Development of oil products market, gas supply, introduction of renewable energy sources — Nurlan Nogayev reports on work of the Ministry of Energy

Minister of Energy of the Republic of Kazakhstan Nurlan Nogayev, within the framework of a reporting meeting with the population, spoke about the results of the industry development for 2020, as well as plans and objectives for 2021.

Thus, according to Nurlan Nogayev, the current activity of the ministry is focused on such strategic directions as:

1. development of the oil and gas, as well as oil, gas and chemical industries;

2. development of the electric power industry, the use of atomic energy and renewable energy sources.

At the same time, the department also conducts state policy in the main spheres of life of the population in terms of the implementation of gas infrastructure, electricity supply and provision of the population with oil products.

However, as the head of the Ministry of Economy of the Republic of Kazakhstan noted, the spread of the coronavirus has significantly affected the energy market. In this connection, some amendments were made to the production figures for the past year.

“At the present time, amid volatility in oil prices and the unstable development of the world economy, the task of the ministry is aimed at uninterrupted supply of the country's economy with energy resources, by maintaining the achieved level of extraction of minerals and jobs in production, ensuring a high level of competitiveness, national and energy security. maximum efforts to improve the livelihoods of the country's citizens. In connection with the spread of coronavirus infection, since February last year, the Ministry has been operating an Operational Headquarters to monitor the situation with COVID-19 with the participation of interested companies,” Nurlan Nogayev said.

An operational report on the situation on projects is received by the Headquarters on a daily basis.

Currently, all oil and gas companies have developed and approved action plans to prevent the spread of coronavirus infection and ensure preparedness in the event of a worsening epidemiological situation.

Oil and gas companies are actively involved in the fight against the spread of coronavirus infection. So, in 2020, they allocated about 16 billion tenge for social assistance. In particular, modular infectious diseases hospitals were built in the cities of Atyrau and Aktau, a multidisciplinary hospital complex in Kulsary, medical equipment, transport, etc. were purchased.

In the conditions of the pandemic, as a result of which the balance of demand and production of oil changed, Kazakhstan had to cut the plan for oil and condensate production, the volume of which at the end of 2020 amounted to 85.7 million tons (101% of the plan for 2020).

“The forecast for oil production for 2021, taking into account the existing restrictions, is 85.3 million tons. At the same time, the restrictions have a positive effect on the cost of oil, which in turn contributes to the development of the country's economy,” Nurlan Nogayev informed.

By the end of 2020, oil exports amounted to 68.6 million tons (102% to the 2020 plan). The plan for 2021 is 67.5 million tons.

The volume of oil refining at the end of 2020 amounted to 15.8 million tons (102% to the plan for 2020). The plan for 2021 is 17 million tons.

The volume of production of petroleum products at the end of 2020 amounted to 11.5 million tons (102.9% to the plan for 2020). The plan for 2021 is 12.4 million tons.

At the same time, three large oil and gas projects — Tengiz, Karachaganak and Kashagan — also remain the drivers in the country's oil production. They will make it possible to make a significant contribution to the economic growth of the country in the medium term.

At the end of 2020, the total volume of oil production under the three projects amounted to 53.8 million tons, the volume of gas production - 44 billion m3. The plan of projects for oil production for 2021 is 53.5 million tons, for gas — 44 billion m3.

To date, projects for further expansion and extension of production are being implemented at all three fields.

So, at the Tengiz field, a Future Expansion Project is being implemented with a cost of $45.2 billion (as of May 1 of this year, the project costs amounted to $35.4 billion). Completion of the project is scheduled for 2023, which will increase production by 12 million tonnes per year. Kazakhstani content in the project is 36%, plans are to increase the share of content to 52%. The overall progress of work on the project is 82.3%, while the plan is 87% by the end of this year.

According to the protocol instruction of the Head of State within the framework of the Council of Foreign Investors (dated Nov. 18, 2020) on the effective participation of the state in the implementation of the Kashagan project, the construction of a gas processing plant based on raw materials from the Kashagan field with a capacity of 1 billion m3 of raw gas worth $860 million has begun this year.

“A result expected from the implementation of this project — an increase in oil production from 8 to 10 million tons during the contract period (until 2041). By the end of this year, it is planned, together with the operator, to work out the concept of further expansion of the Kashagan project,” added the head of the Ministry of Energy of the Republic of Kazakhstan.

In December 2020, on the Karachaganak project, a final investment decision was made regarding the implementation of a large investment project to expand the PRK-1A, taking into account the introduction of an additional 5th sour gas re-injection compressor, which will further support the level of liquid hydrocarbon production up to 10-11 million tons per year. The project budget is $ 970 million. Completion date is 2025.

