Issue # 1 | 2010

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• KAZAKHSTAN’S FUEL AND ENERGY SECTOR: ALL ROADS LEAD TO KIOGE
• KAZAKHSTAN – A RELIABLE SUPPLIER OF ENERGY RESOURCES
  (Sauat MYNBAYEV, Minister of Oil and Gas of the Republic of Kazakhstan)
• OUR SUCCESS CONTRIBUTES TO THE DEVELOPMENT OF THE NATIONAL ECONOMY
  (Kairgeldy KABYLDIN, Chairman of the Board, KazMunayGaz JSC National Company)
• KIOGE - A REAL OPPORTUNITY TO DEVELOP YOUR BUSINESS
  (Graeme COOMBES, International Head of Oil & Gas Events, ITE Group Plc)

KAZAKHSTAN’S FUEL AND ENERGY SECTOR: ALL ROADS LEAD TO KIOGE The more volatile the global economy, the more important it is to weigh up the prospects for the development of crucially important resources, such as oil and gas. And where better to do this than at KIOGE, Kazakhstan’s traditional international exhibition and conference on this theme, which begins in Almaty this week?

KIOGE’S EIGHTEENTH ANNIVERSARY

KIOGE has a unique anniversary this year. The event will be held for the eighteenth time, which is regarded by people as the age at which one reaches maturity. Although the exhibition and conference have nothing to prove - it is evident that the KIOGE project functions perfectly - this anniversary is, nevertheless, symbolic. KIOGE approaches its anniversary as one of the most authoritative platforms for information, analysis and presentations in the Eurasian continent’s oil and gas sector.

One cannot but consider another symbolic moment: the project is only one year younger than Kazakhstan’s independence! This could not be otherwise. Having just gained its independence, Kazakhstan intensified the development of its oil and gas sector, which required a professional event.

This year, about 500 companies from 30 countries are taking part in the exhibition. Through national stands or by representation at the stands of individual companies, almost all of the Group of Seven countries, as well as China, the UAE and Russia, will participate in KIOGE. Giants of the oil and gas industry, such as Kazakhstan’s KazMunayGaz National Company, Russia’s gas extractor and distributor Gazprom, the State Oil Company of the Azerbaijan Republic (SOCAR) and China National Petroleum Corporation (CNPC) are today preparing to participate in the show.

The thousands of visitors who traditionally come to the exhibition will be able to learn more about the world’s leading companies. This year, the company Cameron has noted the importance of the exhibition’s educational function by sponsoring the traditional job fair (in Pavilion 11).

About 1000 delegates will gather in the InterContinental Almaty (Ankara Kazakhstan) hotel for the KIOGE 2010 conference on 7-8 September. Among them will be well-known figures, such as the Minister of Oil and Gas of Kazakhstan, Sauat Mynbayev; Minister of Energy of the UAE, Mohamed bin Dhaen AlHamli; Deputy Minister of Oil and Gas of Kazakhstan, Lyazzat Kiinov; Chairman of the Board of KazMunayGaz JSC National Company, Kairgeldy Kabyldin; Caspian Energy Advisor to the UK’s Foreign and Commonwealth Office, Angus Miller; General Director of the Kazakh Oil and Gas Institute, Uzakbay Karabalin; General Director of KazMunayGaz Exploration Production, Kenzhebek Ibrashev; and many others. Sir Andrew Wood is the Chairman of the exhibition and conference.

Another objective criterion for assessing the need for international events such as KIOGE is sponsorship activity. This year, 32 major oil and gas companies are sponsoring the exhibition and conference. They include KazMunayGaz EP, Baker Hughes, Karachaganak Petroleum Operating B.V (KPO), the silver sponsor Tethys Petroleum Limited and many others.

The Oil and Gas Ministry of Kazakhstan, KazMunayGaz National Company, KazEnergy Association, Almaty City Administration and diplomatic missions of the participating countries will attend and officially support KIOGE 2010. Media support for the exhibition and conference will be provided by 120 industry publications and internet resources of various countries.

