Interviews 2012

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(Bolat Akchulakov, Vice Minister of Oil and Gas, Republic of Kazakhstan)

- Mr Akchulakov, the critical role of the oil and gas sector in Kazakhstan is well known. At the same time, the state is pursuing an objective of diversifying the economy. How, in your view, will these plans affect the role of oil and gas production and what will its place be in the economy of Kazakhstan in the long run?

- The oil and gas industry of the Republic of Kazakhstan is a powerful sector of the economy that is constantly developing. The main priority of government policy is to ensure effective development of the oil and gas industry, through efficient use of natural energy resources, for sustainable economic growth and improving the well-being of the people of the country, as well as strengthening the position of Kazakhstan in global energy markets.

The level of oil extraction in Kazakhstan from the moment of the country’s independence has grown at a fast rate. Currently, oil production levels stand at around 1.5 million barrels per day, which is not too high compared to global oil producing countries.

However, the medium-term plan provides for a growth in oil production to 90 million tonnes by 2015, and a further rise to 130 million tonnes by 2020 is expected. These figures, of course, depend on the implementation of projects in Kazakhstan’s section of the Caspian Sea.

- There is a lively debate going on in the world about the future price dynamics in the oil market. Very different estimates are offered, including the possibility of a dramatic drop in prices. What, in your opinion, could the medium-term dynamics of oil prices be? Is Kazakhstan’s oil industry ready to face the potential difficulties associated with lower prices?

- According to preliminary predictions, a dramatic fall in oil prices is not expected in the medium-term. This is due to such factors as growing demand for oil in developing countries and stable demand in the US and in the Eurozone.

Of course, a situation of a possible sharp decline in global oil prices could lead to certain adjustments. However, this situation could be temporary.

- In the past, there was a lot of talking about the importance of attracting foreign investment to Kazakhstan’s oil industry and the successes achieved in this area. Recently, the issue has been discussed less. Does this mean that Kazakhstan has become less dependent on foreign investment?

- Indeed. In the years since its independence, Kazakhstan has gained considerable experience in the oil and gas sector; in the period from 1995 to 2010, almost $104bn of foreign and domestic investment was made in the hydrocarbon sector in Kazakhstan. The figures convincingly testify to the success of Kazakhstan in providing attractive conditions for investors to do business.

More than 70% of oil production in Kazakhstan is provided for by investors from the US, China, Russia, and the EU. Many large foreign national and multinational companies operate in Kazakhstan.

However, in my opinion, it is premature to say that today we do not need foreign investment or that we are less dependent on it. International investment cooperation was and remains the most important driver of intensive industrial development.

- This year will see the 20th edition of KIOGE. How would you describe its role in the development of Kazakhstan’s oil and gas industry?

- The KIOGE Exhibition and Conference is the same age as independent Kazakhstan. Since its launch in 1993, KIOGE has become one of the leading events in the country’s energy sector and a significant platform for discussing topical oil and gas industry issues and holding dialogue with national and international partners, both at government and business level.

Since its launch and in the many years following, key industry players have taken part in KIOGE, which testifies to the relevance and necessity of this business platform.

We hope that the KIOGE Forum will remain a significant event and continue its mission for another 20 years – to engage professionals and executives of the world’s leading oil and gas companies, international organisations, financial institutions, diplomatic corps and media in tackling the current challenges faced by Kazakhstan’s fuel and energy industry. We also hope that it will continue to be a platform for expanded cooperation among global oil and gas community professionals, providing an opportunity to highlight and learn about the latest innovations, new developments trends, and prospects for cooperation and implementing investment projects.


(Lyazzat KIINOV, Chairman of the Management Board, NC KazMunayGas JSC)

- Mr Kiinov, what is the current situation regarding KazMunayGas’ oil production? What are the company’s main targets for the future?

