Energy policy of Kazakhstan

1. Energy policy of Kazakhstan

Kazakhstan owns large reserves of energy resources, and therefore the energy policy of Kazakhstan has influence over the world's overall energy supply. Although Kazakhstan has not described itself as an energy superpower, Kazakhstan's president Nursultan Nazarbayev has claimed Kazakhstan will become a factor of energy security in Asia and Europe. Kazakhstan has a strategic geographical location to control oil and gas flows from Central Asia to East (China) and West (Russia, global market).

Kazakhstan is a partner country of the EU INOGATE energy programme, which has four key topics:

enhancing energy security;

convergence of member state energy markets on the basis of EU internal energy market principles;

supporting sustainable energy development;

attracting investment for energy projects of common and regional interest.

On January 1, 2013, Kazakhstan became the first country in Central Asia to launch an economy-wide carbon emissions system to cap emissions from its biggest emitters in the energy, coal, oil and gas extraction sectors.

1.1 Overview

The Ministry of Energy and Mineral Resources was the responsible governmental agency for energy policies until March 2010 when it was dissolved and replaced by the Ministry of Oil and Gas and the Ministry for Industry and New Technologies.

In June 2003, the government of Kazakhstan announced a new Caspian Sea development program, according to which new offshore blocks of oil and gas to be auctioned. In 2005, the government introduced new restrictions granting to the state-owned oil and gas company KazMunayGas status of contractor and at least half of any production sharing agreement (PSA). New tax structure, enforced in January 2004, included a so-called "rent tax" on exports, a progressive tax that increases as oil prices grow. The amendment raised the government's share of oil income to a range of 65-85%.The new structure includes an excess profit tax, and limits foreign participation to 50 percent in each offshore project with no guarantees of operatorship.

In 2005, Kazakhstan amended the subsoil law to preempt the sale of oil assets in the country and to extend the government’s power to buy back energy assets by limiting the transfer of property rights to strategic assets in Kazakhstan.

Kazakhstan projects to inject 9.4 trillion tenge to prop up its power sector until 2030. Some 5.5 trillion tenge will be directed to power generation, 1.4 trillion to the national power grid and 2.5 trillion tenge to regional power distribution companies. The draft published in October 2012 provides for creating a unified power system, reducing environmental stress, increasing the share of renewable energy sources in Kazakhstan's power generation and introducing energy-efficient technologies.

In 2013, Kazakhstan adopted the Energy Efficiency 2020 Program that would reduce emission 10% every year until 2015. 2000 industrial enterprises would be energy audits to meet with the new law. The program in the long run reduces the amount of energy per square meter by 30% and reduce costs by 14%.

1.2 Primary energy sources.

Kazakhstan oil, gas, coal and uranium reserves are among the ten biggest in the world.

Oil.

Kazakhstan is estimated to have around 30 billion barrels (4.8109 m3) of crude oil reserves, which place it eleventh in the world. In 2000s, the oil production has increased rapidly due to foreign investment and improvements in production efficiencies. In 2006, Kazakhstan produced 54 million tons of crude oil and 10.5 million tons of gas condensate 565,000,000 bbl (89,800,000 m3), which makes Kazakhstan eighteenth-largest oil producer in the world. According to the president Nursultan Nazarbayev, Kazakhstan is planning to increase its oil production up to 3.5 million barrels (560,000 m3) of oil a day, of which 3 million will go to export. This will lift Kazakhstan into the ranks of the world's top 10 oil-producing nations. According to the former Minister of Energy and Mineral Resources Baktykozha Izmukhametov Kazakhstan plans to increase the petroleum output to 150 million tons by 2015.

The main production sites are the Tengiz field 290,000 bbl/d (46,000 m3/d), located on the northeast shores of the Caspian, and the Karachaganak field 210,000 bbl/d (33,000 m3/d), located inland near to Russian border. In future Kazakh oil production will also rely on the Kashagan field, the largest oil field outside the Middle East, which possess anywhere from 7 Gbbl (1.1109 m3) to 13 Gbbl (2.1109 m3)in recoverable reserves, and the Kurmangazy field in Northern Kazakhstan. There are some smaller oil fields neat to Chinese border, which not developed yet. 76% of Kazakhstan's oil and gas production and remaining reserves are concentrated in these three oil fields as well as the Uzen Field.