Plenary sessions, workshops and roundtable meeting will be held during KIOGE 2010. These will involve representatives of legislative and executive authorities, businesses and public organisations, as well as leading scientists, analysts and heads of major international oil and gas companies. Current issues will be discussed, ranging from the implementation of modern technologies and the development of Kazakhstan’s content to ensuring transparency in the sector and the county’s economic growth in general.

In his welcome to the pаrticipants of the KIOGE exhibition and conference, Kazakhstan’s Oil and Gas Minister, Sauat Mynbayev, noted that “this event will facilitate the strengthening of existing business partnerships, and draw the attention of international and local companies to the prospects for the development of Kazakhstan’s oil and gas industry, providing an impetus for its further growth”. The minister’s words are supported by the high interest in KIOGE 2010 and the experience of previous years.

FROM KAZENERGY TO KIOGE

The appearance of another discussion platform in Astana, the KazEnergy Eurasian Energy Forum, which is organised by the KazEnergy Association, was logical. It was facilitated by the fact that Kazakhstan has “two capitals”, an official capital and a business one. Each of them must have an international platform for voicing issues related to the development of the oil and gas sector. The complexity and diversity of the topic also demands this.

The General Director of the KazEnergy Association, Dzhambulat Sarsenov, commented on this in his welcome to the exhibitors and visitors of KIOGE 2010. Noting the fundamental importance for the country of the sustainable and balanced development of the oil and gas industry, he said it is necessary to support and intensify industry dialogue, strengthen practical interaction between market participants, investors and the authorities, and find new solutions and forms of cooperation.

“That is why two major industry platforms in Kazakhstan, which make a significant contribution to the progress of the domestic power and oil and gas industry – the KazEnergy Eurasian Energy Forum, organised by the KazEnergy Association, and KIOGE – have gained wide recognition and authority,” said Sarsenov in his welcome.

It is symbolic that KazEnergy and KIOGE are taking place one after another this year. With almost uninterrupted discussion at these two authoritative stages, the business community and representatives of the media will have a chance to develop a comprehensive and practical understanding of the development trends in Kazakhstan’s regional and global fuel and energy sector.

The organisers - the Kazakhstani exhibition company Iteca and ITE Group (UK), together with partners from Germany, China, UAE, Russia and Turkey - will cover the most interesting moments of the KIOGE 2010 exhibition and conference, and what is going on behind the show’s official events, in two editions of KIOGE Daily.

We wish everyone success. Welcome to KIOGE 2010!

KAZAKHSTAN – A RELIABLE SUPPLIER OF ENERGY RESOURCES (Sauat MYNBAYEV, Minister of Oil and Gas of the Republic of Kazakhstan)

- Mr Mynbayev, what is the main news from the oil and gas sector, what are the most important events at the moment, and what should happen in Kazakhstan’s fuel and energy industry?

- At the moment, projects are being implemented to transport hydrocarbon raw to Kazakhstan and global markets. The funds to the construction first section of the Kazakhstan-China gas pipeline have been attracted from China’s Development Bank. China’s CNPC has provided a corporate guarantee for the construction period until the signing of transportation agreements under “ship or pay” conditions.

The first stage included the implementation of the Atasu-Alashankou oil pipeline with a capacity of 10 million tonnes a year, which was put into operation in July 2006. At present, the construction of the second section of the gas pipeline has been completed and work is underway to bring it into operation. The plan is to increase the capacity of the Kazakhstan-China gas pipeline’s first section to 30 billion cubic metres before 2012, and to further increase it to 40 billion cubic metres. China has voiced a proposal to discuss conditions for continuing the second stage of the construction of the Kazakhstan-China oil pipeline, and expanding the capacity of the existing pipelines - Kenkiyak-Atyrau, Kenkiyak-Kumkol, Kumkol-Atasu and Atasu-Alashankou - to 20 million tonnes a year at the point of Alashankou. (It is expected that the capacity of the Atasu-Alashankou oil pipeline will reach 12 million tonnes of oil a year.

With oil production increasing at the Tengiz and Karachaganak fields and the Kashagan field due to be put into operation, one of the most urgent issues in the CPC (Caspian Pipeline Consortium) project is increasing the pipeline’s capacity.

