Special Energy Issue on |December 2017

CONTENTS

GENERAL ...... 1 OIL & GAS PRODUCTION ...... 3 OIL & GAS EXPORT & TRANSPORTATION ...... 4 OIL & GAS INFRASTRUCTURE ...... 5 PROCESSING & REFINERY ...... 5 RENEWABLE ENERGY ...... 7 INDUSTRY EVENTS IN 2018 ...... 8 CONTACTS ...... 8

The Economic Section of the Embassy of the Kingdom of the in Kazakhstan intends to distribute this newsletter as widely as possible among Dutch institutions, companies and persons from the Netherlands. The newsletter summarises economic news from various Kazakhstani and foreign publications and aims to provide accurate information. However, the Embassy cannot be held responsible for any mistakes or omissions in the bulletin. SPECIAL ENERGY ISSUE, December 2017 Embassy of the Kingdom of the Netherlands GENERAL Kazakhstan comfortable with oil at $62-63, domestic supplies secure The Minister of Energy of Kazakhstan, Kanat Bozumbayev assured that the country has a plan in case of deviation from the OPEC agreement to extend oil output cut, Kazinform reports. It should be reminded that earlier on November 30, almost all OPEC and non-OPEC countries agreed to extend the agreement until the end of 2018. Speaking to journalists on the sidelines of the Kazakhstan Global Investment Roundtable, the Minister noted that it will be difficult for Kazakhstan to stick to the agreement and that the fact that it signed the deal was a huge compromise on its part, adding, however, that in case the country exceeds the pledge it will not be considered a violation of the agreement and further actions in such situation will be discussed with partners According to Kanat Bozumbayev, Kazakhstan considers the price at $62- $63 to be good as it gives confidence not only to the oil industry but to the investors as well. Speaking about the production volumes the Minister said that despite all the difficulties, this year it is planned to produce more than 85 million tons of oil compared to 78 million tons last year. The Energy Ministry is expected to roll out the plan for 2018 in mid-December and according to Mr. Bozumbayev, the growth in production should be significant. There is no need to build the fourth oil refinery plant in Kazakhstan, said the Energy Minister of Kazakhstan Kanat Bozumbayev. “In my opinion, the fourth oil refinery is not needed. The modernization of three oil refining plants of KazMunaiGas is almost complete. The modernization of the Atyrau and Pavlodar plants should be completed by the end of this year and the Shymkent plant will be completely modernized in the beginning of 2018,” said Bozumbayev on the sidelines of the first Kazakhstan Global Investment Roundtable, devoted to the issues of investment in the economy of Kazakhstan, Kazakh media reported. According to the energy minister, Kazakhstan will be able to ensure 100% in the next 5-6 years to provide the economy with gasoline, diesel fuel and aviation kerosene. “And in 2024-2025 we should double the capacity of the plants or we will have to build the fourth factory, because of the growing demand,” he added.

Demand for Kazakh oil in international markets recovering After two years of decline, crude oil exports increased by 37% in the first nine months of 2017. Kazakhstan is increasing its oil exports, trying to restore supplies to pre-crisis levels. Over the first 9 months of this year, approximately 50.7 million tons of crude oil and oil products were sold abroad. Thereby, the volume of hydrocarbon exports increased by 7.6% compared to the level a year ago, interrupting the two-year period of decline. The amount of proceeds from the sale of Kazakh oil to external customers also increased. The income on exports for January-September amounted to $19.2 billion, or 36.6% more than the amount earned in the first 9 months of 2016. It is noteworthy that the price of a ton of oil increased by 27% to $377.70. Thereby one can speak about a return of demand for Kazakh oil, despite the rather pessimistic outlook at the beginning of this year. For the 1st quarter of 2017, Kazakhstan exported a six-year low of about 15.9 million tons of crude oil. In the top 3 of the largest buyers of Kazakhstani crude oil, changes occurred in the ranks in the course of the year. entered the TOP-3, displacing Switzerland from this position. In particular, this year French enterprises bought crude oil from Kazakhstan for $2.1 billion, which is 69.6% more than the amount for January-September 2016. At the same time, the price of a ton of crude bought by France increased by 28%. The largest buyer in the market is , which in the first 9 months bought 16 million tons for $6.2 billion. So far this year, the sales value of hydrocarbons to Italy increased by 19.3%, although the volumes of supplies in physical terms decreased by 1.8%. , one of the main trade partners of Kazakhstan, reduced purchases of Kazakhstani oil so far this year with a sales value estimated at $567.7 million, or 7.2% less than a year ago.