The leading oil industry is state-owned oil company KazMunayGas. The landmark foreign investment in Kazakh oil industry is the TengizChevroil joint venture, owned 50% by ChevronTexaco, 25% by ExxonMobil, 20% by the Government of Kazakhstan, and 5% by Lukarco of Russia. The Karachaganak natural gas and gas condensate field is being developed by BG, Agip, ChevronTexaco, and Lukoil. Also Chinese, Indian and Korean oil companies are involved in the Kazakhstan's oil industry.

Kazakhstan has three oil refineries: in Pavlodar, in Atyrau, and in Shymkent. Pavlodar and Shymkent refineries process West Siberian crude oil, which is imported through the Omsk (Russia) - Pavlodar (Kasakhstan) - Shymkent - Trkmenabat (Turkmenistan) pipeline.

Natural gas

Kazakhstan's domestic hydrocarbon reserves amount to 3.3–3.7 trillion cubic metres of gas, of which 2.5 tcm are proven. However, Kazakhstan became a net gas exporter only in 2003. In 2007, Kazakhstan produced 29 bcm of natural gas and plans to increase its gas output to 60-80 bcm a year by 2015. The major natural gas fields are Karachaganak, Tengiz, Kashagan, Amangeldy, Zhanazhol, Urikhtau and Chinarevskoye. Kazakhstan's major gas company is KazMunaiGaS JSC that has a reported annual income of about $3 billion in 2013.

Coal

Although Kazakhstan is a substantial producer of oil and gas, coal has dominated both energy production and consumption. It contains Central Asia's largest recoverable coal reserves, with 34.5 billion short tons of mostly anthracitic and bituminous coal. Major coal fields are Bogatyr and Severny. In 2005, Kazakhstan was the 9th biggest producer of coal in the world, and the 10th global exporter.Russia is the largest importer of Kazakh coal, followed by Ukraine. The biggest coal production company is Bogatyr Access Komir, which accounts for approximately 35% of Kazakh coal output.

Uranium

Kazakhstan is the number one country in the world for uranium production volumes, and it owns the world second biggest uranium reserves after Australia (around 1.5 million tons or nearly 19% of the explored reserves of uranium in the world). In 2012 Kazakhstan produced 20,900 metric tons of uranium, of which 11,900 metric tons were produced by Kazatomprom, a state-owned holding company (2011: 19,450 total / 11,079 Kazatomprom).Kazatomprom also represents Kazakhstan in the joint ventures with Russian Tekhsnabexport, French AREVA and Canadian Cameco.

All of produced uranium is going for export as the country's only nuclear power plant in Aktau was shut down in June 1999. There is a plan to build a new 1,500 MW nuclear plant in the southeast of Kazakhstan, near Lake Balkash.

According to the mayor, Kyzylorda is planning to produce two-thirds of Kazakhstan's uranium by 2015.

In 2014, Kazakhstan and the IAEA will sign an agreement to establish a low-enriched uranium fuel bank. The bank will be a place for countries to contribute uranium and disperse it to other nations safely for energy means with the IAEA being the governing body.[24]

In August 2013, IAEA Director General Yukiya Amano visited Kazakhstan to further discussions on the fuel bank and praised Kazakhstan's contribution to nuclear non-proliferation.

Electricity

The Law on Electricity was adopted in July 2004. Another basic act regulating electricity market is the Law on Natural Monopolies, which was last amended in December 2004. The market regulator is the Agency for Regulation of Natural Monopolies (ANMR).

Kazakhstan's electricity system includes 71 power plants with total installed capacity of 18,572 MW. the largest power plant is Ekibastuz GRES-2.

86.5% of electric power generation has been privatized. The government does not regulate prices for electricity, and consumers have free choice among providers of electric power (currently there is 15 licensed electricity traders). Transmission system is owned and operated by the state-owned company KEGOC. As of 1 January 2006, the total length of transmission lines was 23,383 km.There are 18 regional distribution (sale) companies. Government regulates transmission and distribution tariffs.

Renewable energy

Kazakhstan possesses 5 operational hydroelectric plants which provide roughly 12% of the electricity generation. The majority of the facilities are located on the Irtysh River. Other renewables are largely undeveloped although Kazakhstan has potential in renewable energy resources. Renewable energy sources could be particularly attractive in isolated rural areas.

