CSI - Center for Strategic Initiatives
CSI - Center for Strategic Initiatives

Key events in the energy sector of the Republic of Kazakhstan

Energy Outlook 2019

01 october 2019

KPO announced successful completion of scheduled shutdown

October 14, 2019 at the Karachaganak field in Kazakhstan successfully completed planned shutdown

For scheduled preventive shutdown, all production facilities of the field were completely stopped, including the Karachaganak Processing Complex, Complex Gas Treatment Units UKPG-2 and UKPG-3 as well as the product collection system.

Up to 12 thousand people were involved daily during the shutdown (including day and night shifts).

In total, the involved personnel worked out about 3 million man-hours. In preparation for the shutdown, KPO organized large-scale training for employees of 212 contracting companies. Altogether, 2 216 training courses were organized, the results of which were issued 33 000 relevant certificates.

During the shutdown, the following types of work were successfully completed:

- Mandatory maintenance and inspection works;

- Modification of production facilities;

- Pre-installation for the “Removing Production Restrictions on Gas Project”;

- Pre-installation for the “Construction of the Fourth Gas Re-Injection Compressor Project”;

- Pre-installation for the “Fifth Infield Pipeline Project”;

- Pre-installation for the “Karachaganak Expansion Project”.

All scheduled works were completed in full, safely and earlier than planned.

Shell has decided not to continue the joint development of the “Kalamkas Sea – Khazar” project
The project was recognized as not sufficiently competitive with other projects in Shell’s global investment portfolio

North Caspian Operating Company N.V. (NCOC) and Caspian Meruert Operating Company B.V. (CMOC) announced the cancellation of public hearings on preliminary environmental impact assessment (Pre-EIA) materials to the feasibility study for the development of the Kalamkas Sea and Khazar deposits. The event was to be held on October 1, 2019 in Aktau.

Kalamkas Sea is an oil and gas field located in the Kazakhstan sector of the Caspian Sea and developed by a consortium of international companies as part of the North Caspian Project, operated by NCOC. According to data from open sources, the geological reserves of the field are about 150 million tons of oil and 15 billion cubic meters of gas. During the shutdown, the following types of work were successfully completed: - Mandatory maintenance and inspection works; - Modification of production facilities; - Pre-installation for the “Removing Production Restrictions on Gas Project”; - Pre-installation for the “Construction of the Fourth Gas Re-Injection Compressor Project”; - Pre-installation for the “Fifth Infield Pipeline Project”; - Pre-installation for the “Karachaganak Expansion Project”. All scheduled works were completed in full, safely and earlier than planned.

Khazar is an oil and gas field, also located on the shelf of the Caspian, is part of the Zhemchuzhina contract area. The right to develop has a number of oil companies led by Royal Dutch Shell, which owns a 55% stake in the project. The operating company for oil operations under the Production Sharing Agreement is CMOC. According to some reports, Khazar’s reserves are estimated at 40 million tons of oil and 10 billion cubic meters of gas. And the reserves of the entire Pearl block, which also includes the Auezov, Naryn and Tulpar fields, are estimated at 100 million tons of oil.

The new ministry was created -
Ministry of Ecology, Geology and Natural Resources of Kazakhstan

On June 17, 2019, the President of the Republic of Kazakhstan, Kassym-Zhomart Tokayev, signed a decree on the creation of the Ministry of Ecology, Geology and Natural Resources of the Republic of Kazakhstan with the transfer of the following functions and powers to him:

- The Ministry of Energy in the field of formation and implementation of the state policy of environmental protection, solid waste management, protection, control and supervision of the rational use of natural resources;

- The Ministry of Agriculture in the field of use and protection of the water fund, water supply, sanitation, forestry;

- The Ministry of Industry and Infrastructure Development in the field of state geological study, reproduction of the mineral resource base. The new ministry was headed by Magzum Mirzagaliev who previously held the posts of vice minister of energy, vice minister of oil and gas, as well as deputy chairman of the board of JSC “NC “KazMunayGas”.

Daily oil production at Kashagan reached 370 thousand barrels
Kashagan field completed early repairs and resumed oil production

On May 19, 2019, after the first preventive maintenance of production facilities, oil production at the Kashagan field was resumed. Repair work at the oil field began on April 14, lasted 35 days and completed ahead of schedule, which allowed the resumption of oil production ahead of schedule.

The plan of work included opening, inspection, repair and maintenance of vessels, safety valves, conversion of production wells into injection wells, installation of additional reboilers, and other production operations. Mining resumed after the completion of commissioning of the equipment of the marine and ground complexes, testing of instrumentation and automatic process control systems. - The Ministry of Industry and Infrastructure Development in the field of state geological study, reproduction of the mineral resource base. who previously held the posts of vice minister of energy, vice minister of oil and gas, as well as deputy chairman of the board of JSC “NC “KazMunayGas”. The volume of oil production after the reopening of the first production well gradually increased and currently has reached the level of 370 thousand barrels of oil per day.

