Speech to the 11th CIS Oil & Gas Summit May 25-27, 2011. Paris, France
May 25. KAZENERGY
By Timur Kulibayev
CEO of the Samruk-Kazyna National Welfare Fund
Chairman of the KAZENERGY Association
Good morning, esteemed participants, ladies and gentlemen!
This 11th CIS Oil & Gas Summit is taking place in the 20th year since the founding of the Commonwealth. This gives us a good perspective from which to discuss the status and prospects of the oil and gas industry in the Commonwealth by recalling what our situation was back then so as to better evaluate current opportunities and obstacles on the road to growing our region’s role in the global energy business, and also the influence of these processes on the opportunities for foreign investors in the new decade. I will also attempt to demonstrate to you the potential that Kazakhstan possesses in the energy sector beyond traditional projects for the production of hydrocarbon raw materials.
I would characterize the main tendency of development for the oil and gas industry in the countries of the CIS as a sharp increase in the role that our region plays on the energy market in Eurasia and the world as a whole.
By the end of this decade, deliveries of oil and gas from the CIS to world markets could grow by more than 50% from the current levels of 358 million tons of oil and 237 billion cubic meters of gas, provided that all planned pipeline projects are implemented and new volumes of hydrocarbons are transported via these pipelines.
Without going into too much detail I will say simply that countries in the CIS – the Caspian states and Russia – plan to launch at least two new oil pipelines to the west and expand the capacity of two existing ones, while deliveries of oil to the east through existing infrastructure will increase several times over.
The situation with gas pipelines is analogous, with Russia and the Caspian countries planning new routes from the CIS to both the east and west. Gasprom, Kazakhstan’s long-standing partner in the export of natural gas, intends to play a significant role here. At the same time, our country is establishing a balance of exports, developing cooperation with China in order to enter this promising market.
The realization of just a majority of existing oil pipeline projects will take our country in to the top five of world oil exporters, while the CIS would move into second place, behind the Persian Gulf countries, as an oil producing region. But in the latter countries business opportunities for foreign investors are limited, while CIS countries, with certain provisos, are actively engaging foreign companies in the development of their resources.
I would cite another tendency related to the one noted above, namely the activation and significant growth of partnership relations among CIS countries in energy export projects.
Kazakhstan and Russia are cooperating in expanding the CPC pipeline and in employing the Baltic pipeline system, while Astana and Baku are doing the same in developing the Kazakhstan Caspian oil transportation system. All the Central Asian countries are creating new capacity to develop the Asian gas pipeline to China. Azerbaijan is expanding its deliveries of oil to the Ukraine and has begun deliveries to Belarus, including through swap transactions involving Venezuela.
One could expand the list of such examples, but those already named make it clear how broad the CIS countries’ oil and gas ties are in the world at large, and how close those ties are with each other. These examples likewise indicate the extent to which the success of regional energy projects, including when it comes to opening new markets, depends on the position of partners in the CIS and their ability to create mutually beneficial forms of cooperation.
Today none of the oil and gas exporting countries of the CIS is in a position to dictate unilateral concessions to another, or achieve one-sided advantages. Each of our countries, over 20 years of independence and interaction within the framework of the CIS, has become a strong, respected and desired partner for the global energy and investment community.
On the other hand, the cooperation that exists among CIS countries in implementing their domestic, regional and global energy plans is a powerful resource that can bring significant benefit to each country involved.
An example is the cooperation among Belarus, Kazakhstan and Russia. Our countries constitute a common economic territory, and the common energy market is an important part of that. We plan to implement this plan early next year, but to achieve real results from integration we must still do much work on defining the practical conditions of our interaction.
Our success in this endeavor will depend in large part on whether the other energy-producing countries of the CIS join the Eurasian Economic Community (EEC), while the EEC itself must prove that the free movement of hydrocarbons and usage of transportation infrastructure are real benefits that the EEC can provide to its members in order to expand their opportunities on the global market.
The common energy territory formed by Astana, Minsk and Moscow is the most striking example of cooperation in the CIS, but not the only one. Kazakhstan cooperates in the development of export infrastructure with Azerbaijan and Turkmenistan, and this partnership, in time, can also become the basis for developing a common market policy.
Similar relations are developing among Caspian and Caucasus countries, as well as the eastern European republics of Belarus and the Ukraine.
Kazakhstan has acquired the port of Batumi, through which hydrocarbons are exported from our country to others in the region, and we operate on Georgia’s natural gas distribution market through our ownership of KazTransGas-Tbilisi.
