December 1, 2008
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Home / Featured Interviews / KazMunaiGaz puts a new priority on offshore projects in Kazakhstan (15.10.2007)

Oil field Featured Interviews

By Yagmur Kurbanov

Among Caspian offshore sectors, the one belonging to Kazakhstan has substantial oil and gas reserves. For national company KazMunaiGaz, offshore fields development is one of the main tasks. In the following interview to Oil&Gas Eurasia the company’s president Uzakbai Karabalin talks about strategy and new offshore development opportunities of KazMunaiGas.   

Oil&Gas Eurasia: What strategy does the company currently apply for developing Kazakhstan’s offshore fields?
Uzakbai Karabalin: Developing Caspian offshore fields (including the famous Kashagan) is one of the major future objectives pursued by KazMunaiGaz (KMG) and Kazakhstan’s oil and gas industry.
KMG’s strategy for developing Kazakhstan’s offshore fields is aimed at ensuring the sustainable growth of the country’s economy, improving the population’s living standards by rational and safe development of hydrocarbon resources, and facilitating progress of the country’s associate industries.
In the course of implementing offshore projects, we exert every effort to minimize risks for the national economy when signing contracts for subsoil use; to provide for integrated and non-waste utilization of hydrocarbon resources; to ensure compliance with Kazakhstan and international standards and regulations for industrial, fire and occupational safety and environment protection; and to arrange for maximum possible involvement of Kazakhstani vendors. Today, KMG is not just a partner or stockholder – it represents a full power government authority in international projects. We are responsible for defending Kazakhstan’s interests regarding financial viability of the projects and environmental safety and energy security of the country. The state has given credence to us by instituting a legal priority for KMG to have a 50 percent share in new oil projects.

OGE: At what stage are the construction of artificial islands and other preparatory activities for your company?s offshore projects?
Karabalin: Implementation of the National Program for Developing the Kazakhstan’s sector of the Caspian Sea is intended for a period till 2015 and includes three provisional stages. In particular, a berth was commissioned at terminal Bautino (Mangistau region) to load building materials for artificial islands. Its designed capacity is 3 million tons of bulk materials per year. In 2006, about 600,000 tons of rock was already shipped for construction of islands at the Kashagan field. A base is being actively constructed over here to support offshore operations. A special landfill was constructed for disposal of waste and burial of drilling mud returns, with a capacity of 130,000 tons. Nearly 3,500 cu. m of offshore operation waste were buried during 2005—2006.
Construction of a marine vessel fuel station for 50,000 cu. m of fuel and lubricants is being completed now with commissioning scheduled for the nearest future. This station will be used for fuelling all vessels servicing offshore operations from the Tyup-Karagan bay.

OGE: Could you please detail, at what stage is the implementation of the signed contracts for offshore projects such as Kurmangazy, Tyub-Karagan, Zhemchuzhina (Pearl), etc.?
Karabalin: There are seismic and special operations in progress at the Kurmangazy field, which are aimed at collecting, analyzing and summarizing materials of regional geological exploration. Primary tasks set for 2007—2009 are to identify the most prospective sections of the structure, to develop the structure geological model and to prepare recommendations as to where the second wildcat is to be drilled.
As for Tyub-Karagan, integrated survey operations were completed in well No. 1 including core recovery, sludge sampling, downhole logging, and vertical seismic profiling (VSP) survey. It was not possible to make unambiguous conclusions on the situation in the contract area based only on the preliminary survey results. However the well survey did not prove availability of commercial hydrocarbon reserves.
Many specialists, among them foreign, suggest that Tyub-Karagan’s south and north slopes are quite perspective. In this connection further geophysical and geological surveys are scheduled to determine drilling location of the second well 2,500 meters deep; 3D seismic survey will be conducted as well.
Besides, in September 2007, it is planned to drill the first well in the Zhemchuzhina field.
OGE: What new projects and contracts are anticipated in the nearest future?
Karabalin: KMG is interested in expanding its sphere of influence in the international energy market both by direct investments in fuel stations and oil refineries and by participation in international fields development and hydrocarbon production projects, as well as in transportation, transit and sale of oil and gas outside of Kazakhstan.
We study an option of participating in construction of oil refinery in Turkey. The agreement in principle on this deal has been reached by heads of the states during the last visit of President Nazarbayev to Turkey.
In addition, jointly with Russian partners we consider several large projects in the fields of gas processing and gas main pipelines reconstruction.

OGE: Does your company make use of foreign experience for constructing offshore drilling platforms or new technologies for improving production quality?
Karabalin: Our oilers have been studying offshore oil production since 1993 when KazakhstanKaspiyShelf was set up. Since then our country masters modern technologies applied for offshore fields exploration and development. KMG has already acquired skills in successful application of obtained knowledge; for instance, the Zhambai field is operated using only Kazakhstani specialists.
It is worth to mention that all operations in the Caspian Sea are complicated by combination of adverse factors such as highly sensitive environment, shallow waters, high reservoir pressures, significant sulfur concentrations in hydrocarbons produced.  Oil companies in different countries of the world have indeed experienced similar individual problems but never the whole combination. Thus, no ready technologies were available to deal with such complex task. Even large operating companies with extensive experience in offshore operations consider this situation as quite challenging. So, we do not just learn from them but seek optimum solutions for emerging problems together with them.
Certainly, foreign participation in our projects provides an opportunity for us to familiarize with new technologies, which is quite indispensable. More over, this is our first experience in offshore drilling for a hundred years of oil production in Kazakhstan. KMG participates in the North Caspian Project together with famous ExxonMobil, Shell, Total, ConocoPhillips, and many others. Rosheft, LUKOIL and Gazprom are our partners in some other projects.

OGE: Could you please tell us a few words about the company’s policy regarding the environment protection and disposal of gas produced at the company’s offshore projects?
Karabalin: According to the company’s development strategy, the Integrated Ecological Program for 2006–2015 was developed and approved. Its primary objective is to ensure system approach to the environmental activity and sustainable development of the company. Analysis of measures undertaken in the past year proves that the selected guidelines are correct, which is confirmed by obvious positive changes in the environmental indices.
So, air pollutant emissions from the company’s primary subsidiaries have been reduced by 3 percent in 2006 vs. the previous year. Effluents discharge has also been reduced substantially (by 6 percent). Production and consumption wastes have been reduced by more than 9 percent.
Within the framework of the Integrated Ecological Program the company has also established the environment monitoring system. At present its first stage has been implemented; in particular, the satellite environment monitoring system using remote sensing techniques has been created. Based on geoinformational technologies, the electronic ecologic map has been prepared for all areas covered by KMG’s responsibility including the Caspian Sea aquatory. The satellite monitoring system being implemented allows us to monitor changing parameters of the environment, to make adequate managerial decisions and to take appropriate response measures.
As for gas disposal, I can tell that this is one of the most important conditions set forth by the Kazakhstan’s Government when concluding development contracts. The Kashagan field and some other promising subsalt structures are defined by associated gas with high (about 19 percent) hydrogen sulfide content in sour gas. Given that, programs for developing fields in the Kazakhstan’s sector of the Caspian Sea shall provide for complete disposal of associated gas using a closed circuit with up to 75 percent of sour gas to be re-injected into the reservoir. Surplus gas will be pipelined from offshore facilities to onshore gas processing plants (GPP). The GPP’s gas conditioning system will include associated gas sweetening, liquefied fractions separation, sulfur separation and storing, as well as compression of marketable gas for pumping to Kazakhstan’s gas transportation system.

