Experts estimate that in 2007, Russian oil companies spent around 20 billion rubles for these purposes, and that another 100 billion rubles of investment would be required over the next two years. On the whole, implementation of corporate programs substantially increase the purposeful use of produced raw hydrocarbons in Russia, minimize environmental limitations, ensure uninterrupted energy supply to oil production facilities, lower tax risks, and increase revenue derived from selling additional volumes of APG and its processed products.
Energy Cooperation in the CIS Framework
A highly successful roundtable dedicated to problems of economic cooperation among CIS member countries was held on June 17, 2010 as part of the annual St. Petersburg Economic Forum. The roundtable participants reiterated that energy is one of the most important areas of economic development for CIS countries and that it plays an enormous role both in ensuring the normal function of all industries and in enhancing the operation of public agencies and the quality of life. The CIS Presidential Council had previously designated energy cooperation as a key area of interaction among CIS member nations on October 10, 2008.
Around the same time, several biased commentaries were once again published in the Western media regarding alleged crises in the CIS, including in the energy sector. But was this really the case?
The experience of leading industrialized countries, in particular of Western European nations that have made serious efforts in recent years to create competitive energy markets within the European Union, shows that the policy of regionalizing energy markets is viewed as an important prerequisite for the energy industry's successful future development and once again underscores how extremely difficult it is today for one country, even one with a substantial energy resource base, to ensure its energy security when isolated from global integration processes in the fuel and energy sector.
An impartial analysis of the current state of energy cooperation between Russia and two of its CIS partners, Kazakhstan and Azerbaijan, reveals that the energy sector is one of the most significant and promising aspects of their productive cooperation.
As a member of the Foreign Investors Council of the President of the Republic of Kazakhstan, this author can say that successful and mutually beneficial interaction between Kazakhstan and Russia can clearly be seen in several large projects in the energy sector. One area of significant importance in the development of the oil and gas transport infrastructure between the two countries is their participation in the Baltic Pipeline System, which will make it possible to export oil from the Timan-Pechora oil and gas province and the Western Siberia and Volga-Urals regions, along with oil from CIS countries-principally Kazakhstan-via the Baltic port of Primorsk. In addition, the two countries are making joint efforts to efficiently utilize transit potential, in particular by increasing the carrying capacity of the Atyrau-Samara pipeline to 28 million tons of crude per year. Other notable areas of cooperation include a promising oil and gas condensate field within the Kurmangazi structure, which the Kazakh national oil and gas company KazMunayGas is developing jointly with Russia's Rosneft; the organization of parallel operations between the energy systems of the two countries; the establishment of a joint venture on the basis of the Ekibastuz-2 State Regional Power Station; and many other potential business initiatives.
The project to develop the Karachaganak oil and gas field is particularly noteworthy. One of the largest in the world, the Karachaganak field was discovered in western Kazakhstan in 1979. The field covers an area of 173 square miles and has recoverable reserves of 2.4 billion barrels of oil and 16 TCF of natural gas. Field development intensified in 1995 after the Kazakh government signed an agreement on production-sharing principles with British Gas and Agip. In August 1997, Texaco purchased a 20% stake in the project from British Gas and Agip, which now each hold a 32.5% interest in the field. Gazprom transferred its 15% stake in the project to LUKOIL in November 1997. The investors established a joint operating consortium called Karachaganak Integrated Organization (KIO), which is headquartered in Aksay. A final Production-Sharing Agreement (PSA) was signed in November 1997 and took effect on January 27, 1998. The PSA envisions the Karachaganak field being developed over a 40-year period ending in 2038. A total of $160 million was invested in the project from various sources during the project's first, preparatory phase from 1995 to 1997. Phase Two (1998-2003) required $3.5 billion in investment and increased liquid hydrocarbon production to 210,000 barrels per day by mid-2004. By that point, the Karachaganak project was independently generating its own free cash flow. LUKOIL's share in production currently amounts to 15.3 million BOE, but this figure is expected to increase to 22 million BOE by 2010. The project's high level of efficiency can be attributed to the sale of gas condensate via the Caspian Pipeline Consortium (CPC) system following the opening of the 395-mile Karachaganak-Bolshoy Chagan-Atyrau connecting pipeline. Gazprom and the Karachaganak consortium are implementing an agreement in this region to set up a joint venture that would annually ship up to 530 BCF of Karachaganak gas to the Orenburg Gas Processing Plant.
The Turgai Petroleum joint venture, which was set up under equal ownership by LUKOIL Overseas Holding and Canada's PetroKazakhstan, is developing the northern section of the Kumkol field in Kazakhstan's Kyzylorda Region. The field's license area exceeds 57 square miles. Having produced 3.9 million tons of oil and 5.1 BCF of gas last year, the project is already providing a steady supply of crude hydrocarbons. The field has residual reserves of 41 million tons. The 110-mile Kumkol-Jusali oil pipeline has been operating successfully for five years, shortening the western export route by 745 miles and making it possible to export crude hydrocarbons via the CPC system. Facilities have been built to process and treat associated gas, and a gas turbine power unit with generating capacity of 55 MW has also been put into operation. This project allows 6.3 BCF of associated gas to be utilized each year and provides a reliable source of inexpensive electricity for the development of hydrocarbon fields.
According to the agreement between LUKOIL and KazMunayGas, the Russian oil giant has a 50% stake in the PSA for the Tyub-Karagan section in the Kazakh part of the Caspian Sea. This section covers an area of 450 square miles and is located 25 miles northwest of the port of Bautino at a water depth between 23 and 39 feet. The section has projected resources of 472 million TCE, including 357.6 million tons of oil. If commercial hydrocarbons are discovered, total expenditures on both projects could exceed $3 billion.
In addition, KazMunayGas and LUKOIL Overseas Holding set up a joint venture called Atash to drill an exploratory well as part of a contract for the geological exploration of the Atash block, which covers an area of 3,243 square miles and is located 50-53 miles from Bautino at a water depth of 23-115 feet. Atash has projected resources of 274.3 million TCE, including 156.2 million tons of oil. Other promising structures could be discovered in the eastern part of the block following additional exploratory operations.
LUKOIL's works in progress also include projects to develop the Alibekmola, Kojasay, Karakuduk, North Buzachi, and Arman hydrocarbon fields as well as options for the acquisition of two exploratory blocks in the Kazakh section of the Caspian Sea: South Jambay and South Zaburin. These fields have 269.6 million barrels of proven and probable hydrocarbon reserves.