News: Monday, July 26, 2010 
Article of the Day
Tengizchevroil’s Pipeline Bottleneck
By Andrew E. Kramer
The Tengizchevroil field in western Kazakhstan is capable of producing two-thirds as much oil each day as the entire Gulf of Mexico.
But it has been operating at half capacity for years because Russia has failed to follow through on a pipeline expansion agreement that Chevron made 12 years ago.
That may finally be about to change. The Russians have said a final decision on the timing of the expansion will be made in the fall. And contracts for the work are already being negotiated.
Tengizchevroil’s ability to maximize its earnings was never a question of being able to pump the oil from the field below the scrub brush in the Atyrau area near the Caspian Sea. Tengiz, one of the world’s largest petroleum reservoirs, contains more than 100 working wells.
The challenge has been getting the oil to market.
Tengiz is tied to a 935-mile pipeline to the Black Sea that the Russian government has long refused to expand. It has refused even though Chevron, the lead company in Tengiz, is a minority partner in the Russian-led pipeline, the Caspian Pipeline Consortium.
The Russians agreed a dozen years ago to more than double the pipeline’s capacity when demand required. Chevron and the three other Tengiz partners – Exxon Mobil, KazMunaiGas and Russia’s Lukoil -- are still waiting.
As a result, instead of the 600,000 barrels a day that Tengiz planners had envisioned, the partners have been able to pump only 420,000 barrels a day through the pipeline.
Chevron has long wanted to increase its investment so it could produce 1 million barrels a day at Tengiz. That would be only a third less than the entire Gulf of Mexico’s output of 1.5 million barrels a day.
But with the Russian pipeline’s capacity remaining at 420,000 barrels, what would have been the point of a Tengiz expansion?
For now, Tengizchevroil is moving some of the oil that the pipeline is unable to carry on ships across the Caspian, then railway to the Black Sea. That has led to Chevron becoming Kazakhstan’s largest railroad user.
“If Chevron had our way and everything worked beautifully, we would have CPC (the pipeline) expanded five years ago,” said Guy Hollingsworth, managing director of Chevron’s operations in Europe and Asia.
But Chevron is not the one that decided the issue.
Russia declined to expand the pipeline while trying to line up investors and international rights-of-way for a second, separate pipeline known as South Stream.
South Stream would go under the Black Sea and to Bulgaria, where it would split into two branches. One branch would go overland to Austria. The other would go under the Mediterranean Sea to Italy.
In addition to further controlling the transporting of oil in the region, Russia wants to build South Stream to avoid having to ship oil through the Bosporus Straits inTurkey, the passage out of the Black Sea. The straits are a potential bottleneck already operating at full tanker capacity.
Russian pipeline negotiations with other countries have long been led by the former president and now prime minister, Vladimir V. Putin, who has taken a keen personal interest in Eurasian energy politics.
The standoff over the CPC expansion is a reminder that global politics can pose as much risk to the industry as business considerations.
In the years immediately after the breakup of the Soviet Union, many oil-industry leaders hoped the Caspian region could become a second Persian Gulf, lifting the fortunes of companies and countries and helping shift world supplies away from the Middle East.
The Caspian basin “has been a success, but it hasn’t lived up to the exaggerated expectations,” according to Central Asia expert Svante E. Cornell. He is research director of the Central Asia-Caucasus Institute at the School for Advanced International Studies at Johns Hopkins University.
“One of the problems has been the Russian government’s unwillingness to expand the flow of oil,” he said.
Chevron is not the only company in the Caspian suffering transportation problems. Finding an outlet to world markets is a headache for all the companies working in landlocked Kazakhstan.
The operator of the separate, gigantic Kashagan oil field in the Caspian — a group whose partners include Exxon Mobil, Shell, KazMunaiGas, ConocoPhillips, Total and Eni — has yet to negotiate a suitable route for the exports the project will begin producing in a couple of years.
Neither has BP, which is managing the big Karachaganak gas field in the region – another project that includes Chevron.
By comparison with the projects that have yet to find export outlets, Chevron’s Tengiz troubles are more subtle. The field is productive and profitable, but is not yielding nearly as much oil and money as it should.
Chevron executives emphasize that while rail exports are more expensive, there is value in having a diversified transportation system.
Chevron won the Tengiz contract in 1993, signing a deal with Kazakhstan’s government, whose national oil company KazMunaiGas has a minority stake in the field.
Despite the state oil company’s involvement, the government periodically shakes Tengiz for additional taxes and fines to prop up the national budget — something that has become more common since the economic crisis of 2008.
Just this month, for example, Kazakhstani officials announced an export tax of $2.73 a barrel, which will cost Chevron and its partners $1.6 million a day.