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SPECIAL ENERGY ISSUE, December 2017 Embassy of the Kingdom of the Netherlands

Local primary producers, seeing the return of demand for Kazakh hydrocarbons, sharply increased production volumes. In January-October, 60.2 million tons of crude oil were extracted. This is the most significant output for the first 10 months of the year in the last 5 years. Within the framework of the Third Modernization Plan in Kazakhstan, mining and metallurgical and oil and gas sectors will retain their strategic importance for the sustainability of economic growth. At the same time, the plan is to enter new markets and expand the geography of supplies. Much attention will be paid to expanding the mineral and raw materials base. Further development of these sectors is supposed to be closely connected with an increase of domestic processing of raw materials, Finprom reports.

Kazakhstan reschedules negotiations with Karachaganak consortium for 2018 Vice Minister of Energy of Kazakhstan Magzum Mirzagaliyev commented on the settlement of the dispute with Karachaganak consortium, Kazinform correspondent reports. “We and the shareholders still have a clear understanding of the ‘friendly settlement’, and, keeping to it, we will discuss any project the Karachaganak consortium will offer our country. We have not agreed on this project yet, i.e. we have not assessed it, because within the framework of the ‘friendly settlement' we have to assess the base - how much the country claims, accordingly, as far as the consortium agrees. And then, after we assess a particular conditional compensation, we can discuss it in exchange for some project,” Magzum Mirzagaliyev clarified. He also added that 'the issue is unlikely to be resolved by the yearend, and, therefore, the resolution of the issue has been rescheduled for the first quarter of 2018. Earlier, mass media reported that Kazakhstan has filed a $1.6 billion claim against the consortium led by BG Group Plc and Eni SpA, which is developing the large Karachaganak oil and gas condensate field. The dispute between the Kazakh government and the consortium arose over the calculation of profit shares. In July 2016, Kazakh Energy Minister Kanat Bozumbayev stated he was conducting ‘friendly negotiations’ with KPO shareholders. He said the information that the country intends to resort to arbitration contradicts the reality, Kazinform reports.

CB&I gets go-ahead for Kazakhstan Petchem Project Kazakhstan Petrochemical Industries Inc. (KPI) has given CB&I full notice to proceed for the project management services for a propane dehydrogenation unit (PDH) and a polypropylene plant in the western Atyrau region of Kazakhstan, CB&I reported on 11 December. “We look forward to working with KPI through the provision of project management services on the different phases of this project and building on our engineering experience in Kazakhstan,” Duncan Wigney, CB&I’s Engineering and Construction executive vice president, said in a written statement. “This project is an excellent example of CB&I’s integrated capabilities and the comprehensive solutions we offer to our customers in the region.” CB&I stated the PDH unit will use its proprietary “CATOFIN” propane dehydrogenation technology and that the polypropylene plant will use its “Novolen” advanced gas-phase polypropylene technology. According to KPI’s website, the Atyrau integrated gas chemical complex will use natural gas from the Tengiz and Kashagan oil fields as the feedstock for petrochemical products for domestic and export markets. The complex represents the first component of a plan to develop a “petrochemical cluster” in western Kazakhstan, KPI noted, according to RigZone.

OIL & GAS PRODUCTION Oil production at Kashagan field above expectations The oil production at Kashagan, one of the largest fields of Kazakhstan, exceeded the annual plan by 46%. This was stated by the National Economy Minister Timur Suleimenov at a government meeting on December 12, Kazinform reported.

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SPECIAL ENERGY ISSUE, December 2017 Embassy of the Kingdom of the Netherlands

“In terms of industry, the biggest growth was recorded in Atyrau region at 21.4%. This was achieved due to the stable oil production at Kashagan. So, in eleven months of this year, 7.3 million tons were produced, which exceeds the initial annual plan by 5 million tons, or 46.0%,” he said. Kyzylorda and Mangistau regions continue to show negative dynamics with -3.9% and -0.4% due to the reduced oil production as a result of depletion of reserves. The geological reserves of Kashagan are officially estimated at 4.8 million tons. Total oil reserves amount to 38 billion barrels, of which about 10 billion barrels are recoverable, natural gas reserves are more than 1 trillion cubic meters. The geological reserves of Kashagan are officially estimated at 4.8 million tons of oil. Total oil reserves amount to 38 billion barrels, of which about 10 billion barrels are recoverable, natural gas reserves are more than 1 trillion barrels cubic meters. Oil and gas sector is the major and most rapidly growing industry in Kazakhstan which brings the country a lion’s share of its incomes. Kazakhstan’s proven oil reserves as of early 2016 stood at 30 billion barrels, according to the BP Statistical Review of Energy. Tengiz, Karachaganak and Kashagan are the largest oil fields in Kazakhstan. Three oil giants will be able to bring Kazakhstan’s oil production to a new level in the coming years even if new oil fields are not discovered. With the start of oil production at the Kashagan field, the forecasts of several international organizations on oil production in Kazakhstan immediately grew. Analysts from the International Energy Agency (IEA), OPEC, the Energy Information Administration of the U.S. Department of Energy (EIA) link the increase in oil production namely with the Kashagan field, AzerNews reports.