Since the start of production in 2016, to this day, NCOC has produced more than 20 million tons of export oil, as well as more than 6 billion cubic meters of gas delivered to the market and more than 850 thousand tons of sulfur export.

Social tension at the fields
There was a conflict in Tengiz between local and foreign workers of the TCO contractor

On June 29, 2019, in the Tengiz shift camp, local workers of the Consolidated Contracting Engineering and Procurement S.A.L Offshore (CCER, Tengizchevroil contractor) gathered at the work site and expressed their dissatisfaction with unequal working conditions. The reason for the disorder in the Tengiz shift camp was a photograph of an SSER employee from Lebanon, which he published in the WhatsApp messenger. The next day, Tengizchevroil LLP (TCO) announced a temporary freeze on the construction of a third-generation plant at the Tengiz field.

The riots in Tengiz affected 45 people. After the mass brawl that took place at the construction site of the third-generation TCO plant, 45 people sought medical help. Over 100 foreign citizens left Kazakhstan after the incident in Tengiz. At the moment, the conflict between the workers is settled. Work on the site of the TCO Third Generation Plant is underway as usual.

Social tensions caused by the unfair attitude of employers periodically spilled over into major conflicts at the Tengiz field. Among the more than 10 major conflicts, the biggest is the events at the Tengiz field on October 20, 2006. Riots at Senimdi Kurylys (a contractor for PFD, which, in turn, is a TCO contractor), which affected 339 Turkish citizens, 136 of them were seriously injured, several vehicles were burned, and household premises were destroyed. The reasons for the riots: wage discrimination in TCO, SK and other contracting organizations, mass layoffs, as well as facts of disrespectful attitude of expats to local workers.

Nuclear power plant construction
There is no decision on construction yet, but the place has already been determined in the Almaty region

On April 4, 2019, Deputy Minister of Energy Magzum Mirzagaliev announced that in the Almaty region a place was allocated for a nuclear power plant in case Kazakhstan decides to build it. The site for the construction of nuclear power plants has been previously determined in the Almaty region, however, consideration is still being given to the most suitable technologies for the construction of nuclear power plants.

The issue of building a nuclear power plant in Kazakhstan has been under discussion for several years. In May 2014, the heads of the atomic state companies of Kazakhstan and Russia, “Kazatomprom” and “Rosatom”, Vladimir Shkolnik and Sergey Kiriyenko signed a memorandum of understanding on cooperation in the construction of nuclear power plants. Later, in 2016, it was supported by another document - a memorandum of understanding and expansion of strategic cooperation in the field of the nuclear fuel cycle between the Ministry of Energy of Kazakhstan, “Kazatomprom” and “Rosatom”.

In 2014, Kurchatov in the East Kazakhstan region was chosen as the location of the station. Later, a site was determined in the Almaty region. The closest settlement to the proposed construction site in Kazakhstan is the tiny village of Ulken, 370 kilometers from the southern capital, near Lake Balkhash. The village can be reached on the highway Almaty - Karaganda - Nur-Sultan. The population of Ulken is 1807 people. Six out of twenty-six high-rise buildings are empty.

Saryarka gas pipeline
Construction works are on schedule and 75% of the pipeline has already been built

On June 20, 2019, Minister of Energy Kanat Bozumbayev, at a reporting meeting with the public, said that welding is currently underway near Zhezkazgan. The average pace of welding is 7-8 kilometers per day. At the same time, work is underway on enlightenment, insulation of welding joints, laying and backfilling of pipes in the trench. Involved more than 2,200 people and about 700 units of special equipment. As of August 16, 75%

The Saryarka gas trunkline is being built for gasification of the capital of Kazakhstan, as well as settlements of the Karaganda and Akmola regions.

Construction began in November 2018 and is ongoing in four phases. At the first stage, the construction of the Kyzylorda-ZhezkazganKaraganda-Nur-Sultan route is implied. At the second stage, it is planned to extend the gas pipeline from Nur-Sultan to Kokshetau, at the third - to Petropavlovsk. The final stage involves the construction of Zhezkazgan and Temirtau compressor stations. The length of the gas pipeline is 1061.3 km. It is estimated that 171 settlements in the Karaganda and Akmola regions will be supplied with gas from the gas pipeline. The gas pipeline’s productivity will amount to 2.2 billion m3 of gas per year. In general, due to gasification, the volume of coal consumption will decrease by 650 thousand tons / year, which will significantly improve the environmental status in the regions through which the gas pipeline will pass.

