A Quarter of a Century of CNPC in Kazakhstan: a Course for Further Fruitful Cooperation
Li Yonghong, CNPC Vice President for Central Asia and Russia, General Director of CNPC in Kazakhstan, answers Petroleum's questions.
– Dear Mr. Li Yonghong, first of all, let us congratulate you on a significant date – the 25th anniversary of the CNPC Corporation in Kazakhstan. With the arrival of CNPC in our country in 1997, comprehensive cooperation between Kazakhstan and China in the oil and gas sector began. Could we summarize its interim results today? In which projects in Kazakhstan does CNPC act as a strategic partner?
– Thank you so much for the congratulations. Yes, the oil and gas cooperation between Kazakhstan and China began 25 years ago when the China National Petroleum Corporation (CNPC) acquired the shares of Aktobemunaygas and signed a contract with the government of Kazakhstan for the development of fields in the Aktobe region. Since then, the geography of CNPC's activities in Kazakhstan has significantly expanded, as well as the types of operations carried out.
Today, with our Kazakhstani partners, we are implementing several important projects in oil and gas development and production, sale and transportation of hydrocarbons, oil refining, and petrochemistry. Among our joint ventures are seven oil and gas companies, two oil pipelines, two gas pipelines, an oil refinery, and a steel pipe plant. Of particular note are CNPC-Aktobemunaigas, Mangistaumunaigas, PetroKazakhstan Kumkol Resources, PetroKazakhstan Oil Products (Shymkent refinery), Asia Gas Pipeline, and Kazakhstan-China Pipeline. CNPC is also involved in the development of the Kashagan field.
– What contribution do companies with CNPC participation make to the economy of Kazakhstan today – taxes paid, investments made, etc.?
– Over 25 years, enterprises with CNPC participation in Kazakhstan have produced about 450 million tons of oil and 150 billion cubic meters of gas. It is worth noting that Chinese oil companies, in terms of production, are only in third place after Kazakhstani and American ones. At the same time, we ship 60% of the extracted and processed products to the domestic market at domestic prices, which no foreign investor does. Over the past quarter century, CNPC has paid $50 billion in taxes to the Kazakhstani budget and invested $45 billion in developing Kazakhstan's oil and gas complex.
– In recent years, the government of Kazakhstan has been pursuing a consistent policy aimed at increasing local content in oil and gas projects. This applies to the procurement of goods, works, and services and the nationalization of personnel. In some media, CNPC is criticized for excessive, in the opinion of journalists, involvement of foreign labor and foreign contractors in projects with Chinese participation. Could you give an objective picture of the current state of affairs?
– It is gratifying to note that the state's interests in improving the quality of human capital are directly reflected in the strategies of CNPC. For example, job creation is a priority. As a result, over 30 thousand jobs have been created in Kazakhstan over 25 years of activity, while the share of foreign personnel is only 1.7%. This means that the percentage of foreign labor attracted to CNPC joint ventures and subsidiaries in Kazakhstan is significantly lower than the requirements put forward by the state in matters of hiring foreign specialists and experts. As for procurements from Kazakhstani suppliers, this is about 70% of contracts for goods and 90% for works and services.
– In the current challenging global geopolitical situation, issues of diversification of its oil and gas export routes are particularly important for Kazakhstan. In this regard, the role of the Kazakhstan-China oil pipeline is increasing. Do you see any opportunities to increase the volume of exports through it?
– As is well known, Kazakhstan's oil and gas fields are located in the west of the country. Previously, oil refining and oil pipelines were integrated into the all-Union system of the oil and gas industry. After the breakdown of industry ties, Kazakhstan faced the task of creating its infrastructure for the transportation of hydrocarbons. Over 25 years of operation, CNPC and its partners have built a network of pipelines connecting oil and gas fields with consumers in most of Kazakhstan, including export supplies to China and the west.
An essential part of this work was the Kazakh-Chinese pipeline, consisting of two sections – Atasu-Alashankou and Kenkiyak-Kumkol. Their total length is 2,800 kilometers, with a throughput capacity of 20 million tons annually. This pipeline system has solved an essential strategic task of Kazakhstan to transport raw materials from the western region to the Pavlodar and Shymkent refineries and the promising Chinese market.
In recent years, work has been underway to increase the capacity of the Kazakhstan-China oil pipeline, which requires time and significant investments. As well known, 53 million tons are exported via the Caspian Pipeline Consortium (CPC) oil pipeline, which is 80% of the oil produced in Kazakhstan. According to the Ministry of Energy, the alternative routes allow for exporting only 16.5 million tons per year.
– Fields in the Kyzylorda and Aktobe regions – the main resource base of CNPC in Kazakhstan – have already passed the production peak. How do you plan to maintain the current production level, and is it possible to increase production in the coming years?
– Indeed, over the past few years, there has been a steady downward trend in gross hydrocarbon production in these two areas, and recoverable volumes are gradually decreasing for almost all operators. There are several reasons. This includes natural depletion of the developed fields, a drop in oil recovery due to geological factors, a negative impact on the oil business in the pandemic period, significant restrictions on production at the country level at the request of OPEC, difficulties in achieving profitability when performing capital-intensive drilling programs for new wells, and others.
CNPC-Aktobemunaigas JSC pays great attention to maintaining annual production volumes and expanding the sphere of subsoil use. According to experts, today, the average oil recovery rate in developed fields is 29%. This indicator can be increased only by attracting the most advanced technologies to improve reservoir recovery. The development of engineering and technological thought leads to the introduction of effective production methods.