OIL & GAS EXPORT & TRANSPORTATION Kazakhstan to export 2-2.5 billion cubic meters of Kazakh gas to China this winter Kazakh national oil and gas company KazMunaiGas and the Chinese oil and gas corporation CNPC launched on December 13 a new compressor station No.3 (SCS-3) on the Kazakhstan-China gas pipeline, which will increase the capacity of the gas pipeline and transport volume to 25 billion cubic meters of gas. The new station of the pipeline is located near the village of Aisha Bibi in the Zhambyl region, southern Kazakhstan. “We plan to export 2-2.5 billion cubic meters of Kazakh gas to China by the end of this year. In general, 5 billion cubic meters of Kazakh gas will be exported to China during the coming year,” JSC National Company KazMunaiGas Chairman Sauat Mynbayev said on December 13 during the official launch ceremony of the new compressor station of the Kazakhstan-China gas pipeline in on- line format. According to Mynbayev, next year, the Kazakhstan-China gas pipeline will reach full capacity of 55 billion cubic meters of gas a year. “During the nine years since the launch of the Kazakhstan-China gas pipeline, 200 billion cubic meters of Central Asian gas was transported via this pipeline to China,” Mynbayev said, New reports.

Gas volume delivered via Central -China pipeline exceeds 200 billion cubic meters The total volume of gas delivered to China via the Central Asia-China gas pipeline reached 200 billion cubic meters as of November 29, 2017, according to the Chinese National Oil and Gas Corporation. The gas pipeline connecting the countries of Central Asia with China is a strategic project, extremely important for ensuring the country’s energy security and promoting energy transformation, the corporation noted. According to calculations, 200 billion cubic meters of natural gas are equivalent to 266 million tons of coal. 4

SPECIAL ENERGY ISSUE, December 2017 Embassy of the Kingdom of the Netherlands

The gas pipeline provides gas supply to more than 300 million residents of 27 Chinese provinces, cities of central subordination and districts, as well as the Special Administrative Region of . In addition, the implementation of the project allowed to create about 10,000 jobs in the countries through which the pipeline passes. Currently, there are three lines of the Central Asia-China gas pipeline - A, B and C. The combined capacity of these pipelines is 55 billion cubic meters per year. China and agreed on a framework to provide China with a long-term supply of gas in 2006, after several rounds of negotiations and feasibility studies. The first of these pipelines was completed in 2009 the second followed a year later. The third pipeline became operational in 2014, after taking two years to build. This gas pipeline runs through the territory of Uzbekistan and Kazakhstan and crosses the Kazakh- Chinese border through Khorgos (Xinjiang-Uygur Autonomous Region, North-West China). Construction of a fourth pipeline, Line D, is currently underway. It will connect Beyneu on the eastern coast of the Caspian Sea to the central facility of Shymkent. From Shymkent the gas will be directed to Turpan in Xinjiang, China. Line D will provide China with an additional 15 billion cubic meters on top of the 55 billion it already imports from Turkmenistan, AzerNews reports.

OIL & GAS INFRASTRUCTURE Van Oord creates 72-km access channel in Caspian Sea According to Port News, Van Oord recently finished local dredging operations on a 72-kilometres long channel in the Caspian Sea. With this milestone, four years of dredging at an extremely remote location have been concluded, the dredging contractor said in a press release. Van Oord built the new channel to allow for transportation of construction modules to the Tengiz oil field, where new facilities are being erected to increase the production capacity. Kazakhstan is among the top 15 countries in when it comes to essential oil reserves. The country has over 150 oil fields, of which the Tengiz field is one of the largest. It has developed into an important link between , China, and Europe and is reinforcing this position by expanding its oil and gas industry. The new channel is an important part of new infrastructure being created to facilitate this growth. The remoteness of the location required resourceful measures during project execution. Due to the harsh winters, dredging was only possible between April and October. Furthermore, the region’s limited infrastructure and facilities made logistics unusually complex. Four cutter suction dredgers, including the Ural River and Mangystau, have worked in formation to get the job done, assisted by more than 30 support vessels. To allow for in-situ repairs and maintenance of the support vessels, Van Oord designed and built a floating workshop barge complete with ship lift facility, hydraulic crane and on-board workshop. The area where dredging took place is home to various endangered species, such as birds and seals. Van Oord closely cooperated with independent wildlife observers in order to protect the local flora and fauna. In addition, 32 sand deposit sites were created alongside the access channel, 16 of which form islands to which animals are already finding their way to rest and breed. Van Oord is proud to be playing a significant role in helping expand Kazakhstan’s economic growth opportunities. ‘The remoteness of the region was challenging, and I am proud of our people’s perseverance and professionalism in making this project a success’, said Govert Van Oord, Area Director Europe.