Before 31 October 2010, CPC shareholders, including the governments of Russia and Kazakhstan, should make appropriate changes to the existing CPC agreements. In line with the decision by the CPC shareholders, Transneft, KazMunayGaz and Chevron will act as the managing companies by organising, through their designated affiliated companies, the implementation of the project in Russia, Kazakhstan and at a marine terminal, respectively. In this case, Kazakhstan’s quota will increase from 27 million tonnes to 52.5 million tonnes.

In accordance with Kazakh President Nursultan Nazarbayev’s state-of the-nation address, the country is building the Beyneu-Shymkent gas pipeline linking the Mangistau, Aktobe, Kyzylorda and South Kazakhstan regions, in order to ensure stable gas supplies to the country’s southern regions, to deliver them from dependence on gas imports and to ensure the country’s energy security.

The project’s first start-up complex, with a capacity of 3.6 billion cubic metres a year, is expected to be completed by January 2012. In accordance with approved design estimates, the gas pipeline will cost 337,853 million tenge.

The question of attracting foreign investors to the project has been studied and a protocol has been signed, under which the Beyneu-Shymkent gas pipeline is regarded as the second section of the Kazakhstan-China gas pipeline. In order to implement the project, it is expected that a joint venture will be established and the Kazakh and Chinese parties will each invest $500m as a one-time contribution to the charter capital of the enterprise.

One of the most important areas for Kazakhstan’s economic security and independence, as well as for dynamic economic growth with a multiplier effect, is the creation of facilities for the advanced processing of hydrocarbon raw materials and the production of petrochemical products with high added value, which are competitive in the international market. The plan is to produce petrochemical products both at newly-established petrochemical plants and at upgraded and modernised refineries.

Investment projects to create petrochemical plants, and upgrade and modernise oil refineries, have been included in the State Programme for the Accelerated Industrial and Innovative Development of Kazakhstan for 2010-2014, as well as in Kazakhstan’s Map of Industrialisation for 2010-2014. The projects have undergone all stages of technical, economic and design work, and the construction of facilities will start in the near future.

An integrated gas chemical plant will be built in the Atyrau Region to produce basic petrochemical products – ethylene, polyethylene and polypropylene. Investment in the project amounts to about $6.3bn. In order to ensure the successful implementation of the project, and the timely allocation and use of loans and shareholders’ funds, the project will be implemented in stages: the first will provide polypropylene production with a capacity of 500,000 tonnes a year, and the second – 800,000 tonnes of polyethylene a year.

In order to implement turnkey construction work at the first stage, the Chinese company Sinopec Engineering was chosen as the general contractor of the project and the company has begun to develop design estimates. In March 2010, a license agreement on propane dehydrogenation and polypropylene production was signed with the US company CBI Lummus. The company also signed an agreement with Sinopec Engineering on the guaranteed sale of finished products. The plan is to place orders for basic equipment in December of this year, and the construction and installation work will start in the spring of 2011.

The reconstruction of a vacuum block of the ELOU-ABT unit and delayed-action carbonisation unit at the Atyrau refinery, the oldest refinery in Kazakhstan located in the immediate vicinity of the main oil fields in the west of the country, is almost finished.

A project to build a plant producing aromatic hydrocarbons is underway as part of the Atyrau refinery. The aim of the project is to produce benzene and paraxylene, and improve engine fuel quality up to the Euro-3 standard. A state examination has approved the project feasibility study and design estimates, which were developed using the technology of licensor Axens (France). Construction sites have been prepared.

- KIOGE has again attracted great attention, and this has happened against the background of the remaining post-crisis problems in the global economy. Can this be regarded as a sign of interest from international companies and investors in Kazakhstan’s economy in general?

- Energy resources are one of the most important issues in the world. World powers need, as never before, just such a reliable supplier of energy resources as our country. Kazakhstan, for its part, is actively developing supplies of “black gold” to global markets in every direction possible.

