The potential development of the energy sector in Central Asia can only be made possible with the implementation of announced upgrading and expansion projects.Despite project budgets being severely affected by oil price volatility and the vulnerability of engineering and equipment supplier markets, those projects that are of strategic importance are still likely to go ahead.
One example is Uzbekistan, which attracted substantial investment (over $8bn) in upstream projects via production-sharing agreements with Russian, Chinese and Malaysian oil and gas majors. Quite recently, two additional natural gas pipelines – Gazli-Kagan and Gazli-Nukus – were built, to be a part of an integrated 14,000km-long transportation system.
The latest news states that final investment was made by the China Development Bank to finish the fourth leg of the Central Asia–China natural gas pipeline by 2017. The project, which will be under development for 10 years, will bring 85 bcm per annum of transported gas (a significant part of it being transit Turkmen gas) to the country’s economy, and will become the biggest gas transportation system in Asia in terms of volume to date.
Turkmenistan has been following the example of its neighbour – the third stage of Galkynysh gas field complex development will start this year, after 10 years of exploration and development. This large-scale project consumed more than $9.8bn and the estimates suggest an annual production rate of gas of about 30 bcm.
Azerbaijan also has high hopes for its major fields, but mostly offshore ones – Azeri-Chirag-Guneshli (ACG) and Shah Deniz – to maintain planned oil production levels. By August 2016, cumulated investments in ACG surpassed $32bn and production amounted to 2.9 bbpa. Some experts see a possible decline of production from this field in the mid-term, as they believe it has already reached its peak production phase.
After its expansion, Shah Deniz will produce more gas condensate. In the first half of 2016, 4.5 bcm of gas and 1mt of condensate were extracted from the existing wells. The country’s government and the field operator both believe that extra condensate volumes from these resources will partly compensate for the overall crude decline that is forecast.
In Kazakhstan, oil production remains the main source of profit for the country’s budget, but the industry is in desperate need of modernisation: more than a half of oil wells under operation have been exploited for over 20 years, a fact that contributed to a production decline of 2% in 2015. Thus, Kazakhstan decided to put additional effort into sustaining its facilities, and it may become the leader of key developments during the 2016-2025 period in terms of CAPEX. Overall budget is estimated at around $54bn, 98% of which will be allocated to the Kashagan project, which should be commissioned next year. The Kashagan field is the largest oil field outside of the Middle East and one of the most expensive ($50bn of investments).
This stratecically important project will contribute to an oil production increase starting from 86mta in 2017. Since first production was not very successful three years ago, a new project was introduced to prevent leakage from pipelines from the oilfield. Saipem will supply Kashagan with upgraded pipes worth $1.8bn, and production of about 1.7 mbpd will resume next year.
Another important project, the start-up of the third phase of the Karachaganak field, could resolve the problem of domestic gas supply in the short term.
The Tengiz field expansion, meanwhile – which accounts for more than one-third of total crude production in Kazakhstan – is said to be the biggest final investment decision in the oil industry this year. The new Future Growth and Wellhead Pressure Management Project is estimated to cost $36.8bn and will increase the field’s total daily production to about 1mbd, with start-up planned for 2022.
A very important issue is to ensure start-up of the third section of the Kazakhstan–China gas pipeline, which was actually due to be commissioned last year but was postponed until December this year. This will provide an increase of gas transportation capacity to 55 bcm per year.
Kazakhstan aims to increase oil pumping by 12 million tons annually by 2022. In 2017, Kazakhstan expects to export 250 bcf of gas to China via the Beineu-Bozoi-Shymkent pipeline (KazTransGaz project) – with part of the investments from the European Bank of Reconstruction and Development. Gas from Turkmenistan and Uzbekistan also is transported via Kazakhstan to China.
In conclusion, we are seeing continued investment in the region to further develop the energy sector in each of the countries of Central Asia. Each country in the region has a different approach to cooperation models with western and other partners. This region is very important as a bridge between east and west and, for this reason, it attracts interest from many different backgrounds.