A striking example of progress in this area was the success of developing a fairly old Kenkiyak post-salt field, which is already at the 4th stage of development with a very high water cut. The introduction of certain technologies and the latest equipment allowed us to speak confidently about the success of a new stage of work in this field. Field development projects, based on which field activities of CNPC-Aktobemunaigas JSC are carried out, contain calculated profitability plans for the long term. So, for example, potentially, the development of the Kenkiyak sub-salt field can be profitable until 2077.
Thus, CNPC intends to maintain annual oil and gas production volume in the long term by involving effective research projects. Also, our corporation will continue to increase momentum in the global strategy of achieving carbon neutrality and deepening green economy projects.
– As known, in 1997, after the privatization of Aktobemunaigas JSC by the corporation, the Government of Kazakhstan concluded contracts for subsoil use with CNPC-Aktobemunaigas JSC for 25 years. Thus, they expire this year. What are the prospects of CNPC in Kazakhstan?
– The Contract No. 76, signed in 1997 between the investor and the government for conducting operations on hydrocarbons at the fields of Zhanazhol, Kenkiyak post-salt, and Kenkiyak sub-salt in the Aktobe region, was concluded for 25 years. In June 2022, the validity of this agreement was extended until 2025. However, the extension of Contract No. 76 for only three years does not mean the imminent termination of subsoil use operations at the fields mentioned above. The government and the investor have agreed on a bilateral intention in the near future to determine the conditions for the subsequent extension of the contract terms in an adjusted form, that is, to extend the activities of CNPC after 2025.
CNPC-Aktobemunaigas JSC is ready to ensure a given level of profitability of subsoil use operations at its fields that are entering the natural depletion stage for geological reasons, for which the investor can use the most advanced technologies to increase oil recovery.
CNPC-Aktobemunaigas JSC also conducts subsoil use operations under Contract No. 3810 (production at the Severnaya Truva field), Contract No. 968 (exploration in the Central Territory of the Eastern Caspian Basin), Contracts No. 4686, and 4687 (exploration and production at the Teresken-1 and Teresken-2 sites).
– CNPC is known not only for oil and gas projects. The hallmark of the corporation in the capital of Kazakhstan is the magnificent Beijing Palace Hotel. You have also invested in the construction of the Kazakh National Academy of Choreography. What was the motivation for participating in these seemingly non-core projects for an oil and gas company? What have other major sponsorship and charity projects been implemented by the company in Kazakhstan for a quarter of a century?
– You correctly noted that these are non-core projects for the oil and gas sector. However, it should be noted that CNPC, being a world-famous company, pays close attention to the development of regions in the host countries. In addition, the social responsibility policy always remains one of the most important directions for our corporation. Over 25 years, the volume of CNPC investments in social projects in Kazakhstan has exceeded 410 million US dollars.
In addition to building roads, repairing streets, and equipping schools and hospitals, CNPC invests in the development of Kazakhstani art, culture, science, and sports and is engaged in charity. As you have already noted, CNPC Group has financed the construction of the Kazakh National Academy of Choreography. This unique university has no equal in all of Central Asia and Russia. The volume of investments amounted to almost 100 million dollars. Our corporation allocated approximately the same amount for the construction of the famous Beijing Palace Hotel, which has become one of the business cards of the Kazakhstani capital. We have built the largest Art Center in the western region in Aktobe, and the park of the First President was erected in Aktau.
Veterans of the Second World War were awarded the keys to 80 apartments, and a boarding house was opened for orphans. This year we helped the Kasteev State Museum of Art to publish a unique catalog and hold a long-awaited exhibition. In addition, we invited a well-known coach from China to the training center of the Table Tennis Federation of the Republic of Kazakhstan, fully assuming all costs. Thanks to CNPC grants, hundreds of talented Kazakhstani graduates have studied at the best universities in Kazakhstan and China.
CNPC Group in Kazakhstan has transferred around $15 million to fight the coronavirus pandemic. In addition, our design companies have often won various competitions, including the "The best socially responsible enterprise" nomination.
President of Kazakhstan Kassym-Jomart Tokayev stressed that CNPC's comprehensive cooperation in the oil and gas industry plays a vital role in the socio-economic development of Kazakhstan. I am confident that the intentions of the heads of our states to develop a lasting, strategic and comprehensive partnership will bring outstanding results in socio-economic development and strengthen strategic cooperation between our states.
– Dear Mr. Li Yonghong, you have worked in Kazakhstan for over 20 years. We can say that your personal history is inextricably linked with the history of cooperation between the two states. Another landmark date – the 25th anniversary of CNPC's activities in Kazakhstan is celebrated on the same days as your 55th anniversary, which falls at the beginning of the KIOGE exhibition and conference and on which we sincerely congratulate you! And finally, last December, on the eve of the 30th anniversary of the Independence of the Republic of Kazakhstan, you were awarded a high state award – the Order of Dostyk (Friendship). Could you share your impressions? How has Kazakhstan changed over the past two decades? How do you see its prospects?
– Thanks again for the congratulations. As for the Dostyk Order, the company's management and I are proud that this award has become one of the confirmations of the significant achievements of the Kazakh-Chinese oil and gas cooperation, in which I have been lucky to participate for more than 20 years. I believe that the implemented Kazakh-Chinese high-tech oil and gas projects in the production, transportation and processing of hydrocarbons are part of the enormous changes in the economy of Kazakhstan.
I am sure that the goals and objectives of the renewal and modernization of Kazakhstan announced by President Tokayev will undoubtedly be implemented to achieve the well-being of all Kazakhstanis. And our corporation will make every effort to do this.