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Missed Opportunities
At the end of the last year, with no special pomp and ceremony, has had its chips one of the most ambitious state programs adopted in Kazakhstan for 20 years of independence – the State Program for the Development of the Kazakhstan Sector of the Caspian Sea (ESCS). By Decree # 1105 of the President of the Republic of Kazakhstan as of November 22, 2010, it was recognised as invalid Decree # 1095 “On the State Program for the Development of the Kazakhstan Sector of the Caspian Sea”, approved by the President in May 2003. By December 31, 2010, according to plan, the second stage of this Program – the stage of accelerated development – should be completed. Let’s try to conclude some results of performed (and not performed) activities.
So, Point 3.1 of the state program stipulates the program scope and stages of implementation.
The scope and main stages of implementation are:
- Creation of organizational conditions for successful performance of offshore petroleum activities;
- Organization of offshore projects marketing;
- Development of the offshore petroleum support and social infrastructure;
- Expansion of hydrocarbons export and transportation routes;
- Development of a system ensuring protection of the environment;
- Advancing science, technology and training;
- Improvement of the legal and regulatory framework;
- Improvement of the quality of domestic products, creation of conditions encouraging the increased participation of Kazakhstan enterprises and organizations in the implementation of offshore petroleum projects;
- Development of the refining industry and improvement of hydrocarbons’ commercial value;
- Petrochemical development.
The development period is divided into three stages that differ in scope:
- Stage 1: 2003-2005 – Creating the conditions for successful integrated development;
- Stage 2: 2006-2010 – Accelerated development;
- Stage 3: 2011-2015 – Stabilization of production.
It was supposed that Stage 2 will show an increase in offshore hydrocarbons production resulting from the first petroleum projects implemented in the course of overall ESCS development.
The following activities will be performed in line with the above:
- Planned and consistent tendering of new offshore blocks;
- The national oil and gas company will implement plans to have it act as the offshore projects operator;
- Ongoing improvement of environmental protection regulations to ensure compliance with world standards;
- Effective monitoring of all offshore projects;
- Development and implementation of supplementary environmental protection activities meeting the increased ecological standards;
- Ongoing training of domestic specialists employed in petroleum projects and related industries;
- Development of the offshore operations support infrastructure;
- Construction of additional (non-export) pipelines;
- Commissioning of the new export oil pipelines;
- Study and selection of the route for the next export pipeline;
- Domestic goods and services gain competitiveness for use in offshore petroleum projects (import substitution).
What do we have in reality by today?
- New offshore blocks are not offered for tenders; direct negotiations with investors are frozen;
- The national oil and gas company KazMunayGas, in accordance with the recent changes in legislation, has a right to a 50 % interest in new offshore projects;
- Large-scale development of the offshore operations support infrastructure has stopped at the stage of feasibility report;
- Construction of the export pipeline for “big oil” from the shelf fields is frozen till 2018;
- The majority of products needed under the ESCS development are not released by the domestic industry with these products imported from abroad.
Let\'s consider the program’s target indices in detail.
3.2.4. Developing hydrocarbons production
In the first stage, i.e., through 2005, the main activity will be drilling exploration wells in the top priority blocks. The drilling scope will increase significantly during the transition from exploration to development and production.
ESCS explored reserves indicate potential production of 100 million tons to be maintained over the next 25-30 years.
According to JSC Information and Analytical Oil and Gas Center, the total volume of oil production in Kazakhstan has come to 79.685 million tons in 2010 with the production conducted exclusively from the fields on land. As is known, the offshore production has not commenced by January 1, 2011. In January of this year, the Ministry of Oil and Gas of Kazakhstan has rejected the Project for the second phase of Kashagan’s development submitted by the operator of the consortium NCOC, by recognizing it economically inefficient. According to the Minister Sauat Mynbayev, «we cannot approve the project inefficient from the economic point of view.» According to the Minister, the first phase «goes in the set terms with the pilot commercial development to be commenced in 2013». As is known, the terms of implementation of the second phase for the Kashagan development are transferred for 2018-2019. The start of commercial production from the field was repeatedly transferred. For the last time, it was declared as the end of 2012.
The North-Caspian project is being implemented under PSA on North Caspian concluded on November 18, 1997, and includes the fields Kashagan, Eairan, Aktoty and Ealamkas. North Caspian Operating Company B.V. (NCOC) is the uniform operator of the North-Caspian project. The shareholders of NCOC are: Agip Caspian Offshore B.V. (16.81 %), KMG Kashagan B.V. (16.81 %), ConocoPhillips North Caspian Ltd. (8.40 %), ExxonMobil Kazakhstan Inc. (16.81 %), Inpex North Caspian Offshore Ltd. (7.56 %), Shell Kazakhstan Development B.V. (16.81 %) and Total E&P Kazakhstan (16.81 %).
On behalf of KazMunayGas, its subsidiary KazMunaiTeniz, also is involved in four exploration projects on the Caspian shelf together with its Russian colleagues: on the sites Oyub-Earagan, Atash and Zhambai together with Lukoil, and on the Eurmangazy project – with RosNeft-Kazakhstan.
On October 2, 2007 KazMunayGas has officially confirmed the presence of oil on the site of Zhemchuzhina which is developed by the joint Caspian Offshore Iaruerty Iperating Company B.V. In the charter capital of the joint company the shares are distributed as follows: JSC MNC KazMunaiTeniz - 40 %, Shell EP Offshore Ventures Limited - 40 %, and Oman Pearls Company Limited - 20 %. In January 2011, KMG’s chairman of the board Kairgeldy Kabyldin has declared that drilling of the first exploration well was successfully completed and the deposit was opened on the structure Rakishechnoye-sea of the operational territory N. However, he at once has made a reservation that the «project participants can declare about commercial discovery only upon completion of exploration drilling».
These are all optimistic news so far. Other projects are not so successful. The first exploration wells drilled on the sites Oyub-Earagan, Atash and Eurmangazy have not revealed oil bearing collectors. The results of conducted research showed a significant divergence between the actual geological data and the data laid in the design model. In December 2010, LUKOIL took a decision to close the Atash project. Simultaneously, the Ministry of Oil and Gas of Kazakhstan refused to renew the subsoil use contract on Atash which was prolonged twice and expired in December. Next in turn is closure of the Oyub-Earagan project as unpromising. Earlier, EazMunaiTeniz and LUKOIL Overseas estimated the forecasted geological reserves of Atash at 137.8 million tons of conditional fuel and of Oyub-Earagan – at 324 million tons of oil.
The presence of oil and gas reserves on the structures Darkhan, Abai, Isatai, Zhambyl, Zhambai South and South Zaburiniye, N1 and N2 remains is open to question so far. Negotiations with investors on these blocks proceed in a slow regime.