Karachaganak gas project endangered

Nov 27, 2002 01:00 AM

The destiny of the gas project at Karachaganak field is dubious, it's unknown if it's going to be realised. There are too many opponents to this project, so important for the region and for the whole country in general. Here, too many interests can clash, including Russian ones. Therefore, even the government heads refrain from any loud announcements.
Lately, the authorities do not talk too much about the gas project, worrying that it can remain entirely on paper. Although, on the other hand these concerns seem to be unfounded, because when the Final Production Sharing Agreement was signed at Karachaganak in 1997 it was provided in it that the gas project at Karachaganak would start immediately after the completion of the second phase of Karachaganak project development.

This moment arrives literally in the end of the next year. Generally, foreign field developers show understanding in this respect. Moreover, in this case they don't bear so much costs. As per FPSA 60 % of investments must bemade by Kazakhstani side, which makes around $ 1.2 bn. The remaining 40 % are invested by the alliance of foreign companies, developing Karachaganak. For Kazakhstan it is big money: Either the state invests in it, or it attracts investments.
Actually, it is the first project of this type in Kazakhstan, which creates too many difficulties for its realisation. Until recently oil and gas was produced and exported to customers through the pipe. Many world oil powers continue to treat Kazakhstan as an oil producing appendage. As for the gas project -- it's a sort of challenge.

Kazakhstan doesn't want to be an appendage forever, it wants to process the oil and make profits from it. The gas project suggests a petrochemical plant construction for deep processing of Karachaganak crude, as well as an export pipeline construction for gas transportation. In the first turn we refer to the deep gas processing, when even sulphur processing is possible, sulphur being a grave ecological problem for the region. Some optimistic officials observe that vast prospects for petrochemical industry will open -- from perfumes to plastics.
According to the deputy head of the Department for Fuel and Energy Complex and Industry of West Kazakhstan, Gumara Dussembaeva, the Kazakhstani side will have to guarantee to the partner that in the remaining 37 years the processed gas will be bought. Which is, you know approximately -- 10 bn cm of gas per annum. Consequently, before starting to realise the project of a petrochemical plant construction a potential buyer of production should be found.

Today, Karachaganak gas is sent for processing to Orenburg refinery. Until recently around 5 bn cm of gas were delivered there, but as from the beginning of the third phase of the Karachaganak project development -- where the main emphasis will be made directly on the production and export of raw materials -- their volume exported for processing will grow. Orenburg refinery has a vital interest in Karachaganak raw materials.
Moreover, if one considers that this year the facilities have been modernised with the growing volume of Karachaganak gas taken into account. And if in West Kazakhstan a construction of an analogous plant begins, Russians will perceive great losses. It's not profitable for them.

Kazakhstan in its turn hopes to make hydrocarbons production cheaper when the new refinery is commissioned and to get rid of its dependence on Orenburg refinery. Moreover, the construction of 14 petrochemical enterprises is possible. It is known that all these years a clear scheme existed, according to which raw materials from Karachaganak went to Orenburg and then after its refinery returned to WKO, but the price of the ready made gas is one level higher. Consumers suffered from that. As a result the external commodity turnover between West Kazakhstan and Orenburg was making around $ 300 mm annually. Which makes a lot.
It is quite possible that Russian interests are lobbied in this case by top officials in the government. Otherwise, how can we explain the cautious attitude of Vice Premier of RoK, Karim Massimov, who during his recent visit to the region observed that the gas project was only an idea, that it was only discussed. In the government they are very cautious indeed, they don't want to publicise the project contents, although it was advertised very well previously.

As for the export pipeline, one of the main components of this project Kazakhstan has to define is what the new pipeline will join. Either it's going to be Asia-Centre or it's going to be the Union, which is at a distance of only 70 km. Besides, it is suggested that the project pay back will not last more than 14 years.
Akimat of West Kazakhstan developing the industrial program until 2010 has pointed out the development of the gas project as one of the main moments of its realisation. The issue of the workers employment is also crucial, since they will be dismissed from Karachaganak field after the completion of construction works.
Already this year -- according to Askar Nurgaliev, deputy of West Kazakhstan -- more than 4,000 people will be dismissed from Karachaganak. In 2003, 7,000 people more will be dismissed. In relation with this Nurgaliev "analysed the situation in detail", distributing more than 5,000 questionnaires among Karachaganak workers. Taking into consideration a lot of nuances, the management will have to care about the employment of around 7,000 people.

And here all hope is in the gas project, moreover, these workers have skills of work at the field, good qualification. The destiny of the gas project must be clear already by the end of this year, at least -- in the beginning of the next year.
The working group, headed by Vice Premier Karim Massimov, must present to Prime Minister Imangali Tasmagambetov the plan of the gas project realisation. And then everything will be resolved in the government offices.

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