PROCESSING & REFINERY KazMunaiGas EP to supply 4.6 million tons of oil to Kazakh oil refineries in 2018 KazMunaiGas Exploration Production JSC (KMG EP) will supply 4.6 million tons of oil to the Kazakh refineries for its further processing and sale of oil products in 2018, taking into account the company’s shares in joint ventures, Kazinform reported. 5

SPECIAL ENERGY ISSUE, December 2017 Embassy of the Kingdom of the Netherlands

The company reported on the approval of the budget for 2018 and business plan for 2018-2022 by the board of directors. It is planned that the subsidiaries of KMG EP - Ozenmunaigas (OMG) JSC and Embamunaigas (EMG) JSC - will deliver approximately 36% of the total sales or 3 million tons of oil or 60,000 barrels per day in 2018, according to the information. The oil will be sent directly to the Atyrau refinery and to the Pavlodar petrochemical plant for its further processing and sale of petroleum products in accordance with the scheme of independent oil processing, which has been in effect since April 2016. At the same time, of the 3 million tons of oil, 1.9 million tons (or 38,000 barrels per day) will be supplied to the Atyrau refinery and 1.1 million tons (or 22,000 barrels per day) to the Pavlodar petrochemical plant. It is planned that the share of oil supplies to the domestic market from the resources of OMG and EMG will on average amount to 33% of total sales in 2019-2022. In turn, the share of KMG EP in the planned volume of crude oil supplies to the domestic market - Kazgermunai (KGM), CCEL and PetroKazakhstan Inc. (PKI) LLP in 2018 will be 1.6 million tons (34,000 barrels per day), or approximately 49% of the total sales of these companies. It is forecasted that in 2019-2022 the share of supplies to the domestic market of KGM, CCEL and PKI will remain at the level of no more than 50% of the total sales. Earlier it was reported that after the planned completion of the modernization program at the Atyrau refinery and Pavlodar petrochemical plant in 2018, the share of light oil products will increase, and starting from the fourth quarter of 2018, Atyrau refinery will further increase the production of petrochemical products. The budget for 2018 takes into account the increase in tariffs for oil refining by about 28% at the Atyrau refinery and 5% at the Pavlodar petrochemical plant to the current level. However, these expectations of the company can be adjusted taking into account the changes in the situation in the domestic market of fuels and lubricants in Kazakhstan. Kazakhstan’s proven oil reserves as of early 2016 stood at 30 billion barrels, according to the BP Statistical Review of World Energy. Tengiz, Karachaganak and Kashagan are the largest oil fields in Kazakhstan. Three oil giants will be able to bring Kazakhstan’s oil production to a new level in the coming years even if new oil fields are not discovered. With the start of oil production at the Kashagan field, the forecasts of several international organizations on oil production in Kazakhstan immediately grew. Analysts from the International Energy Agency (IEA), OPEC, the Energy Information Administration of the US Department of Energy (EIA) link the increase in oil production namely with the Kashagan field, according to AzerNews.

All three refineries in Kazakhstan to produce jet fuel All three oil refineries based in Kazakhstan will produce Kerosene-type jet fuel, Kazakh Minister of Energy Kanat Bozumbayev said, Kazinform reports. “Our country produces this type of fuel, at least used to produce before its modernization, only at the Shymkent oil refinery. There is a small output in Atyrau. This is due to the immaturity of technology at our refineries and the fact that the Pavlodar refinery has been reoriented to rather heavy Russian oil as it has a high content of dissolved sulfur. These refineries did not have fuel desulphurization facilities. For now, that kind of facility has been built in Pavlodar, and in Atyrau too. These two refineries will produce Kerosene-type jet fuel. The standard of the fuel will slightly change to the Western one,” he told a briefing in the Government of Kazakhstan. According to him, the management team of Air Astana asked the Government of the country for help amid fuel crisis [September-October 2017]. “That plant [the Shymkent oil refinery] has always covered nearly 50% of the market demand, the other 50% they bought from abroad, mostly from the Russian Federation. It so happened that last summer Russia also had a need for jet fuel. Therefore, Russian refineries refused to sell jet fuel to us and the head of Air Astana, Peter Foster, asked the Kazakh Government to get involved,” the head of the Energy Ministry said.