Nogayev also noted the completion of long-term negotiations on Karachaganak, as a result of which, having paid $1.3 billion to Kazakhstan, in 2020 the International Consortium made changes to the method of distribution of manufactured products, which also amounts to about $600 million until the end of the contract.

Further implementation of these projects is under the constant control of the ministry.

According to the Minister of Energy, the oil product market has been hit hardest by the pandemic. Thus, the volume of production of petroleum products (jet fuel, diesel fuel, fuel oil, gasoline) at the end of 2020 amounted to 11.5 million tons. This circumstance is associated with a decrease in demand for light oil products in the domestic market, due to the quarantine measures introduced in 2020.

At the same time, the ministry has taken a number of measures to help support the oil products market, in particular, the abolition of the ban on the export of oil products by road outside the country and the Customs Union, the introduction of a ban on the supply of gasoline, diesel and aviation fuel to Kazakhstan by rail, road and pipeline transport, zeroing of the rates of export customs duties on oil products, incl. for gasoline, diesel fuel and fuel oil.

In addition, the minister commented on the increase in gasoline prices.

As Nogayev explained, the oil products market is highly volatile, subject to the influence of many factors — the taxation system, pricing and provision of fuels and lubricants both in the domestic market of Kazakhstan and in neighboring countries (uncontrolled flow), seasonality of demand, information on technological failures or overhauls on Refinery. He also added that Kazakhstani gasoline is considered one of the cheapest in comparison with the CIS countries.

At the same time, in the case of low prices on the domestic market, there is a threat of a deficit due to the flow of the domestic product to neighboring markets, and in the case of high prices, a surplus of imported gasoline is possible and, as a result, overstocking of Kazakhstani warehouses with domestic fuel, followed by a decrease in refining volumes by Refinery of the Republic of Kazakhstan. To minimize the consequences, the following measures have been taken:

  • the export of fuels and lubricants has been stopped since January 2021;
  • a ban was introduced on the export of fuels and lubricants by road, as well as in non-standard auto tanks and cans with a volume of more than 20 liters;
  • the start date of repairs by PKOP LLP has been postponed from April to May.

“At the same time, I would like to note that the price of oil supplies by subsoil users to the domestic market for processing raw materials is much lower than export prices. Thus, subsoil users lose some benefit and provide significant support to the oil product market,” the minister said.

Work is underway to create an information system for accounting for oil and gas condensate in accordance with the state program "Digital Kazakhstan" and the Code of the Republic of Kazakhstan "On Subsoil and Subsoil Use". At present, together with the Ministry of Digital Development, Innovation and Aerospace Industry of the Republic of Kazakhstan, a joint order has been signed on the commissioning of the "Information System for Accounting for Oil and Gas Condensate".

In the pilot mode, 7 oil producing organizations, 4 oil transportation organizations and 3 oil refineries are connected.

In general, the following activities are planned for the current year:

1. Putting into commercial operation an information system for accounting for oil and gas condensate;

2. Inclusion of organizations carrying out more than 60% of the total production and processing of oil and gas condensate.

One of the priority areas of the ministry's activities is the development of the gas industry and gasification. In 2020, the volume of gas production amounted to 55.1 billion cubic meters of gas (99.8% of the 2020 plan). The plan for 2021 is 54.4 billion cubic meters of gas.

Taking into account the assumed obligations, the gas production plan was revised due to the fact that gas is associated with oil production. That is, the decline in oil production affected gas.

By the end of 2020, the production of marketable gas amounted to 30.5 billion cubic meters. m (100% to the plan). The plan for the production of marketable gas for 2021 is 30 billion cubic meters. The volume of gas exports in 2020 amounted to 10.7 billion cubic meters (101% of the plan for 2020). The plan for 2021 is also 10.7 billion cubic meters.

The production of liquefied gas in 2020 amounted to 3.2 million tons. (100% to the 2020 plan). The plan for 2021 is also 3.2 million tons.

Also, within the framework of the President's Address to the people of Kazakhstan, by the end of 2021, a full transition to the sale of liquefied petroleum gas through electronic trading platforms will be carried out, which will give transparency and competitiveness to this industry, and in order to reduce administrative barriers for business, the institute of accreditation of gas network organizations will be canceled.

In 2020, 38.5 billion tenge was allocated for the implementation of 51 gasification projects. As a result of the completion of 19 projects worth 13.8 billion tenge, the country's gasification level was 53.07% (51.47% in 2019) or 9.84 million people have access to gas.

