The Ministry of Energy of the Republic of Kazakhstan is the key Government body that forms and implements government policy in the oil and gas and petrochemical industries. Issues supervised by the country's main energy department are quite broad. At the same time, increasing the share of local content in oil and gas projects in Kazakhstan are among the priority tasks of the ministry. On the eve of the Day of Oil and Gas Industry Workers and the 30th Anniversary of Independence of the Republic of Kazakhstan, Nurlan NOGAYEV, Minister of Energy of the Republic of Kazakhstan, answers the questions of KAZSERVICE magazine.
Nurlan Askarovich, what achievements of the national oil and gas sector you can highlight as we approach the 30th Anniversary of Independence of the Republic of Kazakhstan?
- Over the years of independence, Kazakhstan has ramped up its oil production by 3.5 times, from 25.2 mln tons in 1991 to 90.5 mln tons in 2019. Today, our republic is among top 15 oil producers. About 80 % of produced crude oil, including gas condensate, is exported. This indicator has also greatly increased, namely by eight times, from 8.58 mln tons in 1995 to 72.2 mln tons in 2019.
As you know, oil produced in Kazakhstan is mainly exported to the markets of European Union, Southeast Asia and the USA. Over the past thirty years, we have invested a lot of efforts to expand export capacities. Currently, the total length of the pipeline infrastructure for oil transportation is around 6,000 km. In 2001, the Caspian Pipeline Consortium (CPC) oil pipeline was completed, with its capacity growing in line with the Kazakhstan’s export volumes. In light of the expected increase in oil production at the Tengiz and Kashagan fields, the country’s main export line will be further expanded. As you understand, I am talking about the CPC oil pipeline de-bottlenecking project with its capacity to be increased in 2023 on the Kazakhstan’s section to 72.5 mln tons per year, including up to 43.5 mln tons per annum for Tengiz.
Obviously, one of the most significant events in the industry turned out to be the Kashagan deposit discovery; it’s industrial development started in 2016. By the end of 2020, the oil production from the field amounted to over 15 mln tons. The Tengiz field expansion project, plateau extension at Karachaganak and the further full-scale development of Kashagan oilfield play an important role for the further development of the oil and gas complex.
Moreover, Kazakhstan has been gradually improving the investment attractiveness of its oil and gas industry. In 2018, the new national Tax Code and the Code on Subsoil and Subsoil Use came into force. We included the standards to promote geological exploration in them, as well as simplified the procedures to obtain subsoil use rights, approve contracts and submit reporting.
It is important to note that since 2016, Kazakhstan has been participating in the OPEC+ Agreement on Reducing the Oil Production. We recognize the importance of joint efforts and are ready to seek balance on the global oil market together with other producing countries.
We pay attention both to export destinations and the global market environment and to improving the domestic transport routes. Currently, MunayTas LLP is implementing the project of the reverse of the Kenkiyak-Atyrau oil pipeline with a throughput capacity of up to 6 mln tons per annum. It will increase oil supplies from the current 1 mln to 6 mln tons per year, from Western Kazakhstan regions (Atyrau and Mangystau regions) to the Shymkent and Pavlodar refineries. Also it will allow to reduce the pressure on oil supplies to the domestic market for oil producing companies of the Kyzylorda and Aktobe regions, as well as the decreasing the imbalance between supplies to the domestic market and exports.
Of course, it is worth noting that 2018 saw Kazakhstan finish its long-term program for the upgrade of domestic refineries. This brought them closer to the level of leading western processing companies as the quality of petroleum products has increased to ecological levels K4 and K5. The total capacities of the country’s three largest plants were increased from 14.2 to 17.5 mln tons. However, the most important thing is that Kazakhstan’s plants have begun to fully cover the needs of the internal market. As a result, in 2019, the Republic of Kazakhstan evolved from an importer to a net exporter of motor petrol.
All these achievements became possible thanks to the implementation of the successful international and domestic policy of the Elbasy, the selfless work of all workers in the industry, both active and on a well-deserved rest. In turn, Kassym-Zhomart Tokayev, the Head of State, has repeatedly emphasized the huge contribution of the oil and gas sector to the development of the country's economy and gave a number of specific instructions for its development, which are under the constant control of the Government of Kazakhstan.
- What projects and initiatives are planned by the Ministry for the next five years, considering the changing trends in the energy industry?
- Today, we are gradually working on realigning the oil and gas sector from raw materials to high added value products. Kazakhstan is actively developing the high processing stages and building the petrochemical industry.
Over the past decade, the commissioning of new enterprises has already increased petrochemical products output. For example, in 2020 this indicator was equal to 359,000 tons, which is six times higher than in 2016. Today, there are four large petrochemical product plants work in the country.
On top of that, Kazakhstan’s first gas chemical complex for production of polypropylene with capacity of 500,000 tons per year is being built in the Atyrau region. The construction is expected to be completed at the end of 2021. Also, this year saw commissioning of plants producing petrol octane boosters (with capacity of 57,000 tons per annum) in Shymkent and producing technical gases (with capacity of 57 mln m3 of nitrogen and 34 mln m3 of dry compressed air) in Atyrau.
Moreover, projects for production of polyethylene terephthalate, methanol, olefins, carbon black, polyethylene, butadiene and base oils with a total worth of about 11 bn USD are currently at different stages of development. These projects are expected to be completed by 2030.
In general, deep oil and gas processing is becoming the top priority for further development of the global oil and gas industry. Kazakhstan is moving in the same direction.
- What contribution, in your opinion, have Kazakhstan’s oilfield service companies made to development of the oil and gas industry over the past decade?
- I would like to thank the employees of national service companies for their dedication and contribution to advancement of the industry and the Kazakhstani content in works, goods and services. Over the past decade, procurements of goods and services by subsoil users from local suppliers, that is, those with Kazakhstani content, have increased by half, from 587 bn KZT in 2011 to 900 bn KZT in 2020. In recent years, subsoil users have been increasingly engaging domestic service companies for major projects in the energy sector.
At the same time, 2020 was a challenging year for the global economy and the oil and gas industry in particular. Reducing oil prices, restricted hydrocarbon production in Kazakhstan under the OPEC+ agreement as well as the ongoing fight against COVID-19 led to a major revision of the capital expenditure programs of oil and gas companies and a drop in the volumes of oilfield services financing. Thus, in 2020, the volume of services with local content (900 bn KZT) decreased as compared to 2019 (1 tn KZT).
Increasing the share of local content in oil and gas projects is our top priority. The ministry is currently implementing two initiatives that can increase the share of local content in the oil and gas sector. The first initiative is to create a Direct Investment Fund for Local Content Development, including for the promotion of the development of IT projects. The second initiative is the establishment of an international center for the development of oil and gas machine building and service.
In 2021, the pace of oilfield service market recovery in Kazakhstan will largely depend on the global oil market, rise and stabilization of raw material prices, lifting of production restrictions in Kazakhstan under the OPEC+ agreement and effectiveness of the battle against COVID-19, affecting the level of energy consumption.