New Gas Supply Infrastructure in Kazakhstan and Central Asia Andrew Neff IHS, Senior Energy Analyst 20th Anniversary Kazakhstan International Oil & Gas

New Gas Supply Infrastructure in Kazakhstan and Central Asia

Andrew Neff

IHS, Senior Energy Analyst

20th Anniversary Kazakhstan International Oil & Gas Conference

4-5 October 2012

Copyright © 2012 IHS Inc. All Rights Reserved.

Kazakhstan Gas: Main Points

• Kazakhstan is surrounded by other gas producers with larger gas reserves, more gas production

• Hence, finding outlets for Kazakhstan to monetise its own gas output is more difficult…or is it?

• Investments in gasification are geared to supply domestic energy needs, develop system for potential future exports

• What markets are there for Kazakhstan’s gas production?

• Kazakhstan is better positioned than Uzbekistan and Turkmenistan to supply gas to Russia…and eventually (maybe) to Europe

• Direction of Central Asian gas transit via Kazakhstan is changing• Trans-Caspian Pipeline: premature, but not out of the question


Central Asia: Gas Production and Exports Compared

2007 2008 2009 2010 2011 20120

10

20

30

40

50

60

70

80

Kazakhstan

Uzbekistan

Turkmenistan

Gas Production, 2007-2012 (Bcm)

2007 2008 2009 2010 2011 20120

10

20

30

40

50

60

Kazakhstan

Uzbekistan

Turkmenistan

Gas Exports, 2007-2012 (Bcm)

Source: IHS CERA


Existing and Proposed Gas Infrastructure

Source: Intergas Central Asia


Kazakhstan’s Gas ‘Role’ in Central Asia…So Far

• Primary role as transit state for other exporters

• ~80% of transportation volumes are international transit (~10% exports, ~10% domestic market)

• Transportation volumes still not recovered to pre-crisis level

• Impact of Gazprom dispute with Turkmenistan felt in continued lower transit volumes via Kazakhstan

• Reduced utilisation rates on

Central Asia-Centre and

Bukhara-Urals pipelines (~40%)

• Gazprom gas purchases from

Central Asia (2011):

• 11.2 bcm (Turkmenistan)• 7.95 bcm (Uzbekistan)

2007 2008 2009 2010 20110

20

40

60

80

100

120

140

114.22 116.38

91.089 99.446 102.927

Chart TitleKazakhstan Gas Transportation Volumes (Bcm)

Source: KazTransGas


IGA Gas Transportation Revenue Breakdown* (2011)

363.584 (57.27%)

135.51 (21.35%)

104.318 (16.43%)

29.298 (4.62%)2.124 (0.33%)

Central Asian Gas Transit

Russian Gas Transit

Kazakhstan Gas Transport (Internal Market)

Kazakhstan Gas Exports

Kyrgyz Gas Transit

Source: Intergas Central Asia; * figures in USD


Domestic Supply Focus

• Economic growth = increasing internal demand for gas

• Domestic demand, gas exports constrained by lack of infrastructure

• Gross output nearly twice commercial gas production

• Re-injected to support oil production• What else to do with it??

• Government support for gas sector

• Law on Gas and Gas Supply (Jan. ‘12)• Mandatory utilisation of associated gas • Strategic investments in gasification• KazTransGas as national

gas operator (July ‘12)2004 2005 2006 2007 2008 2009 2010 2011 2012*

0

2

4

6

8

10

12

Kazakhstan Real GDP Growth (% change)

Source: IHS Global Insight; * forecast


Laying the Ground for Future Exports

• Gasification projects galore to supply domestic consumers

• Expansion and/or modernisation of pipelines to supply Almaty, Almaty province, city of Kyzylorda, South Kazakhstan province, Zhambyl province, Mangystau province

• Two strategic gas pipeline projects of national importance

• Beyneu-Bozoi-Shymkent pipeline (1,475km; estimated USD3.6 billion)

• Goals: energy independence from Uzbekistan, tie-in to Central Asia-China pipeline• Phase 1: Bozoi to Shymkent/Akbulak (1,164km; construction launched Sept. 2011,

due to be completed 2013)• Stage 2: Beyneu to Bozoi (311km; due to start 2014, end 2015)

• Kazakhstan-China Main Gas Pipeline (1,304km; estimated USD7.3 billion)

• Goals: gas transit from Turkmenistan, Uzbekistan, future exports (5 bcm/y) from Kazakhstan

• July 2011: construction launched on Line C (25 bcm/y)


Turkmenistan’s Gas Export Options


Turkmenistan’s Motivation For TAPI

• Turkmenistan has strong incentive to pursue TAPI pipeline construction

• TAPI as key economic driver• Soviet-style economy relies heavily on gas export

revenues (estimated at over 50% of GDP)• Long-term gas production and export targets

require additional export capacity

• 230 bcm/y of gas output, 180-200 bcm/y in exports (2030)

• TAPI as necessary for diversification

• Traditional dependence on Gazprom has highlighted Turkmenistan’s vulnerability

• Price disputes in 1997 and 2009 led to supply stoppages, dealt heavy blows to Turkmenistan’s economy

• April 2009 explosion on CAC pipeline cut exports to virtually zero; January 2010 resumption of supplies, but at a fraction of previous level (10-12 bcm/y rather than 40-45 bcm/y)

• Risk of new over-reliance on China?