Minister of Energy Nurlan Nogayev noted that the funds allocated for gasification are increasing annually. In accordance with the instructions of the Head of State, an analysis was carried out and 1,227 objects were identified that were not transferred to the balance of operating organizations, worth more than 302 billion tenge. To date, 427 objects have been transferred for a total amount of 91.8 billion tenge. Additionally, a draft resolution was prepared on the transfer of 57 objects for the amount of 15 billion tenge. The share of gasification of the population by the end of 2021 is projected at 53.8%, or 140 thousand people will have access to gas.

Also in 2021, it is planned to approve the Comprehensive Plan for the Development of the Gas Industry and update the General Scheme for Gasification of the Republic of Kazakhstan, which will allow efficient use of the country's energy resources and rational distribution of budgetary funds during the construction of gas distribution networks.

The next direction of the ministry's activity is the development of the petrochemical industry.

Currently, the republic has a production of aromatic hydrocarbons, a plant for the production of polypropylene and octane-enhancing additives for gasoline, as well as plants for the production of lubricating oils.

In connection with the commissioning of new enterprises and an increase in the volume of production by operating plants, an increase in the production of petroleum and gas chemical products is observed annually. Thus, the volume of products manufactured in 2020 amounted to 360 thousand tons, which is 6 times more than in 2016. At the end of 2020, the growth in production of petrochemical products increased by 155% compared to 2019, of which 80% of products were exported.

In April this year, the French company Air Liquide Eastern S. A. jointly with KazMunayGas JSC launched a plant in the Atyrau region worth $16 million for the production of technical gas (with a capacity of 91 million cubic meters).

Today, two plants are under construction with the production of polypropylene (with a capacity of 500 thousand tons per year) in the Atyrau region and the production of MTBE and powdered polypropylene in Shymkent (with a capacity of 57 thousand and 81 thousand tons), respectively, the overall progress in the implementation of projects is 87% and 99%. After the launch of the plant for the production of polypropylene, 11 types of products will be produced in the first place with the expansion of the range to 64 in the future.

To date, 273 contracts for subsoil use have been concluded, including 251 contracts for hydrocarbons and 22 contracts for uranium. In total, 11 contracts were signed in 2020.

The volume of investments in exploration work amounted to 99.6 billion tenge. Electronic auctions for subsoil use have been organized since September 1, 2020. To date, 2 electronic auctions have been held, at which 15 sites have been sold, the total amount of the subscription bonus amounted to 10.8 billion tenge.

At present, the ministry is working to fulfill obligations by subsoil users to finance research and (or) experimental design work. The obligation to finance scientific research and (or) experimental design work by subsoil users is provided for in 175 contracts (273 in total) for subsoil use. At the end of 2020, R&D funding by subsoil users amounted to 17.1 billion tenge.

“In accordance with the Address of the Head of State to the people of Kazakhstan dated September 2020, it was instructed to ensure transparency in the process of financing science and technology, centralize the collection and distribution of funds from subsoil users within the framework of contractual obligations to finance R&D projects in the amount of 1% of production costs, through the budget, taking into account nationwide scientific priorities. At the same time, a mechanism for financing R&D projects has been developed by means of a phased transition in 2024 by 100% (2022 - 50%, 2023 - 75%) to the centralization of deductions from subsoil users in the amount of 1% of production costs for science through the republican budget,” he said.

The developed mechanism provides for the selection of R&D projects on a competitive basis with mandatory state scientific and technical expertise (expertise is necessary to determine the scientific novelty, relevance and compliance of the project with scientific priorities), and submission for making a decision on financing R&D projects for consideration by the relevant National Scientific Council.

At the same time, R&D projects will be selected in accordance with national scientific priorities approved by the Higher Scientific and Technical Commission under the Government of the Republic of Kazakhstan. The next project is the unified state subsoil management system (USSU). The system has been operating since 2014 and is a reporting tool for subsoil users. This system also monitors the execution of license contracts and collects operational information on oil production, transportation and refining.

“Today 147 subsoil users are registered in the unified state management system. 3 government services of the ministry are automated,” Nogayev said.

Within the framework of this project, the following work is planned to automate the functions of the Ministry:

  • automation of the plan and schedule for the supply of oil and oil products;
  • digitalization of existing contracts and additions to them (concluded before 2018) for further monitoring of the fulfillment of the obligations of license contracts;
  • complete transition of reporting to electronic format.

Currently, the ministry pays great attention to the development of local content in the procurement of goods, works and services of subsoil users. At the end of 2020, the total volume of purchases of goods, works and services of subsoil users of hydrocarbon raw materials and uranium mining amounted to about 5.4 trillion tenge. At the same time, the share of local content in these purchases amounted to 46%.