- As of 1 January 2011, KazMunayGas’ proven remaining recoverable oil reserves (including partnership shares) totalled 791.3 million tonnes. The increase in oil reserves based on the company’s confirmed corporate strategy was reached mainly due to re-calculation of the reserves of production fields and additional exploration of producing assets.

As the owner of a 50% share in all Caspian projects, KazMunayGas holds a leading position in Kazakhstan’s continental shelf. Commercial oil production in Kashagan will begin soon, after which we plan to start production in other fields of the continental shelf. All this turns a new page in the history of the country’s oil and gas development. We will increase our resources and our output, launch new projects and enter new areas. We must become an equal among the strongest and a serious competitor to the foreign oil giants. To make this happen, we have already defined exploration areas, prioritising the blocks where main exploration will take place, after which we will review and approve the volume of work in these fields.

- What is the demand for oil transportation capacity in Kazakhstan?

- This demand is almost completely met at the moment. However, it is expected that the volume of oil production will grow in the future. For example, production starts in Kashagan this year and the projected output is about 75,000 bpd. Within the first phase of field development, production is planned to reach 350,000 bpd and this figure will probably increase to 450,000 bpd.

Consequently, there will be a demand both for the expansion of existing pipelines and the construction of new ones. The cumulative capacity of Kazakhstan’s export oil pipeline system is 66 million tonnes per year and by 2020 there are plans to increase it to 100 million tonnes per year.

The capacity of the Caspian Pipeline Corporation will be expanded for this. 276.2 million tonnes of oil, including 232.7 million tonnes of Kazakhstani oil, has been transported using CPC capacity since 2001. In 2011 oil transportation was 31.8 million tonnes, including 28.2 million tonnes of Kazakhstani oil. After the completion of the expansion project in 2015, the annual system capacity will be increased to 67 million tonnes, with Kazakhstan’s capacity up to 52.5 million tonnes per year. The increase of the capacity of the Tengiz-Novorossiysk pipeline is an urgent issue, considering oil production growth in the Tengiz and Karachaganak fields and the expected commissioning of the Kashagan field.

At present, Kazakhstan and China, within the framework of existing bilateral agreements, are negotiating questions related to the expansion of the Kazakhstan-China pipeline to a capacity of 20 million tonnes per year, including issues of availability of a guaranteed resource base, tariff setting and oil prices on the Chinese border. Within the second stage of the second project phase last year, the construction of OBS-11 was completed in the Atasu - Alashankou area, which increased the pipeline flow capacity to 12 million tonnes per year. 10.9 million tonnes of oil was transported through this pipeline in 2011.

Since the adoption of the Law on Main Pipelines in Kazakhstan, control over transport routes in the country has been strengthened. The country’s priority right to participate in the new export pipeline project has been confirmed. With this, the pipeline can be both publically and privately owned, which has never happened before. All this, including the provisions of the Customs Union and the Single Economic Space, makes it possible to form favourable conditions for development of the sector.

Moreover, there are future plans to build up Kazakhstan’s Caspian transportation system in several phases. It is obvious that the world is ready to compete for oil and gas produced in Kazakhstan, and this is the real evidence of our country’s rising energy supply role, not only in Europe but also in the whole world.

– What plans does the company have for constructing pipeline systems to the world market and also regarding gasification in the country?

- Oil and gas companies are currently investing significant amounts into building up the potential of gas. Gas production is growing in the country, and through this Kazakhstan has been strengthening its position in the gas market along with looking for sources of and routes for such supplies. I believe that the future supply of Central Asian gas to European countries mainly depends on Kazakhstan and its ability to build a policy of mutual relationships with its neighbours in a clear and astute manner. KazMunayGas, as a national company, must and will be able to provide efficient exports as well as reliable and regular supplies.

Furthermore, at the end of 2009, following the commissioning of the Turkmenistan-Uzbekistan-Kazakhstan-China gas pipeline, our country received a completely new status - that of a transit state. Now the country enjoys beneficial transit tariffs for transporting Central Asian gas toward China.