Kazakhstan is increasingly integrating into the global economy and this has been possible thanks to the dynamic growth in its fuel and energy industry. We are always ready for constructive dialogue for further mutually beneficial cooperation.

- The Ministry of Oil and Gas of Kazakhstan has traditionally been one of the main participants in the KIOGE conference. Summing up this long-term experience, what can you say about the role of the exhibition and conference?

- The main benefit of this exhibition is, first and foremost, the mutually beneficial choice of partners, sharing of experiences and acquisition of innovative technologies that promote business growth in the oil and gas industry.

The KIOGE exhibition and conference play a very important role in Kazakhstan’s oil and gas sector, and ensure efficient interaction between Kazakh and international companies, including those working in the country, and representatives of government, financial and research institutions.

This text is published with abridgements.
For the full interview, please visit www.kioge.kz

OUR SUCCESS CONTRIBUTES TO THE DEVELOPMENT OF THE NATIONAL ECONOMY (Kairgeldy KABYLDIN, Chairman of the Board, KazMunayGaz JSC National Company)

- Kairgeldy Maksutovich, KIOGE is traditionally an international platform where, among other activities, the results of the period since the last conference are summed up. This year was not easy for the oil and gas sector, but, on the whole, it has performed well. How would you rate the performance of the company during this period?

- The forecasts for 2010 by analysts all over the world were predominantly pessimistic. New upheavals related to prices were expected on the international markets, while the largest companies were significantly limiting their investment policy. In these conditions, many business units had the goal of simply staying afloat. These forecasts were also made in relation to KazMunayGaz National Company. That is why it was fundamentally important for us to maintain the positive dynamic of growth of the main production indicators in the first half of 2010.

In my opinion, the situation in the oil and gas market in 2009 and in the first half of 2010 provided an excellent opportunity to test the strategy chosen by us and the soundness of existing business processes.

The current statistics of the indicators for January-June 2010 point to the effectiveness of the measures taken by us.

The KMG group of companies produced over 10.7m tonnes of oil and gas condensate in the first six months of 2010, which is 18.6% higher than in the same period of 2009. Oil refining reached 7.7m tonnes, which is 1.5 times higher than in the same period of last year. At the same time, 5.89 million tonnes were refined at the three Kazakh oil refineries. About 32.8 million tonnes of oil were transported through the main pipeline system, which is an 8% increase compared to the same period of last year. And 52 billion cubic meters of gas were transported in this period, which is 12% growth y-o-y.

As you understand, the results of the production operations of KMG National Company influenced its financial results, and the profit of KMG increased by almost threefold compared to the first half of 2009. According to the estimate of a prestigious international magazine, Petroleum Intelligence Weekly, we are one of the 50 leading oil and gas companies in the world.

Moreover, we should not forget that KazMunayGaz is a national company. Our success contributes to the development of the national economy, and our success is the fulfillment of the tasks which the President of our country sets us. KazMunayGaz has contributed a significant part of the country’s gross domestic product for many years now.

KMG fulfils particularly significant functions in forming Kazakhstan’s budget. According to current data, the share of tax payments made by all the companies where KMG has direct or indirect participation amounts to 22.2% of the revenue of Kazakhstan’s budget in the first half of 2010, while measured proportionally to KMG’s stakes in these companies, these tax payments make up 10.5%.

The share of all companies with KMG participation amounted to 29.5% of total tax income to the budget (KZT 695.3bn), or 14% (KZT 329bn) if measured proportionally to KMG’s share in these companies.

KMG’s role in Kazakhstan’s other macroeconomic indicators is significant as well. While the growth of the inflation index was 4.4% in January-June 2010 in Kazakhstan, it only amounted to about 2% for petrol and diesel fuel in the pricing of which KMG participates.

I should also say that KazMunayGaz pays special attention to the development of Kazakhstan’s content. The KMG group of companies purchased goods, works and services from Kazakh suppliers totaling KZT 456.5bn, or 65% of its total purchases in the six months of this year.

Moreover, KazMunayGaz makes a specific contribution to the economy of the country by supplying goods at low rates: it supplies drinking water and gas to the population and oil and petroleum products to the domestic market. The total amount of money allocated by KMG for these purposes exceeded KZT 36bn in 2009.

