KAZAKHSTAN: GAS PRODUCTION AND TRANSPORTATION UPDATE

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SUBJECT: KAZAKHSTAN: GAS PRODUCTION AND TRANSPORTATION UPDATE

REF: (A) ASTANA 0862
(B) ASTANA 0166


1. (U) Sensitive but unclassified. Not for public Internet.


2. (SBU) SUMMARY: Officials from the Ministry of Energy and
Mineral Resources and national oil company KazMunaiGas recently
briefed Energy Officer on the latest natural gas production
forecasts and pipeline projects. END SUMMARY.

ABOUT 30 BCM PRODUCED IN 2008


3. (SBU) According to the Managing Director for Gas Industry
Development at KazMunaiGas (KMG),Mussabek Issayev, Kazakhstan has
3.3 trillion cubic meters of natural gas reserves and in 2008,
produced 30 billion cubic meters (bcm) of gas. Approximately 12
bcm, or 40 percent of Kazakhstan's total production, was re-injected
at the Karachaganak and Tengiz fields to maintain pressure for oil
production. An additional 2.5 bcm was flared for technical reasons,
while 11 bcm from the Karachaganak, Tolkyn, and Tengiz fields was
exported. To meet domestic demand, Kazakhstan imports 1 bcm from
Russia to supply its northern regions, and 3 bcm via swap operations
with Uzbekistan to supply its southern regions.

REINJECTION HINDERS GAS MARKET


4. (SBU) Issayev said he expects Kazakhstan to produce up to 100
bcm of natural gas by 2020. He anticipates that the Karachaganak,
Tengiz, Zhanazhol, and Kashagan fields will be responsible for 92
percent of all natural gas production. Issayev also said he expects
Tengizchevroil (TCO) to reinject 40 percent of Tengiz gas,
Karachaganak Petroleum Operating B.V. (KPO) to reinject 40 percent
of its gas, and the North Caspian Operating Company (NCOC) to
reinject 80 percent of the gas produced at Kashagan. "As a result,"
said Issayev, "only 35 bcm will be for sale, of which 15-18 bcm will
be consumed domestically, and 15-17 bcm will be exported."
According to Issayev, KMG is studying alternatives to gas
re-injection to maintain field pressure. "As the price of gas
steadily increases, it is much more profitable to sell more gas and
re-inject less," he said. Issayev hypothesized that carbon dioxide,
nitrogen, and water could be used instead of gas to maintain
pressure in the wells for oil production.

THE KAZTRANSGAS MONOPOLY


5. (SBU) As reported in reftel B, KMG subsidiary KazTransGas (KTG)
owns and operates all of the gas pipelines in Kazakhstan. KTG
transports gas to export markets via subsidiaries such as Intergas
Central Asia, which operates the Kazakhstani part of the Central
Asia-Center gas pipeline, and Asian Gas Pipeline, a joint venture of
KTG and the CNPC subsidiary that manages the Kazakhstan-China gas
pipeline. KTG transports gas to domestic markets via regional
subsidiaries such as KazTransGas-Aimak. Issayev told Energy Officer
that "even though the Central Asia-Center gas pipeline was built 40
years ago, it still safely transits 45 bcm of Turkmen gas, 10 bcm of
Uzbek gas, and about 5 bcm of Kazakhstani gas a year."

CASPIAN LITTORAL GAS PIPELINE


6. (SBU) On December 22, 2007, Kazakhstan, Russia, and Turkmenistan
signed an agreement to build the 1,600-kilometer (km) Caspian
Littoral (Prikaspiskiy) Gas Pipeline, with a 20-bcm designed annual
throughput capacity. Of the pipeline's 1,600 km length, only 10 km
will be built by Russia, 795 km by Kazakhstan, and 795 km by
Turkmenistan. According to an April 9 statement by Gazprom CEO
Alexei Miller, the capacity of the Caspian Littoral pipeline might
be increased by another 20 bcm. Kazakhstan will transit 10 bcm of
Turkmen gas from Belek and export 10 bcm of its own gas via Beineu
to Russia's Alexandrov Guy. According to Timur Imashev, Director of
Gas Industry Development at the Ministry of Energy and Mineral
Resources (MEMR),Kazakhstan will fill the pipeline with gas from
Karachaganak and Tengiz, in addition to new offshore fields such as
the N Block, Pearls, and Kashagan, if needed. He told Energy

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Officer on June 8 that the project is expected to be completed in

2013.


7. (SBU) Imashev sees the Caspian Littoral pipeline as an extension
and modernization of the existing Central Asia-Center gas pipeline
and does not anticipate any technical difficulties with the project.
However, he said that ongoing negotiations between Turkmenistan and
Russia over the price of Turkmen gas might delay the launch of the
project. Imashev expects that 30 bcm of gas will be supplied by
Turkmenistan and up to 10 bcm by Kazakhstan. "Kazakhstan does not
really care whether Turkmenistan has gas, or how much they have," he
said. "We just want guarantees that they will pay the transit
fee."

KAZAKHSTAN-CHINA GAS PIPELINE


8. (SBU) A 1,300-km Kazakhstan-China gas pipeline with an annual
capacity of 40 bcm will transit Turkmen gas to Uzbekistan's border
with Kazakhstan, and then to the Chinese city of Khorgos. MEMR's
Imashev told Energy Officer that 13 bcm a year would be supplied
from a Turkmen gas deposit currently being developed by CNPC on the
right bank of the Amu Darya River, and 17 bcm would be purchased by
China from Turkmenistan. On July 10, Beimbet Shayakhmetov, Director
General of the Asian Gas Pipeline company, announced that the first
segment of the pipeline would be completed by November 2009.
According to Shayakhmetov, the pipeline would only carry
approximately 4.5 bcm a year, but it is expected to reach full
capacity by late 2013. Once the pipeline is at full capacity, 30
bcm will be transported to China and 10 bcm will be used
domestically. The Kazakhstan-China gas pipeline will consist of two
parallel pipelines, with a diameter of 1,067 millimeters and a
length of 1,304.5 kilometers. The main contractors of the project
will be Kazakhstan's KazStroyService and China Petroleum Pipeline
Engineering.

BEINEU-BOZOI-AKBULAK


9. (SBU) The 1,510-km Beineu-Bozoi-Akbulak gas pipeline will
connect the Central Asia-Center and Kazakhstan-China gas pipelines.
KMG's Issayev told Energy Officer that the pipeline would not only
help Kazakhstan secure gas for Kyzylorda, South Kazakhstan, Zhambyl,
and Almaty oblasts, but also help the Chinese ship Kazakhstani gas
from the CNPC-operated oil and gas fields in Aktobe and Mangistau
oblasts. The Bozoi-Akbulak segment of the pipeline has a 5 bcm
annual throughput capacity and was officially opened on January 22.
Completion of the Beineu-Bozoi segment would increase the pipeline's
capacity to 10 bcm and is expected to be completed when the second
stage of the Kazakhstan-China gas pipeline comes on stream.


10. (SBU) MEMR's Imashev said that the Beineu-Bozoi-Akbulak
pipeline would reduce dependence of the western regions of
Kazakhstan on Uzbek gas obtained via swap operations. He complained
that "Uzbekistan is problematic, as it often plays games." Imashev
explained that Kazakhstan does not have a direct contract with
Uzbekistan which would give Kazakhstan leverage to impose fines for
breaching terms. "If we had a contract," he explained, "then
Uzbekistan would increase the price from $80 to $300."

HOAGLAND