Other European countries are joining the energy alliances of the CIS. For instance, Romania seeks access to Kazakhstani and other Caspian crude, and Azeri compressed gas, and has become a base for the production and marketing of refined products from Kazakhstan through the facilities we have acquired in Rompetrol.
In citing these examples I would like to note a third tendency in the relations between CIS countries and the rest of the energy world, namely the wide choice of partners for implementing our export efforts and plans that our countries enjoy within the Commonwealth itself.
It’s obvious that this process, which developed significantly over the last decade, will presently become the dominant trend in the oil and gas sector cooperation among our countries.
If you’ll permit me a moment of humor, one can say that today the CIS has its own ‘Facebook’ of energy exporters that has relegated to the past those old vertical alliances with leaders on top and dependent partners beneath them.
This vector of development is a product of the current state of oil and gas production in the CIS countries. In some it is falling steadily, in others there is a balance between growth and decline, while in others still there is great potential for growth.
If we extrapolate the production and resource potential of CIS countries with their export plans and pipeline projects, we see that market participants and investors can come to valid conclusions as to how realistic these plans and projects are and their probable effectiveness, as well as the degree to which they depend on the support of other CIS countries as suppliers of raw materials.
It’s also obvious that the countries with growing potential and increasing production of oil and gas will have an increasing impact on the development of both export infrastructure and export policy for deliveries from our part of the world.
This is a system of criteria that allows for a fairly precise determination of the current and future position of any country in our Commonwealth on the global market, and, therefore, serves as something of a navigating guide for investors evaluating the prospects and risks associated with energy projects in this or that CIS country.
In our country we hope to achieve diversification, to attract investment not only for the extraction of energy products, but also their refining and the sale of value added, high-tech products.
Among such projects we view the creation of petrochemical enterprises in western Kazakhstan, the transfer of automobiles from oil-based to natural gas-based fuels in Almaty, the sale of a range of new types of atomic energy products, the spread of energy saving technologies, the sale of equipment for the production of energy from alternative sources in various regions of the country and, finally, the development of oil industry machine building and other infrastructure projects.
Investors from China, Korea, France, Germany and Russia are already involved in such projects, and the volume of investments on contracts already signed exceeds half a billion dollars, while overall the scale of investments in this new market will amount to several billion dollars in the current decade alone.
The current strategic priorities of Kazakhstan’s energy are energy efficiency and expanding the role of renewable and atomic energy.
In developing these areas, our goal is to diversity the country’s energy sector, making it sustainable in the face of fluctuations in the market and friendly to the natural environment. In Kazakhstan the government is supporting the production of new types of uranium products, the large scale introduction of energy-saving technologies and modern equipment for the production of energy from alternative sources in varied parts of the country.
The measures being adopted will allow Kazakhstan to reduce the volume of greenhouse gas emissions by 15% before the year 2020 and will have a positive impact on the competitiveness of our economy.
Furthermore, Kazakhstan’s official policy is such that the opportunities for attracting investment into high-tech areas of the energy sector will grow at a tempo greater than that for traditional raw materials production projects, with more significant tax incentives. Our government sees in the energy sector not only a growing source of petrodollars, but also a driver of innovative development for our industry and the economy as a whole.
Ladies and gentlemen, in these remarks my hope has been to show you that in the years since the CIS came into existence, what has changed is not only our region’s position in the global energy and investment markets, but also the nature of relationships within the Commonwealth, the distribution of influence, and also the opportunities for investors. The world has changed, Kazakhstan has changed. We want to be a nation that rises not due to the ‘yeast’ of petroleum, but out of our efforts to be competitive and our success in business.
The energy sector is something of a magnet, attracting foreign and other investment, but we must manage this process and not just go with the flow, waiting for it to either run aground or turn the economy into a petroleum ‘swamp’ lacking initiative and innovation.
Constant dialogue plays an important role in fostering understanding between investors and host countries in terms of their positions and aspirations. I would note that if here, in Paris, we work within the framework of a ‘western’ model for that dialogue, in Kazakhstan we have developed an ‘eastern’ mechanism for that dialogue and interaction in the form of the KAZENERGY Eurasian Forum.
I hope that both our long-standing, time-tested partners and our new ones will share our position on these important changes, and will become investors in the new Kazakhstan. We look forward to seeing you again at the 6th Eurasian Forum in Astana!
Thank you for your attention!