I would like to add that by 2016 the total capacity of main gas pipelines according to industry needs should be increased to 202 billion cubic metres per year, and in the following period to a level corresponding to proven long-term resources.

In relation to a Presidential assignment for developing the gas production sector, the government is also getting behind the gasification of regional areas, allocating a lot of money from the national budget for this purpose. We are at present involved in a gasification project for Astana and the Central Kazakhstan region. In 2011 a feasibility study was completed, and the Gosexpertiza National State Enterprise’s opinion on the project was received. All the confirmed technical and financial figures were sent to the Oil and Gas Ministry, and further to this the government will review the issue of financing the project from the national budget. Taking into consideration the strong dependence on Russian gas imports for consumers in, for example, the Kostanay Region, and on Uzbek gas for consumers in southern regions and Almaty, the joint Kazakh-Chinese venture will lead to the construction of the Beineu-Bozoi-Shymkent gas pipeline to provide economic security and stable gas supplies.

After the construction and launch of these pipelines, we will be able to complete the formation of a technically integrated gas transport system and consequently, where there is opportunity for synergy, form a complete value chain cycle in the gas industry.

- Now more than ever, it is crucial to overcome challenges that have arisen in social policy in the domestic oil and gas market. What is KazMunayGas’ strategy regarding this issue?

- For KazMunayGas, people, their intellectual resources and their talents are probably the major ingredients for a successful business. Our strategy is focused on attracting and retaining qualified workers who have all the required skills and competences and who can achieve excellent working results. The company always considers its staff as its most important resource, which is why it will constantly follow the policy for improving working conditions. To support these goals, the Company’s management board has adopted a unified standard list of various types of social assistance for KazMunayGas staff. I believe that clear and evident social benefits provided by the company to its employees will generally have a positive impact on KazMunayGas’ activities.

At the moment in West Kazakhstan there are pressing employment problems related to the large inflow of our compatriots coming back from other countries, looking for jobs in the oil and gas sector which is traditionally known for its high wages. In addition, there is a negative trend of workers being laid off in connection with the reduction of output at large companies involved in the construction of oil and gas infrastructure, especially at the North Caspian project, due to the approaching completion deadline for the first phase of the project. In the Atyrau Region, around 20,000 workers were laid off from 2010 to 2011 due to the completion of civil works at the Bolashak Plant construction project. By the end of this year, approximately 12,200 Kazakhstani workers will lose their jobs at the facilities of the North Caspian project. The same situation is occurring in oil companies at which production is being reduced due to the natural depletion of developed fields and which do not have any new areas to develop hydrocarbons. In this regard, issues related to the expanded participation of Kazakhstan’s manufacturers and service companies in oil and gas projects, as well as the establishment of new industries aimed at job creation in West Kazakhstan, are of special significance.

I would like to point out that thanks to the efforts of KazMunayGas from the beginning of this year almost 2,000 new jobs were created, including 1,000 jobs in the town of Zhanaozen. Moreover, we are also planning to implement many repair and maintenance projects at the Uzen field, which will allow us to employ over 600 people at the construction stage and over 2,000 at the operation stage.

We procure the highest possible share of our goods, works and services from Kazakhstani companies in order to ensure the utilisation of their output capacity and correspondingly to help them employ as many people as possible. For this reason, together with the Kazakhstan Engineering Union, Tengizchevroil, KPO and NCOC, in 2011 we formed a working group to increase local content in big oil and gas projects, which has already achieved specific results. The most promising groups of goods which can be used by producers in West Kazakhstan were outlined, as were potential international partners of worldwide renown. All the problems preventing the setting up of new industries and the modernisation of existing ones were highlighted, and the challenges faced by Kazakhstani companies participating in tenders for big oil and gas projects were also identified.