OGE: Does your company plan to construct new processing facilities for offshore projects production?
Karabalin: KMG does not restrict its activities by exploration and development during implementation of the large-scale program for developing the Kazakhstan’s sector of the Caspian Sea. KMG also works actively on developing the infrastructure and service sector for offshore operations. Currently, an integrated plan is being implemented to develop a coastal strip of the Kazakhstan’s sector of the Caspian Sea. It identifies certain facilities with specific features recommended for onshore support bases, processing plants, areas with offshore pipelines reaching land, and safe waste storing.
If KMG participates in construction of the refinery in Turkey, near Ceyhan, it will allow us to expand our oil refining and sales activities in the foreign markets; to partially solve a potential problem of bypassing the Turkish Straits; and to earn an additional income from selling oil products to ultimate consumers.

OGE: Does your company plan to increase export of offshore production through Azerbaijan and Iran?
Karabalin: As oil and gas fields in the Kazakhstan’s Sector of the Caspian Sea (KSCS) are developed, there will be a need to diversify hydrocarbon export routes. In this connection, there is work in progress to determine perspective options and to select the most expedient ones; and negotiations with transit countries are underway to establish economically attractive terms. According to our experts, if the country produces over 90 million tons of oil per year (including 21 million from the KSCS), it will be required to construct a new export pipeline in 2009. As oil production reaches 140 million tons per year (including 64 million from the KSCS), one more export pipeline will be required by 2012.
One of the attractive oil export routes goes through Azerbaijan. I mean the construction of the Kazakhstan Caspian Export System (KCES) intended for exporting Kazakhstan oil through the Caspian Sea to international markets via the East-West energy corridor by the route of Kuryk–Baku–Tbilisi–Ceyhan. To ensure export of Kazakhstan oil from the Kashagan and Tengiz fields to the Baku–Tbilisi–Ceyhan (BTC) system, it is planned to construct an oil pipeline of Yeskene–Kuryk and Trans-Caspian system to include an oil discharge terminal in port Kuryk in the KSCS, tankers and vessels, oil loading terminals on the Azerbaijani coast of the Caspian Sea, and connecting facilities to the BTC system.
Export to Iran is also of interest for Kazakhstan. Based on preliminary studies, the route of Kazakhstan–Turkmenistan–Iran is one of the economically attractive options for exporting Kazakhstan oil to markets of the Persian Gulf states. According to the project, the pipeline route starts in West Kazakhstan, runs through West Turkmenistan and further in Iran to its north region.
There are no special engineering constraints for exporting Kazakhstan oil via the Kazakhstan–Turkmenistan–Iran pipeline to the Persian Gulf terminals and further to the Southeast Asian markets. But similarly to other large-scale projects, this one will also require a lot of work on negotiating terms and conditions of its implementation taking into account both economic and political aspects and issues of safety and mutually beneficial co-operation.

OGE: Does your company have any plans to participate in offshore projects in Azerbaijan and Turkmenistan?
Karabalin: We have a long standing relationship with Azerbaijan and Turkmenistan. Indeed, as any other large company wishing to expand its business, KMG is interested in raw stock of neighboring countries. We are ready to participate in developing Turkmen and Azerbaijani sectors of the Caspian Sea, but this would be possible only under the auspices of Governments of these countries

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President of the KazMunaiGaz National Company Uzakbai Karabalin
Born in 1947
In 1970 graduated from the Gubkin Moscow State Oil and Gas University with a degree in technology and complex automation of oil and gas fields development.
Candidate of technical sciences (Ufa Oil Institute, 1985).
Academic Professor (Atyrau Oil and Gas University, 2001).
Academician of the Kazakhstan National Engineering Academy (2004).
Uzakbay Karabalin started his carrier in 1973. He held various positions at the state institutions of the oil and gas sector and was invloved in scientific work and teaching in Kazakhstan.
1994 – Deputy Minister of Energy and Fuel, Republic of Kazakhstan; Deputy Minister of Oil and Gas Industry, Republic of Kazakhstan (Almaty.)
1997 – First Vice-President of National Oil Company Kazakhoil (Almaty).
2000 – President of KazTransGaz (Astana).
2001 – Vice-Minister of Energy and Mineral Resources, Republic of Kazakhstan (Astana).
Since 2003 – President of the KazMunaiGaz National Company (Astana).

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