields. "We have decided to transform KazTransGas by analogy with Gazprom. The company will become a full-fledged vertically integrated national gas company," President of Kazakhstan Kassym-Jomart Tokayev said, speaking at the XVII Forum of Interregional Cooperation between Kazakhstan and Russia, held on September 30, 2021, in Kokshetau. And it was done.
At the instruction of the President of Kazakhstan, the government is currently developing a Comprehensive Plan for the development of the gas industry of the Republic of Kazakhstan until 2030. This is a new page for the country's gas industry, and the main goal is to increase its contribution to Kazakhstan's GDP from 1.8% to 3.6% and ensure stable gas supply to the domestic market of Kazakhstan and export supplies.