To begin establishing joint ventures with international companies focusing on producing high-tech goods and services, and to create new jobs as a result, we turned to Lord Waverly, the head of the Britain-Kazakhstan Inter-Parliamentary Group, and received a positive response. We are planning to carry out combined work to arrange new production facilities and new jobs, including through attracting direct foreign investment for manufacturing oil and gas equipment and developing service projects. Furthermore, we will review tender procedures for large oil and gas projects to introduce all the required changes for profitable conditions for manufacturers and service companies, which will stimulate the launching of production facilities and technology transfer into Kazakhstan. Negotiations with major operators of oil and gas projects will also be held, in order to provide guaranteed orders for newly established Kazakhstani companies.

I would like to emphasise that KazMunayGas is in full control of social processes as well as the situation regarding the local content of products, work and services and the achievement of a high percentage of Kazakhstani nationals in the workforce of the oil and gas sector. Specialised events and sessions regularly take place both in Astana and on-site in the areas where oil and gas companies carry out their activities. For example, we would like to arrange the next set of similar events - aimed at bringing as much local content as possible into projects related to the exploration, production, refining and transportation of oil and gas - in the format of forums held in Aktau and Atyrau. Before that, we have to negotiate with domestic and international investors to establish new production facilities and new jobs.

- Do you have a message for participants of KAZENERGY 2012 and KIOGE 2012?

- Since the launch of the event, KazMunayGas has officially supported the KIOGE exhibition and conference and has been one of the most active participants of this respected oil and gas event.

I am confident that the extensive business programme of KIOGE 2012 and KAZENERGY 2012 will be of great interest to professionals, that it will make a considerable contribution to developing partnerships between companies in the oil and gas sector, and that it will help to strengthen business links and establish new joint projects.

I would like to mention that in the two decades since its creation, KIOGE has continued to be a respected event among professionals and an effective platform for exchanging experience and establishing valuable contacts. The event is today one of the main venues for discussing current development issues in the oil and gas industry.

I would like to wish the exhibitors and visitors productive and challenging work at the event.


(Alexander YAKOVLEV, Head of trade representative of the Russian Federation in the Republic of Kazakhstan)

- Mr Yakovlev, how is trade and economic cooperation between Russia and Kazakhstan developing now?

- 2012 is marked by some very important dates: the 20th anniversary of the Treaty of Friendship and Cooperation between our countries was celebrated in May, and the Agreement on the Mutual Opening of Trade Missions will also turn 20 in October. It is also significant that the 20th anniversary edition of the KIOGE 2012 exhibition and conference takes place this year. I am pleased to be able to say that one-third of the exhibitors are Russian companies, and that this number is constantly increasing.

Over these last 20 years, trade turnover between Russia and Kazakhstan has grown more than fivefold, and new opportunities to develop business and for bilateral cooperation and economic modernisation have become available. In 2011, trade turnover amounted to $23.8 billion (a 36.4% increase on 2010), including $7.5 billion of Kazakhstani exports (a 39.5% increase) and $16.3 billion of imports (a 35% increase). During the first six months of 2012, the figure amounted to $10.9 billion to reach the level seen in 2011. Russia is the main trade partner of Kazakhstan, accounting for a 19% share of total trade turnover.

- Could you tell us about investment cooperation between the two countries?

- More than 4,000 joint Russian-Kazakh ventures are active in the Kazakhstan market and, due to a favourable business climate in Kazakhstan, this number is constantly increasing. Investment projects by over 20 Russian companies, including Gazprom, Lukoil, RusAl, Mechel, INTER RAO UES, AvtoVAZ, EvroKhimUdobreniya and Beeline are being successfully carried out. The priority sectors are oil and gas production, the processing industry, transportation, communications, machine-building, space industry, and the civil nuclear sector. In 2011, Russia’s gross investment totalled about $11 billion (a 43% growth on 2010), including direct investment of over $1 billion (a 28% increase). SberBank, Alfa-Bank, VTB, RosSelKhozBank, and PromSvyazBank have all set up branches and representative offices in Kazakhstan.

