KAZAKHSTAN - ASTANA CONFERENCE DISCUSSES SULFUR STORAGE,

UNCLAS SECTION 01 OF 02 ASTANA 001368 SIPDIS SENSITIVE E.O. 12958: N/A TAGS: EPET SENV PGOV PREL KZ SUBJECT: KAZAKHSTAN - ASTANA CONFERENCE DISCUSSES SULFUR STORAGE, TRANSPORTATION, AND SALE SUMMARY -------------- ¶1. (U) The Kazakhstan-Canada Business Association (KCBA),in partnership with Canada's Alberta Sulfur Research Ltd. organized the First International Conference on Sulfur Reutilization and Sustainable Development in Astana on July 9. Representatives of the Ministry of Energy and Mineral Resources, Ministry of Industry and Trade, Shell, Chevron, TengizChevrOil, Agip KCO, the Kazakhstan Oil and Gas Institute, the nuclear joint venture Inkai (owned by Kazakhstan's national nuclear holding company Kazatomprom and Canada's Cameco Corporation),the nuclear joint venture Catco (owned by Kazatomprom and France's Areva),and others discussed the environmental impact of sulfur, its storage, transportation, and utilization, and other regulatory and business issues relevant to sulfur. End Summary. SULPHUR SOLD TO 24 COUNTRIES -------------- ¶2. (U) As of January 1, 2008, Tengizchevroil (TCO) was storing 8.4 million tons of sulfur in open-air storage at the Tengiz oil field. In 2007, TCO produced 1.6 million tons of sulfur. TCO's second generation expansion will result in significantly increased sulfur production, up to 2.4 million tons per year. According to TCO Rail Transportation Manager Ruslan Davletukayev, of the 2 million tons of sulfur sold by TCO in 2007, 40% (approximately 800 thousand tons) were sold to Mediterranean countries (Morocco, Israel, Egypt, etc.); 32% to Russia and other CIS countries; 24% to China; and 4% to Kazakhstan. Sulfur is supplied to 24 countries in one of four forms -- granulated, liquid, flake, or lump form. During the second half of 2008, TCO plans to introduce additional granulating equipment, thereby increasing the production of granulated sulfur, which is the standard form for shipping and the one preferred by customers. TCO also ships liquid sulfur in 300 special heated tank-cars to the CIS (mostly to Russia's Balakov Plant). Flake sulfur is shipped to China and the CIS in 700 covered rail wagons. According to Chinese regulations, flake sulfur must be shipped in 50-kilogram polypropylene bags, and be granted special shipment permission from a lab at the Urumchi railway station. Sulfur in lumps is shipped in standard gondolas (semi-wagons),covered with a special fabric, to the CIS, Morocco, Egypt, and other countries. OFFICIAL CLAIMS OPEN SULFUR STORAGE IS A HAZARD �00A; -------------- -------------- ¶3. (U) Raushan Sarmurzina, Director of the Petrochemical Department at the Ministry of Energy and Mineral Resources, claimed that although sulfur is not classified as a toxic element, long-term open storage may have adverse environmental effects, including the formation of sulfuric acid, sulfur oxidation (decay),and discharge of toxic hydrogen sulfide. (Note: TCO's position is that it takes appropriate measures to minimize the risks associated with open storage of block sulfur. End Note.) ¶4. (U) Rita Sagyndykova, Senior Manager of the Kazakhstan Oil and Gas Institute (KOGI); Almagul Kushugulova, Director of Genetics and Biochemistry Lab at the National Center for Biotechnology; and Paul Davis, General Manager of Alberta Sulphur Research Ltd. enumerated the advantages of underground sulfur storage over above-ground sulfur storage. Sulfur oxidation is reduced through underground sulfur storage. Moreover, with above-groud storage, controlling acid run-off is costly, and to neutralize the effects of exposure, sulfur blocks must be coated with some form of coating (including acrylics, limestone, breathable membranes capped in soil, or spray-on layers). Similarly, with above-ground storage, sulfur block temperatures must be controlled to prevent decay. ¶5. (U) In March 2007, President Nazarbayev called for the creation of a National Sulfur Storage Center (NSSC). According to Sagyndykova, the legal aspects of the NSSC must be carefully considered because there is no precedent for the establishment and operation of such a center either in Kazakhstan or abroad. The Ministries of Energy and Environmental Protection are expected to monitor and control NSCC compliance with legislation and environmental regulations. The project will be designed by KOGI and the tender process for construction and operation administrated by the Caspi social-entrepreneurial corporation. SULFUR UTILIZATION -------------- ¶6. (U) Campbell Keir, Managing Director of Shell Kazakhstan Development; Aibat Sherikbayev, Acting Chairman of KCBA; Pascal Bernasconi, Director of Catco; Serghey Breus, General Director of Inkai; and Almagul Kushugulova proposed alternative uses of sulfur such as making asphalt, concrete, and micro-fertilizers. Shell specifically has an extensive history of sulfur utilization, working for more than 60 years with regional authorities in Canada. ASTANA 00001368 002 OF 002 ¶7. (U) Sulfur is used to produce sulfuric acid, which is a vital component in the processing of uranium. One processed kilogram of uranium requires as much as 50-150 kilograms of sulfuric acid for production, and the demand for sulfuric acid is expected to increase as Kazakhstan boosts its uranium output from 9,000 tons in 2008 to an expected 12,000 in 2009. During her press interview at the forum, Sarmurzina mentioned that Kazatomprom plans to build two sulfuric acid plants, one in Kyzylorda Oblast and the second in the city of Stepnogorsk in North Kazakhstan Oblast, which are expected to respectively process 250,000 and 300,000 tons of sulfur respectively annually. TRANSPORTATION PROBLEMS HINDER SALES -------------- ¶8. (U) Most of the speakers acknowledged the challenges TCO continues to face regarding sulfur transportation. For example, of the 22,500 rail cars TCO owns, 4,300 are used to ship sulfur. Sulfur is shipped via one of two hubs -- Alashankou (on the border with China),and the Ilyichevsk seaport in the Ukraine. TCO also faces complications with additional shipment requirements posed by Kazakhstan's Temir Zholy national railway company. According to Sarmurzina, as much as 3 million tons of sulfur a year could be sold if transportation capacity was expanded. COMMENT -------------- ¶9. (SBU) With sulfur prices at record levels, TCO is effectively sitting on $4-6 billion worth of sulfur, and the consortium's sulfur sales are becoming an important profit stream, yielding $120 million during the first quarter of 2008. A June meeting between Chevron CEO Dave O'Reilly and President Nazarbayev has reportedly produced an acceptable compromise on the $300 million environmental fine levied against TCO for sulfur storage. TCO, of course, has maintained all along that it received all the necessary permits for sulfur production and that no permits are necessary -- or available -- for continued sulfur storage. End Comment. ORDWAY 3