KMG EP Buyback
JSC KazMunayGas Exploration Production completed the program of massive buyback of its preferred shares

In February 2019, JSC KazMunayGas Exploration Production completed the massive buyback program for its preferred shares. The final specialized trades at KASE for the repurchase of preferred shares took place from January 14 to January 30, 2019, and the final settlement date was January 31, 2019.

The program for the repurchase of preferred shares of JSC KazMunayGas Exploration Production was launched on August 13, 2018 at a price of KZT12,800 per preferred share, which at that time amounted to a premium of 24.4% to the 30-day average market price of preferred shares on KASE. Initially, the program end date was set on November 16, 2018 and then extended until January 31, 2019 due to the large number of applications from holders of small blocks of preferred shares of the Company.

On April 16, 2019, the official press release of JSC KMG EP was available informing about the decision on voluntary delisting of preferred shares with KASE.

Immediately after the completion of the preferred share buyback program, the restructuring of the KazMunayGas group of companies was launched, including the liquidation of the sub-holding structure of JSC KMG EP.

KMG new strategy
JSC NC KMG approved the development strategy until 2028

In September 2018, a new development strategy for JSC NC KMG until 2028 was adopted. At this stage of the Company’s development, the implementation of large investment projects has been completed and the active investment phase has been completed. The company formed the strategic vision, mission and goals of KMG for the next 10-year period on the basis of the analysis of factors restraining the growth of its value, developed ways to overcome them.

The new development strategy of KMG is a strategy for the gradual organic growth of the company for 2018-2028, which defines the target state of the Company in the medium term (5 years), as a stable company with an acceptable level of debt and a tight debt control system. In the short and medium term, the Company will focus on strengthening financial stability and focus on solving operational issues. Realization of mediumterm goals will allow KMG in the long term (10 years) to carry out investment activities to ensure the growth of the value of the Company, by investing in an increase in the oil and gas resource base to increase the supply of hydrocarbons and oil products, both to the export and domestic markets. Although in the medium term KMG plans to reduce debt and not to attract new borrowings, in the long term, borrowing for investment purposes is possible taking into account the financial situation of the Company, to prevent the deterioration of KMG’s financial ratios and credit ratings.

Privatization program continues
JSC NC KMG is preparing for IPO

According to the April news of the current year, the “Samruk-Kazyna” state fund is considering the option of placing from 15% to 25% of the shares of NC KMG JSC as part of an IPO. The Chairman of the Board of the Astana International Financial Center (AIX) Exchange Tim Bennett earlier in March 2019 reported that the placement of “KazMunayGas” shares on the AIX site was tentatively planned for the II quarter of 2020, but he did not rule out the possibility of listing may be delayed.

According to the comprehensive privatization plan for 2016-2020, it is planned to carry out an SPO of “Kazakhtelecom”, an IPO of the national railway company “Kazakhstan Temir Zholy”, the national oil and gas company “KazMunayGas”, “Air Astana” and others. The program for introducing equity stakes in subsidiaries and affiliates of the fund on the Narodnoe IPO securities market was approved by a government decree in September 2011 with a maturity of 2011 to 2015. The aim of the program was to provide opportunities for citizens of Kazakhstan to acquire shares of leading domestic companies and to promote the development of the Kazakhstani securities market.

According to the press service of JSC NC KMG (April 25, 2019), they continue to explore opportunities to support the growth and development of KMG, including a potential IPO.

“However, the final decision to conduct such a transaction, including on the possible structure, timing and involvement of consultants, has not yet been made. KMG will inform the market about its decisions in the proper manner in accordance with regulatory requirements,” the company added.

Dunga field
The contract is extended for 15 years, while Kazakhstan will increase its share in the profit oil

On July 4, 2019, an agreement was signed to extend the production sharing agreement on the Dunga oil and gas field development project for 15 years. The document was signed by Minister of Energy of the Republic of Kazakhstan Kanat Bozumbayev and Vice President of the Caspian and Southern Europe Total Exploration and Production Bernard Clement, Director of Joint Ventures Oman Oil Exploration and Production Abdul Wahab al Bulushi, Member of the Board of Partex Oil and Gas Fernando Alves.

The contract is extended from 2024 to 2039, this will additionally produce about 9 million tons of oil.

One of the important terms of the agreement was an increase in the share of Kazakhstan in the profitable products division from 40% to 60% by January 1, 2025. The Dunga oil and gas field is located in the Tupkaragan district of the Mangistau region. Geological reserves amount to 106 million tons of oil and more than 6 billion cubic meters of gas. The field was discovered in 1966. It was put into trial operation in 2000.

Currently, the project participants are Total E & P Dunga GmbH (60%), Oman Oil Company Limited (20%) and Partex Kazakhstan Corporation (20%), collectively referred to as the Contractor. The project operator is Total E & P Dunga GmbH. In 2018, production at the field amounted to 708,000 tons of oil and 56.8 million cubic meters of gas.