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Kazmunaygas is the vehicle for kazakh government policy in the oil and gas industry

Kazmunaygas is the vehicle for kazakh government policy in the oil and gas industry Kazmunaygas is the vehicle for kazakh government policy in the oil and gas industry

(Sauat Mynbayev, Chairman of the Board, NC KazMunayGas JSC)

- Mr Mynbayev, according to KMG’s investment programme, what are the main areas for investment and what level of investment do they require?


- Taking into account the determining influence of investment on the long-term development and value of the company, KMG carries out long-term investment planning based on principles of cost-effectiveness and feasibility of investment, as well as its compliance with the long-term objectives of the company.

KazMunayGas implements projects both independently and together with its partners in areas such as exploration and production of hydrocarbons, refining and petrochemicals, oil and gas transportation and services.


At present, KMG’s group investment programme consists of 66 planned and currently ongoing projects. The total cost of the programme is estimated at $143.4 billion, of which KMG’s share is $67 billion. There are 38 projects being implemented, and the company has already invested about $15 billion in them.

The main focus for investment is exploration and production projects. KMG’s share of the cost is currently estimated at $28 billion.


Significant investment is planned for oil and gas transportation projects. In the main, we are talking about the construction of trunk gas and oil pipelines and projects for expanding and modernising regional gas distribution networks. The cost of these projects is estimated at $8.9 billion, of which about $5 billion has been spent.

KMG is also implementing certain strategically important investment projects aimed at modernising oil refining assets, envisaging an increase in the level and volume of processing, and an increase in quality and an expansion of the range of products. To date, $1.3 billion has been spent on these projects, and total planned investment in modernisation of oil refineries is around $6 billion.

- Kazakhstan’s main fields, especially the oil-bearing zones of the Caspian Sea, are almost completely explored. In which regions of the country will KazMunayGas be likely to carry out exploration?

- By no means can we ignore the Caspian Basin with regard to prospective hydrocarbon reserves. At the beginning of this year, for the first time since Kashagan opened, KMG and its strategic partners announced the commercial discovery of oil reserves in two other fields in the Kazakh sector of the Caspian Sea. The increase in proven recoverable reserves, according to national methodology, amounted to 98.6 million tons; 67.6 million tons of oil at the Kalamkas offshore field and 31 million at the Khazar field.


At the same time, exploration continues at the promising Satpayev, Makhambet, N Block, Zhambyl and Bobek offshore blocks. Most recently, NC KazMunayGas JSC and the Korean Consortium KC Kazakh B.V. have reported the results of drilling the first exploration well at the Zhambyl field to a depth of 2,200 metres. According to these results, two promising oil and gas sites were confirmed in Middle Jurassic sediments. A production test of these sites showed a flow to surface rate of 24 cubic metres per day on a 6.35 mm choke and 110 cubic metres per day on a 12.7 mm choke.


KMG and the Korean Consortium will continue exploration at the Zhambyl field. There are plans for 3D seismic exploration work at the Zhambyl structure and exploratory drilling at the Zhetysu structure (ZT-1).


Negotiations with strategic partners are also underway on joint operation of the new Issatai, Abai, Zhenis and Okzhetpes exploration blocks, which according to KMG calculations are very promising.


For the first time, KazMunayGas has engaged independent auditors – Gaffney, Cline & Associates – to assess the group’s reserves, and the company has confirmed KMG’s calculations. According to the assessment made by Gaffney, Cline & Associates, the resource potential of the Kazakh sector of the Caspian Sea is 2.37 billion tons of oil reserves, excluding the North Caspian project.


As a result of the forecast for the next five years, the following high-priority areas of geological research have been set out:

    First of all, new facilities and horizons in the Caspian Basin subsalt complex associated with the Astrakhan-Aktyubinsk zone of uplifts and cut-off parts. These are large facilities along the promising Devonian-Turnaisian part of the section.

    The large sites in the Pre-Jurassic formation of the Mangyshlak basin (the Uzen-Karamandybas zone and others), defining at the same time the new unconventional focus of study for this region.


    The pre-Jurassic Upper Paleozoic complex of the South Torgai basin, which is considered a new main area of focus for this region.

According to the most conservative estimates, exploration work at the sites mentioned above will allow KMG’s recoverable reserves to increase to an estimated 1.4 billion tons by 2022.


- Despite numerous delays, operations at the Kashagan field are expected to begin. Could the development of the Kashagan field result in changes to the oil market?

