Gas industry needs significant upgrade to meet rising domestic needs

The gas industry needs support and considerable financial investment. Without modernization and expansion of the gas transmission system facilities, further uninterrupted gas supply to consumers is hardly possible. Therefore, gas industry development is a key task on the national agenda now.

The current state of the country’s gas industry

The gas industry plays a key role for Kazakhstan which possesses abundant gas resources. Kazakhstan ranks among the top 20 countries in the world in terms of its overall gas resource endowment. The country's recoverable reserves of 3.8 trillion cubic meters are enough for more than 100 years, but the problem is the limited capacity of the gas processing plants.

The vast majority of Kazakhstan’s natural gas reserves are located in the western part of the country, including its three supergiant oil and gas fields – Karachaganak, Tengiz, and Kashagan that together account for 81 percent of the country’s gas reserves.

According to the data from the Ministry of Energy, in 2021, gas production was 53.8 billion cubic meters, while the plan for 2022 is 54.5 billion cubic meters. Production of marketable gas was 29.4 billion cubic meters and the plan for 2022 is 29.6 billion cubic meters. The target indicator of the growth of marketable gas production by 2030 is 15 billion cubic meters to be driven by the launch of gas production projects and at the expense of the increase of gas processing volumes.

Between 2010 and 2020, gross natural gas production (including reinjected volumes) in Kazakhstan grew by an annual average of 4 percent reaching 55.1 billion cubic meters in 2020. Commercial gas production (excluding reinjected volumes) grew at a similar rate over the past decade, reaching approximately 34.8 billion cubic meters in 2020.

Last year, gas exports amounted to 7.2 billion cubic meters, while the expected volume of gas exports in 2022 is 5 billion cubic meters.

The comprehensive plan adopted for the next five years defines the vision and main approaches to the step-by-step reform and development of the gas industry.

The plan allows the development of new approaches to regulate the gas market, create conditions for attracting investment in the gas industry, expand the gas resource base to increase commodity gas production and further development of the fuel and energy complex, as well as provide an uninterrupted and safe gas supply to consumers - all following the tasks set by President Kassym-Jomart Tokayev.

What needs to be addressed in the sector?

Kazakhstan’s gas sector needs to undergo structural changes. Policymakers and the country’s leaders acknowledge the need to address the increasing call on gas supply. President Tokayev has repeatedly spoken about the need to improve the current model of development and management of the gas industry, including enhancing investment attractiveness, increasing geological exploration, improving domestic gas pricing policies, and continuing gasification.

Addressing the expanded Government meeting on July 15, the President said the gas consumption is increasing annually in the domestic market driven by the introduction of new industrial facilities and gasification of the country.

«Over the last 10 years, the volume of gas consumption in the domestic market has more than doubled - from 9 to 19 billion cubic meters. It is predicted that there will be a gas shortage in the country next year. We have to understand that shifting the focus from export gas to the domestic market is a forced step that leads to the loss of foreign exchange earnings and worsens the trade balance,» said Tokayev, emphasizing the need for systemic measures to address this issue, including increasing the resource base and gas processing.

«Only by increasing the extraction and processing of gas will the state be able to receive export revenues and fully meet domestic needs. Therefore, fiscal preferences should be developed for new gas production projects. The Government should also clearly distribute functions among the relevant national companies,» he said.

Speaking about liquified petroleum gas, he said the Government was forced to extend price regulation for retail sales of liquefied petroleum gas until the end of this year, but it could not last long. He explained that artificially restricting prices in the future could lead to shortages. «This is the law of the market,» he added.

The country’s QazaqGas national company, created following the rebranding of KazTransGas company, will oversee the implementation of the comprehensive plan, including work on the expansion of the marketable gas resource base, development of the domestic gas market, development of gas transit and export, gas chemistry and deep processing, investment and operational efficiency.

Speaking at a conference as part of the Astana Finance Days on June 27-29, QazaqGas Chair Sanzhar Zharkeshov said gas is a new global trend.

«The question is what will attract foreign investors in Kazakhstan. The answer is gas. This is a new global trend. By 2030, 25-30 percent of electricity must be generated by gas. Otherwise, the goals of transitioning to a green economy will not be achieved. The bad news is that there is a great risk of not achieving this goal, as the gas industry needs support,« said Zharkeshov, noting that besides gas industry development, the country needs a comprehensive strategy for energy security.