Taking into account these and other examples, you can see that we understand our responsibility before the state, while we identify our achievements with the priorities of the country’s social and economic development.

- How does your company view Kazakhstan’s prospects for hydrocarbons transportation?

- In the future, our country plans to be among the ten largest exporters of hydrocarbons in the world, while its production of oil is expected to exceed 140m tonnes by 2020.

The main operating routes for the export of Kazakh oil are the Atyrau-Samara pipeline, CPC pipeline, Atasu-Alashankou pipeline, Aktau port and rail transport. In 2009, 76.5 million tonnes of oil and gas condensate were produced in the country, with about 70 million tonnes being exported.

In 2009, the largest amounts of Kazakh oil were exported through the CPC pipeline – 28m tonnes - and the Atyrau-Samara pipeline – 17.5m tonnes. A total of 7.7m tonnes, which included 6.2m tonnes of Kazakh oil, were transported to China. Exports by sea amounted to 11.1m tonnes, while 4m tonnes were transported by railroad.

The current demand for oil pipelines is almost completely satisfied; however, as the production of oil will grow in the future, the demand for the construction of new pipelines will grow.

KazMunayGaz is interested in projects aimed at avoiding the Bosfor and Dardanella straits, and does not rule out the possibility of its participation in these projects, or the use of these projects as options for supplying hydrocarbons to the European markets. The final decision on the expediency of using export routes will depend on the economics of supplying oil through these routes, the price of shipment, and the possibility of preserving for consumers the quality of light Caspian oil during transportation.

- KazMunayGaz National Company and KIOGE – how would you assess the experience of their cooperation?

- In my opinion, the KIOGE conference has become an important centre for sharing information, experiences and achievements in the oil and gas sector, and for strengthening business contacts and cooperation, which helps improve the investment climate in Kazakhstan.

Each year, the KIOGE conference accepts important papers detailing the trends and problems of the oil and gas sector, with proposals for specific measures, and discussion of draft laws and other regulatory acts. I would like to note, in particular the importance of the meeting dedicated to the analysis of the current tax and regulatory environment in Kazakhstan this year. In my opinion, taxation in the oil and gas industry, tax and customs dispute settlement, and payment of tax duties are particularly important issues today.

The KIOGE conference should also be considered as an important platform for professional interaction and an aid to the fulfillment of the course taken by the Head of State to create an innovative economy and ensure energy security

For example, innovative approaches to the development of oil and gas deposits are being given significant attention at the conference this year. Issues such as the planning and carrying out of geological and technical activities at a late stage of oil deposit development, and the development of oil recovery methods, the use of which allowed KMG to produce a further 1m tonnes of oil in 2009-2010, will also be discussed at the conference.

The prevention of oil spills at sea and the elimination of their consequences are especially significant, due to the accident at the oil platform in the Mexican Gulf. I am glad that this issue will be given significant attention at KIOGE 2010.

Other important issues for discussion include health and safety, security and corporate social responsibility.

On the whole, I would like to highlight the undoubted relevance and importance of the KIOGE oil and gas exhibition and conference for addressing and advancing the implementation of innovations, and facilitating discussion of the latest decisions and the sharing of experiences related to increasing the efficiency of oil and gas production and processing.

- This year was marked by the adoption of the State Programme for the Accelerated Industrial and Innovative Development of Kazakhstan. How will KMG participate in it?

- Undoubtedly, one of the most important topics at the KIOGE conference will be ensuring energy security and increasing energy efficiency, with the transition of the country from the export of raw materials resources to resource and innovative development, with high quality reform of the energy and related sectors. At the conference, we intend not just to talk about our industrialisation projects, but also to discuss with our partners ways of increasing energy efficiency through innovative and investment processes in the sector, and the role of engineering companies in the innovation process, as well as other issues.

First of all, the industrialisation of the real sector of the economy is clearly related to the development of its resource base. Every new industrial site is supplied with fuel and energy resources.