As part of the state support of local entrepreneurs during the pandemic, amendments were made to the Rules for the acquisition by subsoil users and their contractors of TRU used in exploration or production of hydrocarbons and uranium mining, allowing subsoil users to purchase goods of Kazakhstani origin from one source without holding competitive procedures.

In the oil and gas industry, two projects created by international oil companies are notable examples: the International Center for the Development of Mechanical Engineering and the Direct Investment Fund for Local Content Development.

The Machine-Building Center was created to resolve issues of non-compliance with technical requirements and increase the industrial competence of local manufacturers, which are necessary for large oil and gas enterprises.

At the same time, Chevron is creating a Local Content Development Direct Investment Fund with the aim of investing in Kazakhstani enterprises.

Electricity production in Kazakhstan is carried out by 181 power plants (including RES) of various forms of ownership (most of them are private).

In 2020, within the capacity market in the electric power generation sector, the volume of attracted investments amounted to more than 82 billion tenge.

Electricity generation in 2020 amounted to 108 billion kWh. At the same time, electricity consumption amounted to 107.3 billion kWh, which shows that the country's demand for electricity is fully covered.

At the expense of the republican budget, 24 projects are being implemented for the amount of 31.4 billion tenge, of which 6 projects have been completed. The implementation of 6 projects made it possible to provide a reliable and uninterrupted power supply for about 120 thousand people; heat supply for 18.1 thousand people and 10 social facilities.

During the construction period, 902 jobs were created, of which temporary — 718, permanent — 184.

In order to increase the inflow of investments into the industry, the Ministry took measures to increase the maximum permissible limit from 10 to 30 billion tenge per year for modernization, reconstruction and renovation power plants. To stimulate the construction of flexible capacities, amendments have been made to the current legislation on the electric power industry.

According to the minister, one of the important points in the industry is the reform of the Centralized Electricity Trading System to ensure transparency in the market.

In 2021, it is planned to generate 109 billion kWh. electrical energy.

This year work will continue in accordance with the Electricity Law to stimulate the construction of flexible capacities and the implementation of the Hydropower Development Plan.

At the same time, as of today, the Ministry has developed and approved the Plan for the placement of generating plants with a maneuverable mode of generation with the definition of the zone, type of power plant, the required volumes of maneuverable capacities in the zone of the Unified Electric Power System of the Republic of Kazakhstan. The plan for the placement of generating plants with a maneuverable mode of generation identified promising sites for the construction of maneuverable capacities.

Also, at the end of 2021, it is planned to hold an auction for the selection of investment projects. The development of flexible capacities is a prerequisite for ensuring the country's energy security, given the growing consumption of electricity and the share of alternative and renewable types of energy in the energy balance.

In addition, incl. it is planned to develop a Smart Grid concept, which will be aimed at providing real-time data automation in terms of generation, transportation and consumption.

In pursuance of the order to ensure the integrity of the energy system, with the involvement of a specialized organization, a preliminary feasibility study is being developed in order to determine the most optimal solution for connecting the electrical networks of the Western zone with the Unified Electric Power System.

The unification can be realized through the construction of a 500 kV line along three possible routes:

  • from the city of Aktobe to the city of Atyrau;
  • from the city of Zhezkazgan to the city of Atyrau;
  • from the city of Shymkent to the village of Beineu, Mangystau region.

"The implementation of this measure will allow to provide reliable power supply to consumers in western regions and use the potential of gas generation in the region as a maneuverable capacity to regulate imbalances in the country's energy system," Nogayev said.

In pursuance of the instructions of the Head of State to strengthen the electrical network of the Western zone of the unified electric power system of Kazakhstan, a project has been launched to build power grid facilities of the second circuit of the existing 220 kV transit Uralskaya - Pravoberezhnaya - Inder - Atyrau - Kulsary - Tengiz.

At the same time, in order to prevent emergency outages in the southern regions of the country, there is a need to work to strengthen the national electrical networks by building a 500 kV power transmission line in the direction of YuKGRES-Zhambyl-Shymkent, as well as modernizing existing electrical networks.

Analysis of long-term development trends shows that carbon-free energy sources are becoming more and more popular.

In recent years, renewable energy sources have been positioned as one of the vectors of development of the energy complex of Kazakhstan.

“In turn, in 2020 we fulfilled our commitments within the framework of the green economy concept and brought the share of renewable energy sources in the total energy balance of the country to 3%. Over the past 5 years, the installed capacity of renewable energy facilities has grown almost 7 times — from 240 MW in 2015 to 1,635 MW in 2020,” Nogayev said.