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SPECIAL ENERGY ISSUE, December 2017 Embassy of the Kingdom of the Netherlands

Kanat Bozumbayev said that, as a result, it was agreed to render assistance in purchasing jet fuel, if needed. “Now, Air Astana has enough fuel up until January 2018. As to Scat Air Company, they, probably, supposed that we should also help them in that matter. That is not so. There is a coordinating institution - the Kazakh Ministry of Investment and Development that assigns the schedules for supplying Kerosene-type jet fuel produced by the Shymkent oil refinery. We produce jet fuel and say ‘distribute it among the airlines on your own' as there is a shortage. It is not our issue,” Kanat Bozumbayev concluded.

KazMunaiGas to increase diesel production Kazakhstan’s national oil company KazMunaiGas plans to increase the level of diesel production from 800 to 3,700 tons per day. “The Pavlodar petrochemical plant will increase the production of diesel fuel by almost five times since December this year,” Executive Vice President for transportation, refining and marketing of KazMunaiGas Daniyar Tiesov said. He added that country now purchases fuel from Russia and the market price on diesel is currently above 200 tenge. “It is unprofitable for us to import fuel from Russia so we decided to achieve the maximum output of diesel fuel at the Pavlodar Refinery soon.” Presently, all the three oil refineries of the country – Pavlodar, Shymkent and Atyrau produce diesel. However the level of winter fuel production cannot meet the countrywide demand, and KazMunaiGas works on elimination of this problem. Previously, General director of KazMunaiGas Onimderi LLP Kuandyk Kulmurzin stated that the company plans to purchase 90,000 tons of Russian diesel fuel. He stressed that the fuel will be sent to northern, western and central regions of Kazakhstan, due to seasonal temperature drop in these regions, Trend reports.

RENEWABLE ENERGY Two solar and wind power stations to be built in Mangistau In Akshukur, Mangistau province, it is planned to build a 5MW wind farm, in the Batyr village - a solar power plant with a capacity of 7MW. The projects are expected to be implemented in the first quarter of 2018, Kazpravda.kz reports. Also in Shetpe before the end of 2018 it is planned to build a solar power plant with a capacity of 12MW. The Memorandum was signed in June 2017. The cost of the project is $20 million. The station is to be located on 30 hectares. In addition, in 2018, it is planned to build a combined-cycle plant with a capacity of 250MW at the Mangistau Energy Complex. The project is to be implemented as a public-private partnership. The competition for attracting private investors has already been announced. Two projects are planned to provide the region with drinking water in Mangistau. In Kuryk, they plan to build a desalination plant with a capacity of 50,000 cubic meters per day. The company plans to introduce technologies that are used by leading companies in Israel, France, China and .

Goldwind wins Kazakhstan order Goldwind Science and Technology, based in Northwest China’s Xinjiang Uyghur Autonomous Region, recently received an order for a wind power plant from Kazakhstan, domestic news site stcn.com reported. Goldwind signed an agreement with CITIC Construction to deliver two wind power generation units for a 5-million-watt wind project in Almaty, Kazakhstan in 2018, it said. This is the company’s first wind power project in Kazakhstan, which is seeking to develop more clean energy, according to ECNS.

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SPECIAL ENERGY ISSUE, December 2017 Embassy of the Kingdom of the Netherlands INDUSTRY EVENTS IN 2018

KAZNEFTEGAZSERVICE-2018 Annual Conference on Oilfield Construction and Engineering 16 March 2018, Atyrau Organizer: KazService www.kazneftegazservice.com

Global Oil & Gas Atyrau Atyrau Regional Oil and Gas Technological Conference 10 – 11 April 2018, Atyrau Organizer: Iteca

www.oil-gas.kz

Atyrau Oil & Gas North Caspian Regional Exhibition on Oil and Gas 10 – 12 April 2018, Atyrau Organizer: Iteca www.oil-gas.kz

KIOGE International Oil & Gas Exhibition and Conference 3 – 5 October 2018, Almaty Organizer: Iteca www.kioge.kz

CONTACTS

Embassy of the Kingdom of the Embassy Office in Almaty Netherlands 103, Nauryzbai Batyr Str. 62, Kosmonavtov str. 050022 Almaty Chubary mcrd, 3rd floor T: +7 727 2503773 010000 Astana [email protected] T: +7 7172 555450 [email protected]

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