• Central Asia-China pipeline shifting Turkmenistan’s dependence on Russia to China instead

5

10

15

20

50

60

70

80

2009 2010 2011 (e) 2012 (f)

Hydrocarbon ExportsTotal ExportsShare of exports in GDP (right axis)

Turkmen Exports

Billion US dollars

Source: IHS Global Insight


Turkmenistan-Afghanistan-Pakistan-India Pipeline


State of Play in the Long-Running TAPI Project

• TAPI proposal continuing to move forward, despite security concerns

• Alignment of political goals and economic needs among four participating countries

• Significant progress post-2009• Four-party framework agreement (2010)• Uniform transit tariff agreed (2012)• Formal gas supply and purchase agreement (2012)

• Pakistan: 38 mmcm/d• India: 38 mmcm/d

• Turkmenistan-Afghanistan MoU on gas sector cooperation

• Next steps: now the REALLY difficult part starts• Attempts to attract financing (international roadshows)• Formation of consortium to design, build, and operate TAPI

• Desire, government political support insufficient to bring TAPI to reality• Security risks can be mitigated, but TAPI needs a commercial champion

TAPI At A GlanceLength 1,735km*

Throughput Capacity

33 bcm/year

Estimated Cost USD10-15 billion

*including 145km in Turkmenistan, 735km in Afghanistan, 800km in Pakistan, and 55km in India


Uzbekistan Caught in the Middle

• Geography and history leaves Uzbekistan few options for its gas

• Turkmen gas supplies supplanted Uzbek volumes in CAC flows in Soviet era• Doubly landlocked = no sea access = no LNG export possibilities• China, Russia, India, Iran: all markets with closer suppliers

• Vast majority of Uzbekistan’s gas production absorbed internally

• Government determined to monetise its gas reserve wealth

• Export focus as LUKoil-led projects boosting Uzbekistan’s gas output

• Start of Uzbek gas exports via Central Asia-China pipeline (April 2012)

• Billion-dollar investments to add value to gas production, find new outlets

• Gas-chemical projects with foreign investors: Surgil (Uzbek-South Korean consortium), Mubarek (UzIndorama joint venture), Oltin Yo'l GTL (Sasol, Petronas, Uzbekneftegaz)

• CNG retail fuel network expansion to supply vehicle market


TCP: Dead, or Just Premature?

• Neither Azerbaijan nor Turkmenistan is ready to strike a deal that would pave the way to construct Trans-Caspian gas pipeline (TCP)

• External political support/pressure notwithstanding

• Azerbaijan focusing on securing routes for its own gas exports

• Not ready to transit Turkmen gas when it hasn’t sorted a final plan to monetise its own gas resources

• Turkmenistan lacks capacity to supply sufficient gas volumes to make TCP economically worthwhile

• Gas from Block 1 insufficient to offset potential further loss of gas exports to Russia• East-West gas pipeline across Turkmenistan still under construction

• Kazakhstan taking the “wait and see” approach• Resolution of maritime border dispute could open the door for Kazakh gas supplies

14


Key Questions

• Karachaganak dispute resolved, but what future for phase-3 gas?

• Russia, yes, but what about China?

• What about Tengiz, Kashagan gas eventually?

• Kazakhstan is better positioned to replace Uzbek and Turkmen gas volumes sent via CAC to Russia

• Loss of Central Asia transit volumes offset by increased exports of Kazakhstan’s own gas

• TCP prospects will get a boost with development of ‘southern corridor’

• Will Central Asian gas transit (to China) offset decline in revenues from reduction in gas transit via CAC (to Russia)?

• Turkmen, Uzbek gas volumes transiting Kazakhstan in new direction• Kazakhstan’s own gas production, exports will make the difference


One Possible Outlook for 2025

Kaz participation in trans-Caspian

--resolution of Az_Turkmen deal (use info from Caspian Gas internal presentation)

--need infrastructure in place (Kaz as wait and see, rather than leader)

--flow into Turkmen gas section

Source: IHS CERA; * indicative projection. All figures in billion cubic meters (Bcm).

2008 2011 2025*Gas exports to Russia from Turkmenistan 38 10 0 from Kazakhstan 14 15 20 from Uzbekistan 10 10 10TOTAL 62 35 30

Gas exports to China from Turkmenistan 0 15 45 from Kazakhstan 0 0 10 from Uzbekistan 0 0 10TOTAL 0 15 65


Questions?

Andrew NeffSenior Energy Analyst

IHS Energy7/5, Bolshaya Dmitrovka Street

Bldg. 2, 5th Floor125009 Moscow, Russia

[email protected]

mailto:[email protected]

http://www.ihs.com/

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New Gas Supply Infrastructure in Kazakhstan and Central Asia Andrew Neff IHS, Senior Energy Analyst 20th Anniversary Kazakhstan International Oil & Gas