02/12/2002, Hashim Rafsanjaniev
After the well-known decision on "Tengizchevroil" the oil rivers flow towards the distant future.
A recent statement by JV "Tengizchevroil" (TCO) on the suspension of two projects was a compete surprise for all, including, it seems, the JV itself. In any case a few months ago nobody could suppose such situation. TCO less than in half year several times publicly attracted attention to the Gas Reinjection Project (GRP) and the Second Generation Project (SGP), making them nearly a "visit card" of successfully realised investment possibilities of Kazakhstan. In July the TCO made a loud presentation of GRP, after that the same theme was sounded in autumn, during the traditional oil & gas conference in Almaty. Nothing foreboded "freezing" the projects.
GRP, the total cost of two phases of which was evaluated in 800 million USD, would be a very important project from various points of view. Its essence was reinjection into the petroliferous strata the so called associated gas produced on the same field. It would resolve an ecological issue (there would be no need to burn gas, as it was done earlier, which exerted "pressure" on the environment), in the production plan it would allow to sustain a stable volume of oil production guaranteed in the conditions, when a reduction of the strata pressure has been already registered at the field. It is very important that with the gas reinjection the acuteness of the associated sulphur utilisation problem would subside, Tengiz hydrocarbons containing a lot of it. "The gas reinjection technology is very important not only for TCO, if the GRP is realised successfully, it will mean big advantages for Karachaganak and Kashagan", one of the enterprise heads declared the last summer.
Now this experience is delayed for some time. The losses of the Republic must be counted right now. Obviously, now the project of the residential camp construction for the constructors of gas reinjection plant will be frozen. This project had to be carried out by Kazakhstani companies and it was estimated in 100 million USD. Within Tengiz field development the national companies were receiving such a big project through a bid for the first time.
What's more important, the realisation of the Second Generation Plant (SGP) construction has been postponed, which had to enable to increase the volumes of oil production. Both projects taken together had to increase TCO production capacities by 10 million tons of oil per annum in three years. That is, TCO from the current 12.7 million tons (plan for the current year) had to reach approximately 23 million, which equals approximately the total current oil production in Kazakhstan. It's impossible to say more or less precisely, how much Kazakhstan will lose because of the decision to freeze projects, but the amount is going to be big. We can remember just one thing: even with the current level of production TCO is the largest oil producing enterprise in the Republic and yeilds 10-12% of income to the State budget.
Form other figures it must be noted that the total volume of investments for both projects was estimated in 2.6 billion USD, of which up to 550 - 750 million were suggested to be spent on Kazakhstani commodities and services purchase.
From now it is postponed indefinitely. In other, indirect losses, those jobs could be included, that will not appear because of freezing, and there had to be a lot of them on two plants, at their construction and services. Tengiz-Novorossiysk (CPC) pipeline operations that already doesn't work at a full capacity will be influenced negatively as well. Its prospects were related with the increasing volume of export oil from Tengiz. Its absence, very probably, will influence the rates for oil pumping through CPC pipeline: if they don't grow, they won't fall anyway.
The list of direct and indirect losses from a decision of JV TCO announced not so long ago could be continued. In the text of the official statement on this issue there is one moment, attracting attention. It's about a JV's intention to optimise the existing oil producing capacities at the field. The term "optimisation" has a lot of meanings and in this case can mean a lot, including, for instance, the job reduction.
The political effect from this decision can be evaluated as a significant loss as well: up until now in the whole investment area there haven's been such unexpected and unfavourable for Kazakhstan decisions.
If the world prices for oil fall in the average term perspective, as many suggest, then it won't be possible to make up for losses from that by the growth of the export of oil.
All the sides participating in this process of negotiations talk about a readiness to look for a resolution of this, in general unneded by anyone, problem. But the negotiations on the multi-billion projects that find themselves in impasse have been carried out for a long time. Even if they manage to find a compromise quite quickly (during one year, for example), then with the terms of realisation of the two projects the actual oil production increase at Tengiz has to be postponed to the second half of the current decade.