»Gas is a clean fuel. Capital markets participants are interested in projects in the gas industry, because this is the future of the energy transition. Investments in this industry are attractive and relevant,« he added.

Considering the shortage of marketable gas resources and non-profitability of prices in the domestic market, there are also proposals to be made to the law of Kazakhstan on gas and gas supply on socially fair pricing reforms, including expansion of the list of consumer categories willing to purchase marketable gas at market prices.

To increase the production of marketable gas and to ensure the processing of crude associated natural gas, a project is currently being implemented for the construction of a gas processing plant at the Kashagan field with a capacity of 1.150 billion cubic meters per year.

»Implementation of this investment project will allow to supply up to 1 billion cubic meters per year of raw associated natural gas from the Kashagan field to QazaqGas for further processing and production of marketable gas,« said Minister of Energy Bolat Akchulakov at a Government meeting in May.

The ministry is also considering a project to expand the capacity of the Kashagan Gas Processing Plant by 2 billion cubic meters by 2026 and by 6 billion cubic meters by 2030. This project will increase the resource base of marketable gas by 6.2 billion cubic meters by 2030.

Current risks

Experts say the gas industry may face a crisis in 2024, including gas shortages. According to QazaqGas, the domestic market demand will exceed the available gas resources by approximately 1.7 billion cubic meters, and unless urgent measures are taken, gas exports might suspend in 2023.

The country is witnessing many applications from large new consumers, including projects to transfer large thermal power plants in Almaty to gas and connection to gas supply of new gas chemical complexes.

The risks are also high that the financial stability of QazaqGas, serving as a national operator, will deteriorate already this year because of the unprofitable domestic market. If last year, the company was able to compensate for domestic market losses of 162 billion tenge at the expense of transportation and export revenues, this year its gross profit is expected to decline.

Gasification

Gasification has been a priority for the Government of Kazakhstan in the past years. In 2018, Kazakhstan kicked off the construction of the Saryarka gas pipeline to provide gas to the capital city of Nur-Sultan and the central and northern part by 2023 and the first stage running from Kyzylorda to Nur-Sultan was commissioned in October 2019.

According to the Ministry of Energy, as of May 2022, the total level of gas supply in Kazakhstan reached 57.67 percent of the total population, meaning that nearly 11 million people have access to gas.

The gasification of the country is carried out in accordance with the general scheme for 2015-2030. Due to the sharp increase in domestic gas consumption in recent years and the need to modernize the gas transmission system for the further uninterrupted supply of gas to the country, the document is now being updated.

This year alone, Kazakhstan plans to spend nearly 96 billion tenge on 130 gasification projects that will provide gas to 146,000 people or 93 settlements. The planned level of gasification by the end of 2022 is 58.43 percent.

In the meantime, decisions on the gasification of northern and eastern regions are expected to be made by September 1. The ministry is now considering two options - from Russian sources and through the Sary-Arka gas pipeline. The Russian side is currently conducting calculations expected to be available later this year.

»We are studying the option of gasification of eastern and northern regions through the supply of liquefied natural gas from the Russian Federation. This requires the construction of appropriate infrastructure for compression and regasification and investment in construction,« said Minister of Energy Bolat Akchulakov.

Global gas market developments

The situation between Russia and Ukraine is causing a significant strain on global gas supply further pushing up prices for consumers and leading to fuel switching and demand destruction.

According to the International Energy Agency, natural gas demand is expected to decline in 2022 and remain subdued up to 2025.

«Today’s record prices and supply disruptions are damaging the reputation of natural gas as a reliable and affordable energy source, casting uncertainty on its prospects, particularly in developing countries where it had been expected to play a growing role in meeting rising energy demand and energy transition goals,» reads the agency’s latest gas market report.

The current geopolitical developments significantly downgraded the agency’s previous gas growth prospects. Now, it expects global gas demand to rise by a total of 140 billion cubic meters between 2021 and 2025, less than half the amount of the previous forecast.

Written by Assel Satubaldina

Фото: пресс-служба АО «НК «QazaqGaz»