The government is also investigating what it calls illegal drilling at Tengiz, which could bring huge fines. The consortium has denied it deviated from the state-approved drilling plan.
Back in the mid-1990s, a plan took shape for a pipeline from Kazakhstan’s western oil-producing heartland through Russia to the port of Novorossiysk on the eastern shore of the Black Sea. It became known as the CPC project.
From Novorossiysk the oil would be able to move by tanker ship, either to other Black Sea countries or through the Bosporus Straits to the Mediterranean and, from there, to ports around the world.
Under a 1998 deal, the Russian government agreed to the CPC pipeline being built in two phases. The first phase would have a capacity of 650,000 barrels a day. The second would more than double capacity to 1.4 million barrels a day.
Phase 1 was completed in October 2001. Phase 2 has yet to begin.
On the basis of the 1990s-era pipeline plan, the Chevron-led consortium invested hundreds of millions of dollars drilling and bringing wells online.
An even bigger expense was constructing six multibillion-dollar processing plants to remove hydrogen sulfide gas from the petroleum to make it fit for sale.
The last to be built, at a cost of $7.4 billion, is a behemoth of pipes and tanks.
The facility separates oil from vast quantities of hydrogen sulfide, then re-injects some of the gas into the earth.
It is so huge that before construction was completed two years ago, 18,000 laborers at a time were clambering over the sand, welding and hammering it all together.
Yet even before the plant was finished, Chevron learned that the CPC pipeline expansion it had counted on was nowhere in sight. An expansion would have allow the company to export the new plant’s entire output of 285,000 barrels of processed oil per day.
If a second pipeline is built to pump crude out of Kazakhstan’s oil heartland, Chevron said it will use it.
In the meantime, Chevron still wants the CPC pipeline expanded.
Russian officials now say a final decision on the timing of the expansion will come in the fall.
Ian MacDonald, Chevron’s vice president for transportation in Europe and the Middle East, said contracts for the expansion work arealready being negotiated.
When the pipeline expansion is approved, he said, Chevron will build more facilities at the Tengiz field to elevate its output to close to a million barrels of oil a day, the New York Times reports.
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Kazakhstan General
Turkey extradites Former Kazakhstan Official
Turkey has extradited the former head of Kazakhstan’s drug-fighting agency to his homeland to face charges of abuse of power.
Askar Isagaliyev is in a jail near
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Kazakhstan to get Nickelodean Shows
By Stuart Kemp
Nickelodeon is making shows such as "Fairly Odd Parents," "SpongeBob SquarePants" and "Danny Phantom" available to television viewers in Kazakhstan, Albania and Slovenia.
The Viacom
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Oil and Gas Sector
KazMunaiGas to co-manage Kashagan
KazMunaiGas has signed an agreement to become an equal partner with Royal Dutch Shell In managing production at the giant Kashagan oil field in the Caspian
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Work to begin in October on Pipeline for South
Work on the Beyney-Bozoy-Shymkent branch of the Kazakhstan-China pipeline will begin in October, Oil and Gas Minister Sauat Mynbayev says.
The 1,500-kilometer-long branch will transport gas from
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Tengizchevroil to pay $1.4 Million Flaring Fine
Tengizchevroil will pay a $1.4 million fine for unauthorized flaring of natural gas.
The Chevron-led operation said it flared the gas for safety reasons but will pay
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China to make Kazakhstan-border Region an Oil Hub
State-owned China National Petroleum Corp. plans to make the Xinjiang region, across the border from Kazakhstan, the country’s largest oil and gas production base and an
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Finance and Investment
Banks Won't Sell Bonds Overseas This Year
By Nariman Gizitdinov
None of Kazakhstan’s banks will sell bonds abroad this year, Bloomberg has quoted the Finance Ministry as saying.
The banks’ decision was one reason the
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Government subsidizing Companies’ Existing Loans
Small and medium-sized businesses that borrowed money from banks can get their interest rates reduced under a government subsidy program, caspionet.kz reports.
The original intent of the
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Hedge-fund Guru joins SkyBridge
Hedge-fund manager Cem Habib has become head of international operations at SkyBridge, an investment bank that has focused on financing oil and gas operations in Kazakhstan.
Cem,
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Metals and Minerals
Kazakhstan to invest $4 Billion in Coal
By Murat Zhakeyev
Kazakhstan will invest $4.14 billion over the next decade to increase coal production.
The investments will raise production from 99 million tons this year to
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Uranium Output to jump Again
By Damir Baimanov
Kazakhstan will produce 18,000 tons of uranium this year, increasing its first-place lead over runner-up Canada.
