It is well known that over 90% of revenues, which go to the National Fund (NF) of Kazakhstan, originate from exports of energy resources. Taking into account the fact that these funds are allocated for both increasing economic development and financing budget deficits, there is a strong need for keeping Kazakhstan’s energy sector as one of the most stable operating industrial complexes in the country. To date high expectations on increasing Kazakh oil and gas production lies with the launch of the Kashagan oil field project, so as with the implementation of the Tengiz oil field and Karachaganak gas field expansion projects. However, without further geological exploration and reserves increment, it would be problematic for Kazakhstan to maintain a sustained high level of hydrocarbon production.
Currently, Kazakhstan’s recoverable hydrocarbon reserves amounted to 4.8 billion tons of crude oil, 1.6 trillion cubic meters of non-associated gas in gas cap, 1.4 trillion cubic meters of associated gas and 441 million tons of gas condensate (Committee of Geology and Subsoil Use of the Ministry of Investment and Development of Kazakhstan, 2015). The majority of Kazakhstan’s natural resources is concentrated in the western part of the country, namely, in the Atyrau (72%) and Mangistau regions (12%). For instance, the offshore Kashagan and the onshore Tengiz oil fields’ recoverable reserves reach 45% and 24% of total recoverable reserves of the country respectively. Moreover, Kazakhstan’s prospective reserves of oil amounted to over 18 billion tons including 10 billion tons of oil potentially located in the Kazakh sector of the Caspian Sea and about 11 trillion cubic meters of non-associated and associated gas concentrated in western regions of the country. (Dzhantureyeva, 2015).
According to the Committee of Geology and Subsoil Use of the Ministry of Investment and Development of Kazakhstan, as a result of geological exploration conducted in 2000-2014, the volume of recoverable reserves increment reached 2.1 billion tons of crude oil, 271.1 billion cubic meters of natural gas and 111.5 million tons of gas condensate. However, the most significant reserves increment was achieved through the discovery of the Kashagan oil field, hydrocarbon resources of which doubled the total oil potential of the country. For instance, over the last few years, the rate of oil reserves increment was estimated at 13.7 million tons, 90.1 million tons and 118 million tons in 2012, 2013 and 2014 respectively. With regard to the natural gas reserves increment, the volumes were increased by 1.6 billion cubic meters, 24.5 billion cubic meters and 126.3 billion cubic meters in 2012, 2013 and 2014 respectively (Committee of Geology and Subsoil Use of the Ministry of Investment and Development of Kazakhstan, 2015).
Kazakhstan’s state-owned company KazMunaiGaz made the most recent discovery of oil reserves at the St. Nurzhanov field. According to the preliminary assessment, the recoverable hydrocarbon reserves of the St. Nurzhanov field are estimated at 3.9 million tons of oil (Trotsenko, 2016). Therefore, it can be clearly seen that there is some oil and gas reserves increment in Kazakhstan; however, the increment rate is not sufficient to meet the oil and gas production growth. Actually, the Kazakh authorities expect that after a few years of hydrocarbon production decrease (Fig. 1 and Fig. 2) caused by the sharp price drop of crude oil the country will be able to resume the liquids production growth. Under these circumstances, it is important not to lose momentum and to continue investing in the energy resource exploration.
Figure 1. Oil production in Kazakhstan (million tons)
Source: The Ministry of Energy of Kazakhstan
Figure 2. Gas production in Kazakhstan (billion cubic meters)
Source: The Ministry of Energy of Kazakhstan
It should be noted that within the framework of the Program for the Development of Mineral Resources Sector for 2010-2014, Kazakhstan allocated over 3.7 billion tenge to geological exploration including 1.7 billion tenge for exploring the Western Kazakhstan region and 1.6 billion for holding gravity-magnetic survey of Kazakhstan’s sector of the Caspian Sea (Dzhantureyeva, 2015). In order to stimulate the process of reserves replacement, Astana has launched the Geological Exploration Program for 2015-2019. In 2015, over 11 billion tenge were provided for geological exploration under the Program. The total budget of the Program is estimated at 120 billion tenge, including 14.5 billion tenge allocated for hydrocarbon exploration.
It is obvious that the Kazakh government has not enough financial resources to cover all exploration and development costs. Therefore, further geological exploration of oil and gas in the country still depends on extra-budgetary resources. According to Kazakhstan’s high-ranking officials, over 900 billion tenge collected with the participation of national companies, foreign oil and gas producers and investors would be allocated to liquids exploration. Nowadays, it already confirmed that MangistauMunaiGas and KazMunayGas will allocate their own funds for conducting geological prospecting work in the Mangistau, West Kazakhstan, Aktobe, Kyzylorda and Zhambyl regions. Moreover, PetroKazakhstan, Orken Petroleum and NC KazMunayGas have already initiated the drilling of exploration wells at the potential oil and gas-bearing fields in the Karaganda and Kyzylorda regions. Furthermore, Kazakhstan’s government announced its intentions to establish international consortium comprising at least 5 energy-producing companies, which would focus on exploration and development of the Pre-Caspian Depression under the Eurasia Project.
The KazEnergy Association and the Ministry of Energy of Kazakhstan presented the Eurasia Project in November 2013. During the XI Forum of Interregional Cooperation between Russia and Kazakhstan held on September 29-30, 2014, the Presidents of Russia and Kazakhstan, Vladimir Putin and Nursultan Nazarbayev, approved the Project. Later, the Eurasia Project was officially included in the “National Plan – 100 Concrete Steps on Implementation of Five Institutional Reforms” proposed by the Head of Kazakhstan as Step 75.