- How are things going in the area of inter-regional and cross-border cooperation?

- More than 200 cooperation agreements have been signed between Russian and Kazakhstani regions. The role of inter-regional and cross-border ties has been growing significantly along with the development and strengthening of the Customs Union and the Common Economic Space, as 12 Russian regions share borders with seven regions of Kazakhstan. Over 30% of trade turnover between the two countries is accounted for by cross-border cooperation.

In 2011, seven trade missions involving heads of Russian regions visited Kazakhstan, and about 700 companies took part in over 50 exhibitions, conferences, round tables and workshops. Five trade missions have already visited in the first seven months of 2012, and delegations from the Perm Region, St. Petersburg and Nizhniy Novgorod plan to arrive before the end of the year.

- How would you assess the prospects for further development of cooperation between Russia and Kazakhstan?

- According to experts, trade turnover between Russia and Kazakhstan could reach $26 billion, while direct investment could exceed $1 billion. Bilateral cooperation is in the fundamental interests of our peoples and countries. All the prerequisites are available for this cooperation to develop further, including the political will of the people and leaders of the two countries. It is important to use this effectively to make bilateral relations stable and irreversible.

- How effective do you think the KIOGE International Exhibition and Conference is in strengthening our trade and economic relations?

- The importance of KIOGE is undoubtedly hard to overestimate as it allows businesses from our two countries to determine prospects for further cooperation in the oil and gas industry, share experience of implementing innovative technologies, and establish new and mutually beneficial contacts. I would like to wish the organisers, exhibitors and visitors of KIOGE 2012 productive work in building new contacts to help expand business cooperation between Russia and Kazakhstan.


(Graeme COOMBES, International Head of Oil & Gas Events, ITE Group Plc)

- Mr. Coombes, what are your expectations for KIOGE 2012?

- With the support from the Minister of Oil and Gas of the Republic of Kazakhstan, Sauat Mynbayev, this year’s 20th anniversary of the Kazakhstan International Oil & Gas Exhibition and Conference (KIOGE) is going to be a landmark event.

We have re-reviewed feedback from participants over the past 2 decades, and have worked more closely with the industry to develop a conference and exhibition that is timely, relevant and targeted to the operational and technical needs of oil and gas companies conducting business with Kazakhstan.

- What changes can we expect for this year’s 20th edition of KIOGE?

- To celebrate the 20th anniversary, we have established a new ‘KIOGE Advisory Board’ which will ensure all the content development directly involves the input of the oil and gas industry. Our board comprises of senior experts from the Ministry of Oil & Gas of Kazakhstan, Tengizchevroil LLP, Kazakhstan Petroleum Association, Schlumberger Logelco Inc, plus others.

We have also introduced new topics, such as increasing the efficiency of production and development in Kazakhstan; new oil and gas discoveries; oil and gas transportation challenges; along with new sessions on downstream activities and geological exploration, to give the content a more technical and operational focus, as requested by our participants.

- What is the exhibition offering this year?

- KIOGE remains as the largest and best-attended oil and gas exhibition in Central Asia. It’s the most important business platform where senior-level decision-making buyers can connect with almost 600 local and international sellers offering the latest technological solutions and products.

This year, over 40% of the exhibition space will be occupied by international participants and 10% will be occupied by newcomers. This reflects the continued importance of KIOGE for international companies seeking to build a presence in Kazakhstan’s lucrative oil and gas market.

- ITE organises several oil and gas events in various countries. What are the distinguishing features of KIOGE in comparison with other events?

- KIOGE is where real operational and technical decisions are made and policies discussed by the country’s major oil and gas companies, policy makers and the highest levels of government. With support from the Ministry of Oil and Gas of the Republic of Kazakhstan, KIOGE is the most important oil and gas event in the Central Asian calendar, and for international companies seeking real domestic business opportunities.