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KazMunaiGaz to sell refined products to world markets

Kazakhstan intends to sell refined products, not only crude, in the world markets. This is, undoubtedly, more profitable.

To this end, over the past few years, the country has been trying to acquire, or build, a refinery abroad. However, so far it has been unsuccessful in “opening a window to Europe.” But Kazakhstan is not discouraged, and it is now looking Southeast At the beginning, hoping to acquire a foreign refinery, the national company KazMunaiGas (KMG) was looking at Europe. The first attempt to purchase the Czech Unipetrol had failed. Then there was a long struggle for the Lithuanian concern Mazeikiu Nafta.

But at the very end, without explanation of the reasons, KMG yielded to its competitor. After that, there were talks about the Latvian Ventspils Nafta. But the expert calculations showed that the project was uneconomical, so Kazakhstan quickly forgot about it. Last October, in a back room of a regular meeting of the International Energy Forum, Kazakh Mineral Resources and Energy Minister Bakhtikoja Izmuhambetov told journalists the national company has not abandoned its aggressive plans to acquire foreign refinery assets. “We are in the process of negotiating, and very shortly we hope to close a favorable deal that will allow Kazakhstan to enter the European refinery market,” he said at that time.

Apparently, the minister had referred to a purchase of shares of a major company that owned three refineries and a network of gas stations in Italy, Switzerland and Germany. It was a very good project. But the talks were conducted through middlemen, as a result of which the price of the transaction was unaffordable for the Kazakh side, and Kazakhstan declined the deal. In short, Kazakhstan has so far failed to “open a window to Europe.”

Some have started saying that KazakhstanEurope is no longer such a promising market for us as it used to be. The tax burden, including ecological taxes, is so high there that the oil refineries have been living from hand to mouth. Whereas Turkey, the Caucasus and the Asian markets are “awfully” promising long-term markets,” the executive director of KazMumaiGas for oil refining and petrochemistry, Shukhrat Danbai, said. should stop its attempts in this direction.

The new situation
Kazakh specialists believe that the most feasible and promising project at present would be constructing a refinery in the Turkish port of Ceyhan. It is known that the refinery capacity will be 15 million tons, and the cost of the project is estimated at $5 billion. Apart from KazMunaiGas, Oil India and Calik Enerji from Turkey will participate in the project. The parties have no intention to linger, and they plan to start with the construction next year.

One may wonder why Ceyhan? According to specialists, the economics work best there. First, it’s the location of the port Ceyhan. At present, crude is delivered here by the Baku-Tbilisi-Ceyhan oil pipeline. The pipeline is designed for a capacity is 50-million-tons a year. The Turkish government is planning to build another 50 million tons route, Samsun–Ceyhan, on its territory. In addition, it is possible that a 70-million-tons a year pipe from Iran, Kirkuk – Ceyhan, will soon start bringing crude here as well.

So, in the future, three major arteries will come together in Ceyhan bringing in total about 170 million tons of oil. This is more than in the world’s largest port, Rotterdam, which currently receives around 150 million tons of oil. So, Ceyhan will have enough crude to both sell and refine. Secondly, Ceyhan enjoys 365 sunny days a year with no wind, which is a good condition for such a business. Third, there is a prospective market for the products - Turkey. Currently, the country is experiencing an acute shortage of refining capacities.

For instance, its refined products requirement is 32 million tons. The five existing refineries provide only 26.5 million tons of oil products. The remaining six to seven tons are imported from Russia and Italy. According to the forecasts, however, the demand for refined oil products in Turkey will grow to 34 million tons by 2010 and to 43 tons by 2012. “Therefore, Turkey is in any case interested in new refineries. The market demand dictates this. Out of the 15 million tons that the new refinery will produce, we should be able to comfortably sell to Turkey about 10 million to cover its deficit and sell the remaining five million to India,” KazMunaiGaz’s Danbai said.

The refinery projects
The refinery is scheduled to be completed in 2012. It will produce a wide range of oil products: all types of high-octane gasoline, fuel oil, diesel, jet fuel and petrochemicals. The participants of the project are to sign a memorandum of understanding and a shareholders agreement at the end of this month in Astana. A talk about the construction of a refinery in Batumi had started as soon as the heads of the two countries - Kazakhstan and Georgia - reached an agreement on that. That was preceded by the purchase by KazTransOil of a 50% interest in the Batumi oil terminal.

At first, Batumi will receive eight million tons of the Kazakh crude per year. Eventually, the deliveries will grow to 15 million tons. This is a good reason to not only sell crude from Batumi, but to also refine it there. However, in spite of a political decision, the specialists have had concerns until recently that the project might prove unfeasible; the reason being the high railway tariffs for transportation of the Kazakh oil through the territory of Azerbaijan.

But after the latest visit of the Kazakh premier to the Caucuses, an agreement has been reached that this problem should be solved in the nearest future. The projected cost of the future Batumi refinery is estimated at over $3 billion with a capacity of five to seven million tons per year. The construction is expected to start in the nearest two years. The participants of the project will include the international holding Greenoak Group and KazMunaiGas. Incidentally, Greenoak Group is Kazakhstan’s partner in another project: it is the other 50% co-owner of the Batumi oil terminal.

The new strategy
With an overall strategy of getting to Europe, Kazakhstan, however, is eyeing Southeastern Asia, in particular, neighboring China. Its economic growth rate is very promising. For instance, the Xinjiang Region has three large refineries: in Karamaisk, Dushanzi and Urumzi. And the Kazakh national company is exploring opportunities of entering into this sector. As is known, KazMunaiGas is only interested in a refinery where it could hold a minimum 50% interest. As regards to a new refinery in China with Kazakh participation, no such project is currently on the table.

The Chinese are very protective of their oil and gas sector (two state-owned companies control everything), and they do not allow foreign companies to enter. But Kazakh specialists believe that the situation may change in the future. China has acquired a number of oil fields in Kazakhstan. In addition, China should think about the loading of the new Atasu–Alashankou oil pipeline. Next in turn is a new section, Kenkiyak–Atasu. In both of these projects, the Kazakh national company is China’s partner. So, according to Kazakh experts, joint projects in China, including a new refinery, are only a matter of time.