According to the geologist’s assessment, six or seven sub-salt structures with recoverable reserves amounted to more than 200 million tons of oil can be found in the central part of the Pre-Caspian Depression located on the territories of both Kazakhstan (70%) and Russia (30%). As shown in Figure 3, the Pre-Caspian basin with an average area of more than 500,000 square kilometers is one of the largest depressions in the world, which could hold significant hydrocarbon reserves. Actually, about one-tenth of the initially recoverable hydrocarbons in the Soviet Union was discovered in the Pre-Caspian basin. More 30 fields of hydrocarbons including giant the Kashagan and Tengiz oil fields and Karachaganak and Astrakhan gas fields were discovered in the subsalt complex of the Pre-Caspian Depression (Lisovsky & Petzoukha, 1990).
It is important to highlight that during the Soviet era the exploration at the Pre-Caspian basin was conducted at relatively shallow depths. Actually, in the middle of the last century, the oil and gas resources could be found at depths of 1-2 kilometers, then at 1.5-2.5 kilometers, and later at 3-5 kilometers. Nowadays, there is no point to explore hydrocarbon reserves at a depth of 5 kilometers since they are being depleted (Makhmutov, 2014). Therefore, conducting effective ultra-deep drilling projects in order to extract liquids at a depth exceeding 7-10 kilometers is fully justified. Consequently, within the framework of the Eurasia Project initiated by Kazakhstan, a superdeep drilling at a depth of 14-15 kilometers would be conducted.
Figure 3. The Pre-Caspian basin
Source: http://condorpetroleum.com/images/L-pre-caspian-basin.jpg
According to the Kazakh government officials, the project implementation would include three stages: (1) gathering and evaluation of the geological data collected during the Soviet period, (2) conducting a large-scale exploration and (3) drilling a super deep well, namely, the Caspian-1, which would provide the Eurasia Project participants with information on the Pre-Caspian basin’s reserve potential. The approximate cost of exploration works including all three stages are estimated at $500 million.
Within the framework of the first stage of the Project’s implementation started in 2015, Kazakh KazMunaiGas has already systematized and analyzed available geological and geophysical data. Moreover, Astana and Moscow inked a Memorandum of Understanding between the Ministry of Investments and Development of Kazakhstan and the Federal Subsoil Resources Management Agency of Russia on geological and geophysical data exchange. Moreover, the Special Interdepartmental Commission was established in order to prepare the implementation phase of the Project and hold negotiations with the potential Project’s participants.
Actually, on April 4, 2016, a meeting of the Special Commission was held under the chairmanship of the Minister of Energy of Kazakhstan, Kanat Bozumbayev. The Deputy Chairman of the KazEnergy Association Karabalin, the Chairman of the Board of Trustees of KazMunaiGas and other representatives of the Ministry attended the meeting. Representatives of international oil and gas companies such as Chevron, CNPC, Eni, ExxonMobil, ONGC, Shell, Total and Lukoil have also attended the meeting. It was already announced that a number of tax reliefs would be provided for the Eurasia Project’s operators.
However, there is a great deal of criticism on the issue of the economic feasibility of the Project since the main objective in its final phase is to hold geological exploration of the Pre-Caspian Depression by drilling the super deep parametric well Caspian-1 just in the middle of the basin. For instance, some geologist argues that the Eurasia Project has purely scientific nature and it is rather hard to identify its practical benefits, especially taking into account the fact that potential locations of promising hydrocarbon reserves are already known at a certain degree. For instance, the Russian side expects to find the gas field that can be compared to the Karachaganak gas field at the Ozinskaya structure in the Saratov region. Moreover, the Sol-Iletsk area, which is located at the junction of the Urals and the Caspian basin, is also considered as the perspective structure for liquids reserves exploration. In Kazakhstan, promising areas having high oil and gas potential are Kushum, Karabek, and Sakhar.
Therefore, it is quite clear that Kazakhstan needs to develop its energy sector even further. However, it is still uneven whether the ambitious Eurasia Project provide the country with new hydrocarbon reserves. To date, the Kazakh authorities do not have sufficient funds to cover the geological exploration neither in the Kazakhstani sector of the Caspian Sea nor in the perspective the Pre-Caspian Depression. Under these circumstances, the only option for Astana, as the Eurasia Project manager, is to make sure that the international consortium that is to be established will combine companies, which would have both the necessary financial resources and technologies to conduct the exploration of deep horizons of the Pre-Caspian basin.
References
Committee of Geology and Subsoil Use of the Ministry of Investment and Development of Kazakhstan. (2015). Energy Resources of Kazakhstan. Retrieved from chrome-extension: //oemmndcbldboiebfnladdacbdfmadadm/http://geology.gov.kz/images/stories/IPDO/ KAZAKHSTAN_2015_engl.pdf
Dzhantureyeva, E. (2015). Energy Resources of Kazakhstan: Reserves, Production and Investment. Kazakhstan(5), 86-90.
Lisovsky, N., & Petzoukha, Y. (1990). Soviet Union’s Tengiz Field: a Pre-Caspian Depresion Giant Oil, Gas Accumulation. Oil&Gas Journal(88). Retrieved from http://www.ogj.com/articles/print/volume-88/issue-38/in-this-issue/explo…
Makhmutov, A. (2014). Eurasia Project: Science or Business? Kazakstan(5), 50-58. Retrieved from Retrieved from http://www.investkz.com/en/journals/94/784.html
Trotsenko, P. (2016). Geologists of KazMunaiGas Found Oil at Three Developed Areas. Retrieved from https://vlast.kz/novosti/15835-geologi-kazmunajgaza-obnaruzili-neft-na-t…