Nuclear energy

Kazakhstan currently has no nuclear power generation capacity, as the Aktau nuclear reactor, the country's only nuclear power plant, was shut down in June 1999. However, there is currently a plan to build a new 1,500 MW nuclear plant in the southeast of Kazakhstan, near Lake Balkash.

1.3 Energy transportation

Kazakhstan's oil pipeline system is operated by KazTransOil which was formed in 1997 when the two previous oil pipeline companies were combined. It is owed 100% by KazMunaiGaz which is also the owner of KazTransGaz which along with KazRosGaz are the two principle gas transportation companies. KazRosGaz is a joint venture between KazMunaiGaz and Gazprom which is involved in the export and trade of gas with Russia.

Main oil export routes are the Caspian Pipeline Consortium and the Atyrau-Samara oil pipeline to Russia, and Kazakhstan-China oil pipeline to China. Kazakhstan is also a transit country for the Omsk (Russia) -Pavlodar (Kasakhstan) -Shymkent - Trkmenabat (Turkmenistan) pipeline.

The Kazakhstan oil infrastructure is considered to be in poor condition which has constrained possible exports. Currently exports excluding the Caspian Pipeline Consortium is limited to 500,000 bbl/d (79,000 m3/d). Kazakhstan is also further hampered as the oil pipeline infrastructure is not set up to transport oil from the producing assets in the west to the main refineries located in the east of the country. The CPC provides an important outlet for Kazakhstan oil and it is expected that it will be up graded so as to export close to 15,000,000 bbl/d (2,400,000 m3/d).

The natural gas trunk pipeline system stretches 10,138 kilometers. The major transit pipelines are the Central Asia-Center gas pipeline system and the Bukhara-Urals pipeline, which transport natural gas from Turkmenistan and Uzbekistan to Russia, and Orenburg-Novopskov pipeline and Soyuz pipeline from Orenburg processing plant to Europe. The Gazli-Bishkek pipeline transports natural gas from Uzbekistan to Kyrgyzstan. The Central Asia-Center and the Bukhara-Urals pipelines as also the Bukhara-Tashkent-Bishkek-Almaty pipeline are also main import pipelines. The main gas export goes to Orenburg processing plant in Russia. The export to Russia goes also through the Central Asia-Center and the Bukhara-Urals pipelines. There is plan to build a natural gas pipeline to China. To supply this pipeline, the Ishim (Rudny)-Petropavlovsk-Kokshetau-Astana pipeline is planned.

1.4 International cooperation

Kazakhstan - the European Union

On 4 December 2006, Kazakhstan and the European Union signed a Memorandum of Understanding (MoU), which sets the framework for deeper energy cooperation. The memorandum establishes road maps on energy security and industrial cooperation.

Kazakhstan - Russia

Kazakhstan and Russia have close cooperation on energy issues. On 3 October 2006 during the presidents' meeting in Oral, Kazakhstan and Russia agreed to set up a gas-condensate-processing joint venture between Gazprom and KazMunayGas in Orenburg, which will be supplied from the Karachaganak field.[31] The gas supply agreement was signed on 10 May 2007 in Astana.

On 7 December 2006, an agreement was signed, in which Russia pledged to assist Kazakhstan in its nuclear program in return for shipments of uranium from Kazakhstan to Russia, where the uranium will be enriched. In addition, President of Kazatomprom Moukhtar Dzhakishev, and director of Russian uranium trader Tekhsnabexport Vladimir Smirnov signed a deal in which Tekhsnabexport will provide information regarding construction, transportation and logistics to help Kazakhstan develop its nuclear program. Russia already agreed earlier in 2006 to help Kazakhstan build two nuclear power plants.[33] On 10 May 2007, Russia and Kazakhstan agreed to set up an international uranium enrichment center in Angarsk, East Siberia. The center is planned to come on stream in 2013.

On 12 May 2007, Russia, Kazakhstan and Turkmenistan signed an agreement providing for Central Asian gas to be exported to Europe though the reconstructed and expanded western branch of the Central Asia-Center gas pipeline system.

Energy policy of Kazakhstan