Kazakhstan surprises analysts by going for shale

National flag of Kazakhstan
Source: DollarPhotoClub

Kazakhstan surprised observers yesterday by declaring its interest in shale gas exploration. It was believed that for a country as rich in hydrocarbons as Kazakhstan, obtaining difficult and expensive energy from unconventional sources makes no financial sense.

Kazakhstan’s Prime Minister Karim Masimov swept these assumptions aside when he announced yesterday at the International Conference on Energy Charter that Kazakhstan is “also going to develop projects for the development of shale gas.”

In January 2013, the Oil and Gas Journal estimated Kazakhstan’s proven natural gas reserves at 85 trillion cubic feet (Tcf). Natural gas production in Kazakhstan is almost entirely associated gas. Most of Kazakhstan’s natural gas reserves are located in the west of the country, with 77 per cent of total natural gas reserves located in four fields: Karachaganak (46 per cent), Tengiz (12 per cent), Imashevskoye (7 per cent), and Kashagan (12 per cent), according to Wood Mackenzie.

“The decision of the Kazakh authorities on shale gas production looks pretty strange, since Kazakhstan always positioned itself as a state rich in hydrocarbons. Astana stated that it could easily increase gas production to 80 billion cubes of gas per year,” senior researcher of Russian Institute of Strategic Studies Azhdar Kurtov told Vestnik Kavkaza.

Kazakhstan’s decision to increase gas production seems strange when we take into consideration the falling demand for gas from the country’s traditional buyer – Ukraine. Analysts note that selling the gas, even if it wholly becomes the property of the national companies, is not profitable under the current circumstances, since it can be transported only through Russian territory.

Having said that, Kazakhstan’s decision may be motivated by the drive to diversify its gas options. Especially that vast areas of gas production are located in the Caspian Sea, the legal status of which remains unresolved, mainly driven by a lack of agreement on whether the Caspian is a sea or a lake.

By contrast, shale gas deposits are not located in the Caspian Sea, but rather in Eastern Kazakhstan.  “In this case,” Azhdar Kurtov noted, “the buyer will not always be Europe or Ukraine, but China. Since this transport arm is much shorter.”

Indeed, Kazakhstan’s decision to invest in unconventional gas and oil deposits is seen by many as a means to undercut Russia.

In Kurtov’s opinion, with the project in shale gas production the Kazakh authorities can count on building up supplies in China. “And if so, it is quite possible that this is done to oppose Russia, as the latest talks between the Russian leadership and the Chinese concerned the so-called western route – a pipeline through the territory of the Russian Altai. It is possible that Kazakhstan is trying to get ahead of the Russian project “Altai”, Kurtov suggests.

According to Kurtov, the huge investments necessary to make a success of shale exploration can only be justified if the gas finds its buyer in China.

“If Kazakhstan is able to implement [Masimov’s plans] , it will bypass Russia. We only speak now about shale gas production, but appropriate technologies are yet to come. It is possible if Kazakhstan commits the breach, for Russia it will be an additional incentive and example for the development in this direction, “- said to Vestnik Kavkaza Director of the Analytical Center of MGIMO Andrew Kazantsev.

Main source: Vestnik Kavkaza

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