- Without a doubt, the development of such a large field as Kashagan (its reserves are about 35 billion barrels or 4.5 billion tons) will impact the oil market. The depletion period will be several decades and its development will bring billions of dollars in revenue to our country.

The Kashagan Project is the largest investment of international capital into the oil and gas industry of Kazakhstan. From the beginning of the project to the present day, investment has exceeded $40 billion.


Production from the field is expected to begin in the second half of this year. At the last stage of commissioning, production rates will grow to planned capacity – 20 wells (producing) 180,000 barrels per day in the first phase, with a further increase to 370,000 barrels per day with gas injection during the second phase.

It is worth noting that after the start of production at Kashagan, the oil market may undergo some changes with regard to hydrocarbon transportation, as the development of oil fields often requires the diversification of export routes. To ensure the reliability of export routes of sufficient capacity and to efficiently transport Kashagan’s hydrocarbons, it will probably be necessary to combine different modes of transportation, such as pipeline, rail and sea transportation.

The current plan for transporting the products extracted during the initial stage of field development involves the use of both the existing pipeline system and railway networks.


- The Asian continent is increasingly becoming the driving force of global economic growth. To what extent has the growing importance of countries such as China impacted KMG’s strategy, particularly with regard to development of infrastructure?


- As is well known, for several years KMG has been working closely with Chinese companies, including those working in the oil and gas industry. NC KazMunayGas JSC’s strategic partner among Chinese companies is the China National Petroleum Corporation, with whom we are implementing a number of major oil and gas transportation projects – in particular, the construction of the Kazakhstan-China oil pipeline and the Kazakhstan-China and Beineu-Bozoi-Shymkent gas pipelines.

If we talk about each project, we can note that the construction of the Kazakhstan-China oil pipeline focuses on oil transportation, both for export to China and to domestic refineries, thus ensuring Kazakhstan’s energy security. Work on the separate sections of the Kazakhstan-China pipeline is being carried out by the following companies, with the participation of Chinese companies:


    The Kenkiyak-Atyrau oil pipeline – North-Western pipeline company MunaiTas JSC, established with the participation of KazTransOil JSC (Kazakhstan) – 51%; CNPC Exploration and Development Company Ltd. (China) – 49%

    The Kenkiyak-Kumkol and Atasu-Alashankou oil pipelines – Kazakhstan-Chinese Pipeline LLP, established with the participation of KazTransOil JSC (Kazakhstan) – 50%; China National Oil and Gas Exploration and Development Corporation (China) – 50%

Also, the facilities of KazTransOil JSC are also involved in the Kazakhstan-China oil pipeline system (oil pumping stations and oil pipelines from Kumkol to Atasu).

The project is being implemented in phases according to growth in demand for additional oil transport capacity.


Currently, the capacity of the Kazakhstan-China oil pipeline system is 12 million tons per year. The oil pipeline expansion, as a part of the second phase of the second stage, involves expanding the capacity of all sections from Atyrau to Alashankou, in order to reach export capacity of 20 million tons per year in the Alashankou section and to ensure the supply of oil to PetroKazakhstan Oil Products (Shymkent) and Pavlodar Oil Chemistry Refinery (Pavlodar) in volumes defined by the Ministry of Oil and Gas of the Republic of Kazakhstan. In accordance with an agreement with the Chinese side, expansion of the Atasu-Alashankou section to 20 million tons per year, to allow transit of Russian oil to China at the initial stage, is planned to be completed by the end of the year.


At the same time, we want to emphasise that the interest of oil producers in exporting to China will depend on the commercial conditions created by the Chinese side in the Alashankou section (on Kazakhstan’s border with China).


The largest trans-national gas transportation project implemented by KMG together with CNPC is the construction of the Kazakhstan-China gas pipeline, which costs around $7.5 billion in total.


As for the pipeline, it is dual-line, it runs through the territory of three southern regions of Kazakhstan, and it allows 30 billion cubic metres of gas per year to be transported from Turkmenistan to China, via Uzbekistan and Kazakhstan. Given the purpose of the main gas pipeline, the project has commercial benefit for our country in the form of payments to national and local budgets totalling $5.8 billion over the entire period of the project.


At present, the construction of the Kazakhstan-China gas pipeline is expanding through the construction of another line, the third line of the pipeline, which will also be for transit gas transportation. Its entry into operation is scheduled for the middle of 2014, and the projected capacity will be achieved at the end of 2015, after which the total capacity of the Kazakhstan-China trunk pipeline will be around 55 billion cubic metres per year. Direct payments to the state budget of the Republic of Kazakhstan for the entire implementation period of the third line project will total around $4.9 billion. Therefore, total direct payments to the Republic of Kazakhstan’s budget over the whole implementation period for all three lines will amount to $10.7 billion.


