Kazakh oil sector to exceed government’s expectations, says U.S. agency

December 13. Central Asia Newswire

By Martin Sieff

Kazakh oil sector to exceed government's expectations, says U.S. agencyThe following story is the first of a three-part series examining oil growth in Central Asia over the next 10 years.

Kazakhstan aims to become one of the world’s top 10 oil-producing countries in the next decade, but the U.S. government has concluded that it will do far better – and become one of the top five.

This conclusion was spelled out in a November report by the Energy Information Administration (EIA) of the U.S. Department of Energy.

The report was widely noted in the petroleum industry and by specialists around the world. But the U.S. and European mainstream media paid little attention to it.

Yet the implications of the EIA report are enormous and predict a shift in global patterns of oil supply and dependence.

It has been common talk among investment bankers and energy executives working in Central Asia and the Caspian Basin – particularly in Kazakhstan – over the past 15 years to refer to the country and the region as “the next Middle East” or “the next Saudi Arabia.”

The new EIA report spells out how this is likely to come to pass within the next 10 years.

 “Full development of its major oil fields could make Kazakhstan one of the world’s top 5 oil producers within the next decade,” the EIA report said.

That would put Kazakhstan in the league of Saudi Arabia, Russia, the United States and Kuwait.

“With production of 1.54 million barrels per day (bbl/d) in 2009, Kazakhstan is already a major producer, and continued development of its giant Tengiz, Karachaganak, and Kashagan fields is expected to at least double its current production by 2019,” the report stated.

And, says the report, there are still recourses yet to be exploited.

“Kazakhstan’s sector of the Caspian Sea is believed to hold several other major oil and natural gas deposits as yet unexploited,” it added.

Kazakhstan holds vast reserves

Just the existing known reserves, however, are significant enough and diverse enough to boost Kazakhstan into the top five oil-producing tier.

“Kazakhstan’s proven oil reserves were estimated at 30 billion barrels by the Oil and Gas Journal in January 2010,” the report said. “The country’s main oil reserves are located in the western part of the country, where the five largest onshore oil fields Tengiz, Karachaganak, Aktobe, Mangistau, and Uzen, are located.

“These onshore fields account for about half of current proven reserves, while the offshore Kashagan and Kurmangazy oil fields, in Kazakhstan’s sector of the Caspian Sea, are estimated to contain at least 14 billion barrels,” the report continued.

It also noted that “the 8 largest currently producing fields are located onshore: 5 in the western part of the country, the North and South Kumkol fields in the south central area, and the Akshabulak field in the central area. These 8 fields accounted for about 80 percent of liquids production in the country in 2008.”

Importantly, the report notes that Kazakhstan will likely continue to increase its production capacity sufficiently to become a top global supplier.

“Kazakhstan’s oil production reached 1.54 million barrels per day (mmbbl/d) in 2009, more than double the level of a decade earlier, while domestic oil consumption averaged 241,000 bbl/d (barrels per day),” the report documented.

“Oil production in 2010 is projected at 1.6 mmbbl/d,” the report added.

And in August state-owned KazMunaiGas -Kazakhstan’s second-largest oil producer after the Chevron-led Tengizchevroil consortium – announced it would increase its oil and condensate production to 480,000 bbl/d by 2014 from 380,000 bbl/d in 2009.

The coming on-line over the next year or so of the gigantic Kashagan super oil field in the northern Caspian Sea, one of the largest in the world, will also be crucial in fulfilling the EIA report’s prediction.

The EIA report described the Kashagan super-field as “believed to be the largest known oil field outside the Middle East and the fifth largest in the world in terms of reserves.”

It is “located off the northern shore of the Caspian Sea near  the city of Atyrau,” it added.

Since January 2009, the Kashagan field has been developed by the North Caspian Operating Company (NCOC), which also operates the nearby Aktote, Kairan, and Kalamkas fields, the report said.

The NCOC PSA “is led by Total, Eni, ExxonMobil, Shell, and KMG, each with a 16.8-percent share, ConocoPhillips with an 8.4-percent share, and Inpex at 7.6 percent,” the report confirmed.

It noted that in July 2010, “KMG and Shell signed an agreement to jointly manage production when the field comes online. The field’s recoverable reserves are estimated at 11 billion barrels of oil.”

Initial production at Kashagan from phase 1 “is projected at 370,000 to 450,000 bbl/d, with peak production of 1.5 mmbbl/d from phase 2 projected for 2019,” the EIA said.

The Kazakh government has announced that Kashagan will come online by late 2012, but the severity of the winter weather conditions in the northern Caspian could push that to spring 2013.

Until then, “Tengiz is currently Kazakhstan’s largest producing oil field, with recoverable crude oil reserves estimated at 6-9 billion barrels by consortium leader Chevron,” the EIA said.

The EIA report noted that the Tengiz field “is located onshore (in) northwestern Kazakhstan and produced 377,000 bbl/d of crude oil in 2008, rising to 492,000 bbl/d of crude oil as well as 38,000 bbl/d of condensate in 2009, according to Chevron.”

“It is the world’s deepest operating giant field at 12,000 feet and has been in development since 1993 by the Tengizchevroil,” the report said.

Although Tengiz’ s output is already huge and profitable, the EIA projected that this could almost double in the next six years.

“Production could increase to 800,000 bbl/d by 2016,” it said.

The report also stresses that these production and export goals will require that Kazakhstan maintain its positive relations with Russia and China as a prime trade and strategic priority as it expands its oil production over the next decade.

“Neighbors China and Russia are key economic partners, providing sources of export demand and government project financing,” it said.

The EIA is one of the most respected and influential sources of documentation in the world for the international oil industry.

The facts it amassed and the conclusions it reached in this report confirm that Central Asia and the Caspian Basin, particularly in the territories of Kazakhstan, are about to become one of the most important strategic and investment hubs in the world, rivaling the Arabian/Persian Gulf region in importance and possibly one day even exceeding it.