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№ 9 (September 2007)
Current forecasts of power resources consumption worldwide are indicative of further rapid growth in oil refining and chemical industries. Kazakhstan strives to keep pace with the times by active development of petrochemical projects. This activity is spurned by a number of factors, primarily by significant hydrocarbon reserves in the Caspian region and growth of consumption in both the internal and export markets.
Hydrocarbon sector development in Kazakhstan tends to prove that until recently, upstream exploration, production and a number of export projects ranked among the most attractive investment opportunities.
According to some oil company experts in Kazakhstan, this situation is caused by both corporate policy and the companies’ intention to further reduce the payback period on production and export projects (which are more profitable and already have a shorter payback period when compared to oil refining or petrochemistry.) As for the national oil refining and petrochemical industries, some specialists characterize them as “the most obsolete and low tech ones, with a thin sales of the domestic market.”
Will the existing capacities suffice?
There are three oil refineries in Kazakhstan, and all three of them do not operate at full capacity, mainly due to a lack of demand for their products. Their output is characterized by a low level of refining depth, which does not exceed 55 percent in average. As a result, an average workload of these refineries is maximum 65 percent with an aggregate designed output of 18.5 million tons.
In general, production of the three refineries is closely approximated to that of other refineries within FSU countries. Basically the refineries produce fuel oil, diesel fuel, motor gasoline, jet fuel, and liquefied gas.
In the opinion of experts, uneven distribution of hydrocarbon fields in the country is an essential drawback, which adversely affects development of transport infrastructure for delivering crude and refined products. Under such circumstances it is sometimes necessary to import crude oil and oil products, from Russia as well, especially for Eastern parts of Kazakhstan.
According to KazMunaiGaz, before 2009 it is planned to invest over $1.6 billion in modernization and reconstruction of all three Kazakhstan’s refineries. So, the total investments will be about $1 billion in the Atyrau refinery, $600 million in Shymkent, and $40 million in Pavlodar petrochemical plant, which will render possible for all three refineries to switch to new production standards such as Euro-5, and to install additional facilities, for example facilities for catalytic cracking in Atyrau refinery.
Experts assume that dynamic development of oil processing industry requires further modernization of the existing facilities (refineries), as well as construction of new ones, especially given the growing number of cars now driven in the country. This will enable to increase output of light-end oil products and to expand the production range.
Petrochemistry: Anticipating Value Increase
As said above, the petrochemical industry will continue growing in the foreseeable future. The current prices for energy resources are high but the Kazakh government realizes that by focusing further on exporting only crude oil deprives the state of additional and perhaps higher revenues in the petrochemical industry.
In this connection, the Kazakh government has launched a program to develop the petrochemical industry and has made a decision to create an industrial park assigned with all functions of a special economic zone. Based on calculations made by local specialists, 1 million cu. m of associated gas can be processed to yield 130 tons of ethylene, about 85 tons of polyethylene and about 60 tons of polystyrene. By 2015 it is planned to attract up to $7.5 billion of investments as well as experience and technologies of the largest companies working in this sector in order to develop the industry.
It is planned to concentrate new petrochemical facilities in the vicinity of hydrocarbon fields, especially in West Kazakhstan. So, in Atyrau region it is planned to construct a large petrochemical complex that will be producing up to 800,000 tons of ethylene and 400,000 tons of polypropylene.
KazMunaiGaz’ top management is absolutely certain that due to geographical vicinity to China 50 percent of petrochemical output will find its consumers in that particular market. Though, there Kazakhstani producers may face their competitors from the Middle East countries, especially from Saudi Arabia. Besides, there is a number of large similar projects put into operation in China, in the area of Shanghai and in Chang Jiang province. Annual output of these projects will be 900,000 and 600,000 tons of ethylene respectively.
The petrochemical complex is assumed to be supplied with raw material resources (associated and natural gas) from three fields in West Kazakhstan, namely Tengiz, Karachaganak and Kashagan. Though the two latter ones raise some doubts expressed by experts, as commercial production at Kashagan has been repeatedly delayed, and Karachaganak gas is planned to be shipped to Orenburg gas processing plant in Russia.
In addition, specialists of Japanese Mitsui, which showed certain interest to the project, mention the problems existing today, namely uncertainty with regard to how the project will be realized, unresolved financial issues, and the lack of the short list of participants. All these aspects may adversely affect the beginning of construction scheduled for the end of 2007, thus delaying the complex being brought into operation.
Earlier, it was planned to construct another petrochemical complex (also in West Kazakhstan) at a total cost of $3.5 billion in partnership with LUKOIL and KazMunayGaz. That might-have-been project had to use hydrocarbons produced at LUKOIL’s fields in Kazakhstan’s sector of the Caspian Sea. However, according to LUKOIL’s representatives “parties conducted negotiations and meetings, formed a study group, and there the matter was dropped.”
Some experts believe that for successful start of the industry development program it would be reasonable to utilize raw material resources of onshore fields as in the above example with the project of the large petrochemical complex. Later on, as offshore fields develop, their hydrocarbon materials will be used for further increase in production and for construction of new facilities.