Projects
Upstream Development of Small Gas Fields in Kazakhstan. Some progress being made under a new policy approach
Dinara Daribayeva, Research Analyst, dinara.daribayeva@spglobal.com
Matthew Sagers, Vice President, matt.sagers@spglobal.com
Paulina Mirenkova, Senior Director, paulina.mirenkova@spglobal.com
Emerging shortage of commercial gas as demand rises while production stagnates
Since 2021, with adoption of the Comprehensive Plan for Kazakhstan’s Gas Industry Development for 2022–26, gas industry transformation and related reforms have become a key focus for policymakers and especially for the two national companies, JSC KazMunayGas (KMG) and JSC QazaqGaz. The comprehensive plan envisions both new upstream development as well as expansion of gas processing to expand domestic commercial gas supply. There are two main policy documents aimed at bringing new incentives to bear in this endeavor, namely the changes introduced under the IMC — a new subsoil contract option being introduced for “complex” fields — and recent amendments made to the Law on Gas and Gas Supply.
The long-awaited IMC went into effect in February 2023. Although the IMC pertains to both oil and gas, one of its key aims is to stimulate upstream gas investment, mainly by lowering the cost of exploration and production through regulatory and fiscal preferences. Also, an amendment made at the end of 2022 to the Law on Gas and Gas Supply offers higher producer prices for “new” gas. These changes are aimed at expanding commercial gas production to meet rising domestic demand, while hopefully maintaining gas exports to China.
In 2023, it was reported that Kazakhstan’s gross gas production was 59.1 Bcm, 10% higher than in 2022 (see Table 1). The additional volume came entirely from the projects at Kashagan and Karachaganak that are led by international oil companies. (Combined incremental gross production in 2023 at Karachaganak and Kashagan was 6.9 Bcm, while the total for the country was only 5.5 Bcm.] Calculated “commercial” gas production (i.e., gross minus reinjected volumes) amounted to about 38.3 Bcm in 2023, with about 20.9 Bcm (35.4%) being reinjected. As readily apparent from Table 1, estimated (or reported) commercial gas production has remained essentially stagnant for the past eight years or so.
The official forecast for 2024 for gas production in the republic is 60.5 Bcm (gross output), with commercial gas production holding at 29.8 Bcm. Of that volume, about 5.8 Bcm of commercial gas will be used by subsoil users for their own production needs, according to the minister of energy. Stagnant commercial gas production from existing operations was expected to hold over the medium term, but that was before the new “small field” initiative was launched. For example, Kazakhstan’s largest oil production expansion project, Tengiz’s $45 billion Future Growth Project, which will add 260,000 b/d of new oil productive capacity in 2025, does not envision any expansion of commercial gas availability at all; the additional associated gas from the project is planned to be reinjected.
| 2015 | 2016 | 2017 | 2018 | 2019 | 2020 | 2021 | 2022 | 2023 | |
|---|---|---|---|---|---|---|---|---|---|
| Gross production* | 45.3 | 46.4 | 52.9 | 55.5 | 56.4 | 55.4 | 54.2 | 53.2 | 59.1 |
| Re-injected gas (calculated) | 16.9 | 11.4 | 13.1 | 14.2 | 15.7 | 17.3 | 17.3 | 18.7 | 20.9 |
| Commercial production (calculated) | 28.4 | 35.0 | 39.8 | 41.2 | 40.7 | 38.1 | 36.8 | 34.6 | 38.2 |
| Commercial gas production (QazaqGaz data) | 21.3 | 28.5 | 31.0 | 33.3 | 33.1 | 30.5 | 29.4 | 27.8 | 29.8 |
| Imports (customs statistics) | 5.8 | 6.9 | 6.3 | 14.6 | 15.8 | 12.4 | 9.2 | 7.4 | 9.7 |
| Exports (customs statistics) | 21.5 | 21.6 | 24.1 | 25.6 | 25.6 | 19.8 | 16.0 | 16.7 | 13.1 |
| Net exports | 15.7 | 14.8 | 17.8 | 11.9 | 9.8 | 7.4 | 6.5 | 9.3 | 3.4 |
| Apparent consumption (commercial gas) | 12.7 | 20.2 | 22.0 | 29.3 | 30.9 | 30.7 | 30.0 | 29.0 | 32.0 |
| Actual consumption (end-use) | 12.0 | 13.1 | 14.0 | 15.1 | 15.9 | 17.1 | 18.6 | 19.2 | 19.2 |
Data compiled in March 2024
* Includes re-injected volumes.
Sources: Ministry of Energy of Kazakhstan; Customs Statistics of Kazakhstan; QazaqGaz; S&P Global Commodity Insights.
© 2024 S&P Global.
The reported volume of gas actually delivered to consumers (end-of-pipe consumption) in 2023 was 19.2 Bcm, about the same amount as in 2022 (see Table 1). After growing quite robustly under the ongoing gasification program in recent years (averaging about 6.9% per year between 2015 and 2022), end-of-pipe consumption growth finally leveled off in 2023. By the end of 2023, the ongoing gasification program had made piped gas accessible to 60% of Kazakhstan’s population. Although the official outlook for gas consumption in Kazakhstan remains generally robust, we tend to be more cautious, envisioning an inevitable slowdown, owing to a myriad of constraints, especially in expanding distribution pipelines and converting consumers to use gas. In a recent statement, the energy minister reported that the official forecast for commercial gas consumption in 2024 is 20.9 Bcm. In contrast, our current outlook envisions domestic consumption reaching only about 21 Bcm/y in the late 2020s. The current target is for gasification of the country to reach 65% in 2030, with gas displacing coal not only in the residential-commercial sector, but also in electric power and industry.
In the official view, domestic consumption is to be prioritized in the current supply crunch, with gas exports being reduced. For example, in the official forecast for 2024, only about 3.1 Bcm would be available for exports. While exports (as reported by state customs statistics) have been declining in recent years, in 2023 they actually rose slightly, to 13.1 Bcm, compared with 2022 (see Table 1). Exports to China, which are especially important to QazaqGaz’s financials, rose by 16% to 5.9 Bcm in 2023.
Exports of gas to China figure very prominently in QazaqGaz’s financial stability. The company generates around 50% of its total consolidated revenue from gas exports to China while it loses money in its basic business activity of selling gas to domestic consumers. A decline in gas export volumes or a complete suspension of exports would greatly undermine the company’s ability to cross-subsidize domestic gas sales and finance the ongoing gasification program, in addition to the current development of new gas fields. Between 2015 and 2022, the company incurred a total of 763 billion Kazakh tenge ($1.76 billion) in losses on domestic gas sales; given the current pricing situation, the company expects to incur losses of 178 billion tenge ($390 million) and 173 billion tenge ($383 million) in 2023 and 2024, respectively, in this basic business segment (according to QazaqGaz’s report on the results of gas industry reforms to the Mazhilis, June 2023).
A key element of expanding commercial gas supply in the medium term: ‘New’ gas field development by the national companies
The new national gas company, QazaqGaz (established in 2021, being hived off of national oil company KazMunayGaz (KMG), inherited very little upstream gas production; its main focus when being part of KMG was on gas pipelines and domestic gas deliveries. It did, however, inherit a small gas production operation centered upon the Amageldy field (in Zhambyl Oblast). Producing about 300 MMcm per year, this entity was reorganized into the core of the new upstream arm of the company, Exploration and Production QazaqGaz LLP (QazaqGaz E&P). This new entity figures prominently in the company’s ambitious upstream plans (expressed in the company’s new Comprehensive Gas Strategy to 2032).