Kazakhstan produced 14,000 tons last year to become the
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Uranium may take New Route to Japan
By Tsuyoshi Inajima and Shigeru Sato
Japan, the world’s third-largest nuclear-power producer, will ask Russia to allow it to ship uranium from landlocked Kazakhstan through Russia’s Pacific
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Trade and Consumer Goods
Kazakhstan gets Largest Caviar Quota
The finest beluga caviar is back on the table this year.
Kazakhstan and the four other Caspian countries have agreed on export quotas for the delicacy.
Kazakhstan got
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Customs Union is No Fish Story
Kazakhstan fish farmer Vladimir Rozmetov is a believer in the new free-trade zone known as the Customs Union.
He had been wanting to expand his sturgeon-farming operation
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Regional Business News
Russian Rules stymie European Pork Producers
By Joshua Chaffin
If Europe’s pork producers seem jittery last week, it was probably because the Russians were coming – Russian veterinarians, that is.
A delegation from
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2009 was Good to China’s Sovereign Wealth Fund
China’s four-year-old sovereign wealth fund made its best gain ever last year after increasing its investments in commodities to ride a rebound in global markets.
China Investment
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Costly Divorce for Russian Billionaire
A London court has granted a divorce to Russian billionaire Boris Berezovsky’s second wife, Galina.
The split will be costly. Berezovsky declined to guess what the court
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Russian Tycoon, Chinese teaming up
By Yuriy Humber and Hwee Ann Tan
Russian billionaire Oleg Deripaska will team up with a Chinese compny to develop mines and auto factories.
Deripaska’s United Co. Rusal
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France to build Two Warships for Russia
France will build two Mistral-class amphibious-assault ships for the Russian navy.
The deal has alarmed France’s NATO allies, including the United States.
The 23,000-ton warships, which cost $388
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Southeast Asia eyes Nuclear Plants
Vietnam wants has called on Southeast Asian nations to come up with a region-wide approach to building nuclear plants to meet rising energy demands.
Russia could
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Prices and Statistics
Volume and Share Index by Visor Capital
Date: July 26, 2010; Source: Visor Capital
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Market Movers by Visor Capital
Date: July 26, 2010; Source: Visor Capital
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Oil and Gas Prices
Date: July 26, 2010; Source: Bloomberg.com
| Petroleum
($/bbl) |
|
Price* |
Change |
%Change |
Time |
| Nymex Crude Future |
79.17
|
.19
|
.24
|
02:28 |
| Dated Brent Spot |
77.25 |
.37 |
.48 |
02:37 |
| WTI Cushing Spot |
78.73 |
-.30 |
-.38
|
07/23 |
| Petroleum
(cent/gal) |
|
Price* |
Change |
%Change |
Time |
| Nymex Heating Oil Future |
205.73
|
.68
|
.33 |
02:27
|
| Nymex RBOB Gasoline Future |
212.24
|
.02 |
.01 |
02:21 |
| Natural gas
($/MMBtu) |
|
Price* |
Change |
%Change |
Time |
| Nymex Henry Hub Future |
4.56 |
-.02 |
-.44 |
02:26 |
| Henry Hub Spot |
4.70 |
.02 |
.43 |
07/23 |
| New York City Gate Spot |
5.15 |
-.05
|
-.96 |
07/23
|
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Commodities
Date: July 26, 2010; Source: Bloomberg.com
| Commodity |
Price |
Change |
%Change |
Time |
| COPPER FUTURE (USd/lb.) |
319.000 |
0.500 |
0.16 |
02:44 |
| GOLD 100 OZ FUTR (USD/t oz.) |
1193.900 |
6.100
|
0.51 |
02:44 |
| SILVER FUTURE (USD/t oz.) |
18.230 |
0.129
|
0.71
|
02:44 |
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Metal Prices
Date: July 26, 2010; Source: Kitco.com
| Silver |
18.20 |
+0.08 |
| Platinum |
1547.00 |
+8.00
|
| Palladium |
471.00 |
+9.00
|
| Rhodium |
2,230.00 |
0.00
|
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Exchange rates
Date: July 26, 2010; Source: the National Bank of Kazakhstan
| 1 USD |
KZT 147.46 |
1 CHF |
KZT 141.29 |
1 CNY |
KZT 21.76 |
1 TRY |
KZT 97.13 |
10 JPY |
KZT 1.69 |
| 1 EUR |
KZT 190.80 |
1 AUD |
KZT 131.98 |
1 KGS |
KZT 3.22 |
1 UZS |
KZT 0.09 |
|
|
| 1 GBP |
KZT 226.99 |
1 CAD |
KZT 142.31 |
1 RUB |
KZT 4.86 |
100 KRW |
KZT 12.30 |
|
|
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