At the end of 2020, 115 facilities are operating in the republic. The volume of electricity generated by renewable energy facilities amounted to 3.2 billion kWh.

It is worth noting that the sector attracted about $1.5 billion in investments, 1,310 permanent jobs were created, and about 3,000 temporary jobs are created annually in the regions of the country.

“In 2021, it is planned to implement 23 projects with a total capacity of 381.1 MW and it is expected to attract about $370 million in investments. This will create more than 2,500 jobs during the construction phase and 80 permanent jobs. The plan for the current year is to produce about 3.5 billion kWh. renewable energy,” assured the minister.

Kazakhstan continues to maintain a leading position in the global natural uranium market and produces 42% of world uranium production.

The volume of uranium mining at the end of 2020 amounted to 19,586 tons. Completed work on the implementation of the Digital Mine project (JSC NAC Kazatomprom). The issue was resolved within the framework of the Agreement between the Governments of the Republic of Kazakhstan and the Russian Federation on mutual settlements in the disposal of nuclear weapons.

The Law of the Republic of Kazakhstan on issues of civil liability in the field of atomic energy use was adopted.

Thus, the country will implement international obligations under the Vienna Convention on Civil Liability for Nuclear Damage. Also in 2021, it is planned to complete a comprehensive environmental survey of the former Semipalatinsk test site with a total area of ​​18,311 sq. km (100%).

“By the 30th anniversary of the closure of the Semipalatinsk test site, it is planned to adopt the Law of the Republic of Kazakhstan ‘On the Semipalatinsk nuclear safety zone’ to ensure nuclear and radiation safety on the contaminated land of the test site,’’ Nogayev said.

Today, Kazakhstan is interested not only in the extraction and supply of natural uranium, but also in the production and sale of uranium products of a higher value added.

So, for uranium processing on the basis of Ulba Metallurgical Plant JSC, products are manufactured for uranium dioxide powders, fuel pellets, and difficult-to-open uranium-containing materials are processed.

In addition, NAC Kazatomprom JSC is implementing a project to build a plant for the production of finished nuclear fuel (fuel assemblies, fuel assemblies) on the basis of Ulba Metallurgical Plant JSC.

The next important area of ​​activity of the Ministry is the provision of public services.

In 2020, the Ministry provided 3,409 public services, of which 3,143 public services are in electronic format, which is 92.2%.

In general, the Ministry provides 24 types of public services, of which 23 public services are provided in electronic format, which is 96% of automation, 1 public service is provided in paper form, which is planned to be excluded from the Register of Public Services this year.

Thus, this year it is planned to achieve automation of public services up to 100%.

In the areas of subsoil use for hydrocarbons, production of oil products, gas and gas supply, 169 control measures were carried out in 2020.

For the irrational use of subsoil in 2020, damage was recovered in the amount of 654 million tenge. In the electric power industry and the field of atomic energy, within the framework of state control, 1,276 control measures were carried out, of which 332 were unscheduled inspections. At the same time, 318 orders were issued to eliminate violations of the requirements of regulatory legal acts, as well as 1,152 licenses in the field of atomic energy.

According to Nogayev, the Energy Ministry pays special attention to anti-corruption issues.

So, in 2020, at the initiative of the Ministry, together with the Anti-Corruption Agency, an external analysis of corruption risks was carried out, following which 131 events were prepared.

“To date, 123 or 94% of the measures have been completed, which influenced the reduction of corruption risks in the activities of the sectoral divisions of the Ministry. Based on the results of the work, the Ministry has taken preventive measures, namely, changes have been made to the job descriptions of the management staff, new anti-corruption standards and regulation on conflict of interest management in the Ministry have been approved, rules have been approved for developing an anti-corruption plan,” Nogayev said.

In addition, in September 2020, the Ministry approved a working group to conduct an internal analysis of corruption risks. In order to optimize work processes and reduce corruption risks, the ministry is working on the digitalization of industries.

Based on the results of the work carried out, the Adaldyk Alany project office developed recommendations in the field of public procurement (reduced to 35% by the method from one source), a hotline telephone was organized for interested individuals and legal entities, Telegram chat (in which about 400 participants are registered and are promptly considered questions on industry areas).

“Our industry has been hit hardest by the pandemic, affecting oil prices and leading to oil production restrictions under the OPEC+ agreement. But, thanks to the selfless work of our colleagues, the energy system of Kazakhstan has withstood the blow of the pandemic. Despite the virus, people continued to work at power plants, oil refineries, oil fields, providing the country with the necessary energy,” Nogayev concluded.

Stay updated about the events of the Prime Minister and the Government of Kazakhstan - subscribe to the official Telegram channel