Another of the major projects undertaken by our company together with CNPC is the construction of the Beineu-Bozoi-Shymkent gas pipeline, at a total cost of around $3.6 billion. The project is being carried out in accordance with the address of the President of Kazakhstan in 2008, and it is included in the State Programme for Accelerated Industrial-Innovative Development and the Industrialisation Map of Kazakhstan for 2010-2014. The project is very important in social terms. The launch ceremony to release gas through the pipeline for the first time was held in early September of this year as part of the head of the PRC’s visit to Kazakhstan.


Construction of the gas pipeline will ensure the country’s energy security by providing natural gas to the southern regions from the fields of Western Kazakhstan, eliminating dependence on imported gas, diversifying gas export routes from Kazakhstan to China, and creating new jobs and developing infrastructure along the pipeline route.


The gas pipeline runs through the Mangystau, Aktobe, Kyzylorda and South Kazakhstan regions. The implementation of this project will allow the gasification of more than 500 settlements.

At present, construction of the first stage is finishing, but its opening is scheduled for this October, in accordance with the deadlines set by President Nursultan Nazarbayev.


- KMG is strengthening its relations with Romania after the acquisition of Rompetrol Rafinare. What contributed to the targeted acquisition of Rompetrol’s assets and what is KMG expecting to get from strengthening its positions in the country?


- The acquisition of Rompetrol (75% of the shares were bought in 2007, and the remaining 25% in 2009) is the first step in KMG’s strategy of entering key refining markets in Europe with a total population of over 300 million people. In the future, when exports of oil from Kazakhstan significantly increase, Rompetrol will serve as a solid foundation for selling Kazakh energy resources on European markets. By purchasing this asset, KMG has become a global transnational company. Another problem was solved at the same time – the construction of an integrated added-value chain from wellhead to consumer. This involves KMG’s trading and shipping companies, so in 2012 Kazmortransflot entered the market of oil transportation through the Black Sea and the Mediterranean.


- In addition to its assets in Romania, KMG is actively investing in oil refineries in Kazakhstan. How will the modernisation of refining capacities benefit consumers of oil products in Kazakhstan?


- At present, KazMunayGas JSC is carrying out projects to rebuild and modernise domestic refineries.


Feasibility studies have been performed and approval from Gosexpertiza (Kazakhstan’s state agency for examination of construction projects) has been received for modernising and rebuilding the Shymkent and Pavlodar plants. Project documentation is under development, and an accelerated strategy has been prepared and is under implementation in order to finish them by the end of 2015. Production capacity of these enterprises is planned to increase to 6 and 7 million tons per year respectively. Currently, the Shymkent and Pavlodar refineries are carrying out selection procedures for general contractors for construction work.


For all three plants, the motor fuel will meet the Euro 4 and 5 standards from 2016 according to the Technical Regulations of the Customs Union. Total production of between 13 million to 14 million tons of motor fuels per year at a high refining depth of 87-90% will meet the needs of the domestic market.


The start of production of fuels according to Euro 4 and Euro 5 standards also has an environmental dimension. We can see that the European Union, as well as all other countries in its wake, is increasingly toughening quality requirements for motor fuels. Why are they doing this, and do they need to do it? It should be explained that gasoline itself, aside from other hydrocarbons directly involved in the combustion process, contains various components, including harmful and even dangerous ones. Many people remember when tetraethyl lead was added to gasoline to increase the octane number; now this is prohibited. Also, for example sulphur, which when burnt in the engine cylinder is converted into compounds that cause acid rain and benzene, the product of the combustion of which (benzopyrene) has an adverse effect on living organisms.

So, the reduction of these components in motor fuels and consequently in the atmosphere of cities is the ultimate goal of modernising Kazakh oil refineries. As a result, we will have not only high-quality gasoline but also clean air.


- KMG is active in the area of corporate social responsibility. Which social projects are supported by the company?


- KazMunayGas supports social projects in accordance with the main priorities set by the sole shareholder, JSC National Welfare Fund “Samruk-Kazyna”, and within the available financial resources, which are very limited and depend on the financial results of the group over the year.


Particular attention is paid by our company to supporting organisations for veterans, the disabled, orphanages and children’s centres, and other not-for-profit social organisations. Every year, KMG allocates funds for the Republican Veterans’ Organisation and also to its Astana branch for providing financial assistance to needy veterans of the Second World War and the Labour Front (non-soldiers who contributed to the war effort in the Second World War), to the Torch orphanage, the Kazakhstan SOS Children’s Villages corporate fund, the N.A.Marabayev Munayshy public foundation, the Society of Disabled Children in Astana, and to other causes.