KMG participates in the implementation of strategic investment projects in oil refining, petrochemistry, hydrocarbons transportation and service infrastructure. These include the ship repair dock in the Mangistau region, the second line of the complex for recovering gas at the Akshybulak deposit in the Kyzylorda region, and projects for the modernisation of the Atyrau oil refinery.

A support facility for offshore oil operations, Atash, is being built in the Mangystau region. Work on building a platform for the further construction of a plant producing metal structures is nearing completion and construction work on a plant making drilling solutions is underway. In accordance with the latest protocol instruction of the Kazakhstani Government on the inclusion of shoreline infrastructure in the Map of Industrialisation, KazMunayGaz National Company is carrying out 10 infrastructure projects in the Mangistau region.

The most important issue that we intend to discuss at the conference include the state of the oil refining sector, its further development and investment in new facilities for oil refining and treatment. The implementation of an integrated plan for the development of oil refineries should radically change the situation in the country’s oil refining sector. Domestic oil refineries will have an aggregate capacity of 17m tonnes in 2015 and will fully meet the internal demand of the country for high quality petroleum products.

In short, we have something to tell the participants of the event. The KIOGE exhibition and conference are a large-scale project, the aim of which is to help strengthen and develop Kazakhstan’s economy and its economic growth, and improve the quality of life in the country.

This text is published with abridgements.
For the full interview, please visit www.kioge.kz

KIOGE - A REAL OPPORTUNITY TO DEVELOP YOUR BUSINESS (Graeme COOMBES, International Head of Oil & Gas Events, ITE Group Plc)

- Graeme, KIOGE is ITE’s largest annual oil and gas event in a growing portfolio of exhibitions and conferences that cover the hydrocarbon and energy sector. We’re fast approaching another edition of KIOGE. What can participants expect from this year’s event?

- Yes it’s our busiest time of the year. We’ve been working hard to continue improving KIOGE so that it remains the leading forum for business in Kazakhstan’s oil and gas sector. The most significant change this year involves our co-operation with the Astana-based KazEnergy Forum. We have both agreed to differentiate our conference programmes with the Astana event focussing on political and strategic issues while KIOGE will focus on important commercial and technical aspects of the oil and gas sector in Kazakhstan. Ultimately, what participants can expect from KIOGE’s exhibition and conference is a wealth of business opportunities and knowledge about how the industry is developing here.

- What have been the biggest challenges this year?

- From my viewpoint, I believe that improving the quality of the conference programme has been both a priority and a challenge. I could see that we had an opportunity to provide delegates with more compelling subject matter but I am also deeply conscious of the fact that radical reform of a conference whose formula is so successful and well respected is unwise. I hope that we have delivered noticeable improvements without compromising the character of the event.

- What is special about KIOGE?

- Many things. Most important is the state of the industry and the genuine opportunities for companies to grow their business here. There is a vibrancy about KIOGE that is genuinely rewarding from an organisers perspective and the facilities and infrastructure provided by the city of Almaty make it a very enjoyable place to do business.

- KIOGE isn’t ITE’s only oil and gas event in Kazakhstan, how are the other events in Atyrau and Aktau developing?

- Very well. Both events are specifically geared to uniting businesses at the heart of the industry’s activity in Kazakhstan. It would be wrong to assume that all oil and gas contracts are signed and sealed in offices in Almaty and Astana. There are a host of senior staff in engineering, scientific and operations functions who need to see and hear about the latest technology and working practices available to them. These are primary influencers in some major business decisions so our exhibitions and OilTech conferences in Atyrau and Aktau are welcomed by the local oil and gas communities and suppliers from around the world.

- What other projects are keeping you busy?

- To be honest, there’s hardly any breathing space between events and the next in line are Mangystau Oil & Gas in Aktau and Petrotech in New Delhi. Beyond that, I’m looking to expand the number of OilTech conferences so that we can deliver highly specialist technical knowledge and networking opportunities to many new regions. I’m also looking at ways to better incorporate broader energy business into our oil and gas events. The industry’s biggest companies are rapidly developing their business into alternative energy fields and it’s our duty to keep moving with the industry. There’s never a dull moment.