Caspian Pipeline powers Kazakhstan's Oil Export
Mark Berniker
Kazakhstan's energy sector is riding a virtuous cycle. Several joint ventures, especially the successful launch of a Caspian export pipeline, are fueling the development of oil fields and spurring foreign direct investment.
Analysts say the opening of the Caspian Pipeline Consortium (CPC) export route is making a big difference in connecting Kazakhstan's abundant natural resources with international markets. The CPC, launched late last year, is able to stream more than 560,000 barrels per day, and ultimately is expected to handle to 1.5 million barrels per day.
"Breaking the bottleneck of transportation has been a big problem, but with the opening of Caspian Pipeline this past fall, competition has been forcing the rail and port tariffs to drop in price," says Bill Magee, vice president of energy research for Credifinance Securities, based in Toronto.
According to Kazakhstan's Ministry of Economics and Trade, Kazakhstan's oil production increased to over 800,000 barrels per day in 2001, with nearly 70 percent of that production designated for export.
Russia, which produces 3 million barrels of oil per day, has been under pressure from the Organization of Petroleum Exporting Countries (OPEC) to decrease exports, as depressed oil prices have resulted in oil hovering around $20 a barrel. Kazakhstan so far has not faced similar OPEC pressure, helping Astana continue efforts to expand drilling.
Magee says that while Kazakhstani President Nursultan Nazerbayev has been criticized for a lack of political openness, his regime has done an excellent job of attracting and maintaining foreign investment. According to Magee, Kazakhstan has been open to advice from the International Monetary Fund and from Western financial advisors. This openness has helped Kazakhstan quickly establish a convertible currency and foster a stable legal and accounting environment.
The biggest oil venture in Kazakhstan is TengizChevroil, a joint partnership of ChevronTexaco (50 percent), ExxonMobil (25 percent), Kazakhoil (20 percent) and Russia's Lukarco (5 percent), a $20 billion investment, which currently produces approximately 290,000 barrels per day.
There are expected to be 6-9 billion barrels in the Tengiz basin, and peak production is expected to reach 750,000 barrels per day by 2010. Kazakhstani Prime Minister Imangali Tasmagambetov on February 14 said the total revenue generated by TengizChevroil was $1 billion in 2001.
The Caspian Pipeline is playing a key role in getting the oil from the giant Tengiz field, transporting it through the Kazakh pipeline port of Atyrau, and on to the Russian Black Sea port of Novorossiisk. From there, tankers will deliver the oil to Western markets.
The Caspian Pipeline Consortium includes Kazakhstan, Russia, Oman, Chevron, Lukarco, Rosneft-Shell, ExxonMobil, Agip International, BG Overseas Holding, Oryx and Kazakhstan Pipeline Ventures.
Western investors are searching for new opportunities in Kazakhstan. Hurricane Hydrocarbons, a Calgary-based venture, is working with Kumkol in operating fields in the Torgai basin, Magee says. Hurricane-Kumkol is currently generating 120,000 barrels per day, making it the second largest oil producer in Kazakhstan. The Canadian-Kazakh joint venture expects to boost oil production to 200,000 barrels per day over the next two years, while cutting its transportation costs in half.
Hurricane Hydrocarbons in its venture with Kumkol is reportedly an acquisition target by France's Total Fina Elf. Hurricane-Kumkol is also expected to become a minority shareholder in the Caspian Pipeline Consortium, according to a report in Nefte Compass on January 24.
Another Canadian company tapping wells in Kazakhstan is Nelson Resources Limited. The company reported February 12 that it successfully tested a well at the Alibekmola oil field. Nelson Resources has entered into joint ventures with Kazakhoil, and is operating in two fields at Aktobe and Alibekomola/Kozhasai. The company expects recoverable oil reserves from these fields to be 500 million barrels of crude oil, according to Olav Svela, at Hume, Kieran, a Toronto-based investor relations firm that represents Nelson's.
Svela said Nelson's is expecting the results of a 3-D seismic study by April. It is hoped the study will provide valuable data on the geological engineering and details on the potential oil reserves in Alibekomola.
After Tengiz, Kashagan is being billed as the next region destined to receive foreign investment infusions. Kashagan is one the world's biggest oil discoveries in decades, with estimated reserves of a least 10 billion barrels, and Kazakhstan is expected to auction off close to 100 offshore blocks in the area later this year. The giant offshore concession is being explored by Agip Kazakhstan North Caspian Operating Company (AgipKCO). Several other western oil companies are expected to bid on the rights in and around Kashagan.
In a related development, Kazakhoil on February 15 signed a $200 million loan contract with the Japanese Bank for International Development to renovate the Atyrau oil refinery. The renovated refinery is expected to raise the productivity of Kazakh oil production significantly by 2004.
But while much has been written about the potential of the Kashagan region, Magee believes it could five to 10 years before it develops. If Tengiz, Kashagan and Kazakhstan's many other smaller fields develop as expected, Kazakhstan could become one of the world's five leading oil exporting nations over the next few years.
Editor's Note: Mark Berniker is a freelance journalist specializing in Russian and Central Asian affairs.
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Posted February 25, 2001 © Eurasianet
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