Similar sponsorship activities are being carried out by KMG’s subsidiaries in regions where production takes place.


An important area of KMG’s sponsorship and charitable work is support for certain sports, sporting events and the development of sports infrastructure. Sponsorship is also given to high-achieving sports like boxing, judo, tennis, weightlifting and taekwondo. Starting from 2010, the AIBA World Boxing Academy is being created with sponsorship from KazMunayGas. This will enhance the skills of Kazakhstani athletes and strengthen the Republic’s image in the eyes of the international community as an active participant in the development of physical culture and sports.


Another important area is support for social projects, for example the Kazakh TV show Intellectual Olympics, the awarding of the Enlikgul theatrical prize, KAZENERGY educational projects, support for gifted young people (the young singer Maria Mudryak, the children’s dance ensemble Tumar), and other areas.

Also, KMG has allocated funds to implement measures instructed by the Head of State, the Government of the Republic of Kazakhstan or the Sole Shareholder. At present, in accordance with instructions from the country’s President, a climatic and mud resort for 150 people is under construction on the coast of Lake Balkhash. As requested by the Head of State, KMG is entrusted with the construction of the Museum of the History of Kazakhstan in Astana.


In order to increase the prestige and authority of KMG and the whole country in the international arena, KMG annually supports significant country-wide events – the Eurasian Media Forum, the KAZENERGY Eurasian Forum, national and international oil and gas conferences, the Eurasian Women’s Summit, conferences within the World Forum of Spiritual Culture and other significant events at national level.


- The main value for any company is its employees. What measures do KazMunayGas undertake to develop human capital?


- KMG pays special attention to searching for highly qualified specialists, and to their continuing professional development and career advancement. All these principles are reflected in the Human Resources Policy of NC KazMunayGas JSC. Developed for 2011 to 2015 in accordance with the company’s Long-Term Strategy, this fundamental document presents the main focuses and approaches of personnel management to achieve KMG’s mission and strategic goals.


We believe that efficient human capital management in KazMunayGas can be achieved by creating a single human resources management system. It should be aimed at obtaining maximum profit and ensuring leadership in a competitive environment, based on economic incentives and social safeguards and promoting a harmonious combination of interests, both of the employer and the employee, and the development of their relations for the prosperity of NC KazMunayGas JSC.


KMG appreciates its employees' professionalism, initiative, activeness in performing their duties, their discipline and responsibility, and their willingness to support their colleagues, especially young people. Another important criterion is respect for veterans.


In view of the need to find, hire and retain key personnel, KazMunayGas is committed to providing its employees with a competitive wage and social support structure – a structure which makes it possible to attract the best professionals of the oil and gas industry and which has sufficient motivational effect to improve productivity, allowing an objective assessment of each employee’s contribution to the overall goals of the company.


- KIOGE has been a platform for international dialogue for over 20 years. What is the role of the event in the development of Kazakhstan’s oil and gas market? In your opinion, how efficient is the participation of KazMunayGas in the event, taking into consideration that since KIOGE’s launch KMG has been a constant partner of the event?


- Without a doubt, KazMunayGas will continue its longstanding cooperation with KIOGE, the Kazakhstan International Oil and Gas Conference and Exhibition, through support of and direct participation in the event. After all, this event is a unique platform for dialogue which annually provides professionals and managers of leading international and domestic oil companies, international organisations, financial institutions, the diplomatic corps and the media with an opportunity to discuss the most acute issues in the fuel and energy sector.


Every year, the programme and content of the conference and exhibition contribute to the strengthening of mutually beneficial partnerships between oil and gas companies, exchange of experience and the implementation of new projects. Visitors can learn about the latest developments in the industry, and exhibitors can introduce new technologies, products and services at special presentations and seminars. On the whole, KIOGE is a great opportunity for newcomers to the oil and gas industry to assert themselves, and for experienced local and international companies to confirm their status in the oil and gas market.


KMG highly values its cooperation with foreign partners. Participation in events such as the KAZENERGY Forum and the Astana Economic Forum only helps in establishing new contacts. The same applies to KIOGE, because the participation of KazMunayGas in the event always brings joint projects and memoranda for cooperation. It is noteworthy that KIOGE ensures dialogue between national and international partners at public and private levels. This format allows you to make specific decisions and reach specific agreements.

Source : Neftegaz.RU