01 November 2004

Inside Kazakhstan II: The race is on for Kazakh oil

1 November 2004
The Hindu

Inside Kazakhstan-II

The race is on for Kazakh oil; India misses the bus

By Siddharth Varadarajan

Astana: If Central Asia is the new Middle East, then Kazakhstan is surely its Saudi Arabia, with proven and estimated reserves of oil and gas well in excess of what the other energy-rich former Soviet republics such as Turkmenistan and Azerbaijan possess. To be sure, the absolute numbers today are far less than that of Saudi Arabia — the Kingdom has just agreed to increase its production of oil to 11million barrels per day (bpd), which is 10 times Kazakhstan's current output of one million bpd. But with proven reserves of 35 billion barrels and another 80-90 billion barrels in probable reserves, the future prospects for this country in the cockpit of Asia look so rosy that oilmen from around the world are flocking to its gleaming new capital in order to get a piece of the action.

According to the U.S. Energy Information Administration, Kazakhstan's oil production is set to climb to a peak of 3.5 million bpd by 2034 if it depletes its reserves in a "restrained" manner. Kazmunaigaz, the state oil company, says it will touch that volume by 2015. By way of comparison, Iran, which is the world's fourth largest producer today, currently pumps some 3.6 million bpd.

A new entrant

While oil majors from the U.S., Russia, France, Italy and Britain have already taken up key positions in the most lucrative oil fields, a new and aggressive entrant is China, Kazakhstan's eastern neighbour and a country whose booming economy accounts today for 35 per cent of the world's total growth in oil demand.

India, sadly is nowhere on the scene. And lest one starts believing that Kazakhstan's Caspian oil fields — at a distance of more than 2,500 km from India's western borders — are too far away to be of use to Indian consumers, consider this fact: The Chinese are speedily laying 1,300 km of pipeline from Atasu in eastern Kazakhstan to Alashanku in China's western Xinjiang province. Atasu is already connected to Kazakhstan's Caspian wells by a pipeline so when the Alashanku project is completed sometime next year, some 75 million barrels of oil will be pumped into China from more than 3,000 km away. A natural gas pipeline is also now under active consideration. Kazakhstan wants to lessen its dependence on the Russian route for energy exports; China's insatiable appetite provides the perfect answer.

Big players

In May this year, the two countries issued a joint statement saying, "Kazakhstan supports China's oil companies to participate in exploration and development of oil and natural gas in the Caspian Sea continental shelf." Unlike similar declarations India and Kazakhstan made in the past during the Vajpayee government days, Chinese companies are already big players. From the beginning, CNPC had a controlling stake in the Aktobe field, with recoverable reserves of one billion barrels. Last August, it bought up the North Buzachi oilfield from a Saudi minor and ChevronTexaco. And in December, Sinopec bought a 50 per cent stake in three large blocks near the Tengiz field.

Tengiz has reserves of 6-9 billion barrels and is run by a consortium consisting of Chevron, ExxonMobil, Kazmunaigaz (the Kazakh state company) and a small Russian firm. So promising is this field that Tengiz oil accounts for 20 per cent of Chevron's recoverable reserves worldwide.

Major oilfields

The other major oilfields are Karachaganak, where Agip, BG, Chevron and Lukoil have the concession, and the most lucrative of them all, Kashagan, where seven companies run a consortium with stakes ranging from 8.3 to 16.6 per cent.

Having missed the bus elsewhere and without much of an appetite for bidding for unproven blocks, ONGC Videsh Ltd. (OVL) thought it could enter Kazakhstan by buying BG's 16.6 per cent stake in Kashagan. But the remaining six partners are insisting on their right of pre-emption, and Kazmunaigaz itself is keen to buy out BG.

Unless the Kazakh government takes a political decision to let OVL come in to Kashagan, it is not clear how India can play a role in this country's lucrative upstream operations.

As for downstream activities, say Kazakh officials, the country already has an excess capacity in refining but there could be scope for Indian companies to invest in petrochemical industries such as PTA.

© Copyright 2000 - 2005 The Hindu

No comments: