KAZAKHSTAN - The Domestic Market.

The local energy market remains regulated, although the government has privatised important parts of the electric power sector. Consumption of both oil and coal has declined steadily since 1991 as the country has gone through a period of economic and industrial turmoil following the collapse of the Soviet Union. Crude oil refined for domestic consumption in 2006 would average about 10m t/y (200,000 b/d), up from 7.4m t/y (148,000 b/d) in 2000. This compared with about 12m t/y in 1995, and 20.3m t/y (407,000 b/d) in 1991.

Gas consumption kept rising between 1985 and 1992, but declined thereafter to reach 6.4m t/yoe (7.1 BCM/y) in 1997. It began to rise in 2000 to 8.7m t/yoe (9.7 BCM/y), compared to 11.8m t/yoe in 1991. In 2006 gas consumption is expected to reach 11/7m t/yoe (13 BCM/y), an average which occurred in 1993. The output of natural gas this year is expected to be more than 15 BCM, with Karachaganak producing and consuming 7 BCM/year. The government hopes gas production to rise to 35 BCM/year by 2010.

Nuclear energy has played a marginal role in Kazakhstan. Atomic power generation ceased in 1999. It had declined from 0.1m t/yoe in 1991 to less than 0.05m t/yoe in 1995.

Hydro-electric power generation and use in 2006 would average 1.9m t/yoe, as in the past four yars, compared to 1.7m t/yoe in 1993, about 1.5m t/yoe in 1995, 1.6m t/yoe in 1991 and 0.4m t/yoe in 1985.

The oil products requirements for the domestic market are supplied mainly by three refineries, at Chimkent, Pavlodar and Atyrau. The Atyrau and Chimkent refineries process domestic crude oils. Efforts are being made to attract foreign investment to boost the local oil distribution network by building pipelines and improving transport links between consumer centres and the refineries. Work is also proceeding on plans to upgrade the three refineries (see Downstream Trends of next week).

The Gas Sector: Because of the old Soviet system of centralisation, only a part of the Kazakh natural gas production is consumed locally, as the output goes through the Russian pipeline system. This is insufficient to deliver gas to the southern regions. Most of the domestic gas requirements are supplied from Uzbekistan and Turkmenistan through the Russian system of pipelines controlled by Gazprom.

In March 2000, the US Trade and Development Agency (TDA) and the Kazakh Ministry of Energy signed an agreement under which TDA gave the latter a $600,000 grant to fund a strategic gas utilisation study to examine various options. The study, involving KazTransGaz (KTG) which is a gas utility and pipeline unit of the state-owned KazMunaiGaz (KMG), has focused on the country's gas reserves, potential domestic uses of this fuel and the gas pipeline grid available in the country.

ExxonMobil, a partner in the Tengiz oil producing JV, assisted the Energy Ministry and KTG in a study of development prospects for the country's gas sector. This has resulted in a report issued in early 2004 and incorporated into a gas sector development programme for this decade. Emphasis is being placed on connecting the main gas producers of western Kazakhstan with the major population centres as well as the remote regions of the east and south.

Kazakhstan is linked by pipeline to the gas fields of Turkmenistan and Uzbekistan as well as to the Russian transport system. In early 2000, gas from Turkmenistan began to pass through Kazakhstan to the Russian system under a deal involving Itera, an independent Russian gas marketer registered in Florida and Gazprom. Gazprom and Itera are taking more than 50 BCM/y of the Turkmen gas, with the transit fees which Astana is charging for this being considerable, and a part of this is supplied to Kazakhstan.

British Gas (BGI), a main partner in the gas/condensate-rich Karachaganak field, has been working on development of the Kazakh gas market. In the autumn of 1999 BGI and KTG established a joint task force for this in Astana.

Now Karachaganak gas is being supplied for power generation, domestic heating and other uses. The other partners in the Karachaganak venture are Agip (with BGI co-operator of the field), Chevron and the Russian oil major LUKoil.

Tractebel, the Belgian utility now owned by France's Suez Lyonnaise des Eaux, used to operate Kazakhstan's gas distribution grid. Tractebel had signed a contract in 1996 to spend $1 bn through local affiliates: Almaty Power Consolidated (APC), supplying power to Almaty, in which Tractebel held 60%; Intergas Central Asia, managing the national grid of gas pipelines, in which the Belgian utility held 55%; Tractebel CIS; and AlmatyGreenhouse.

Having invested about $200m, Tractebel in late April 2000 sold all its Kazakh assets to KTG for $100m. Tractebel's former partner in these operations, the Calverton Group (investment arm of the local Chodiev group involving three Kazakh businessmen), transferred its 45% holding in Intergas to KTG. Tractebel and Calverton terminated all ties between them after the latter transferred to the Belgian utility its shares in the Swiss-based Global Gas Group. Tractebel and Astana dropped all claims and arbitration writs. Tractebel said it had repaid APC loans to commercial banks. Tractebel's exit ended three years of troubled relations between Astana and the Belgian utility (see background in Vol. 59, DT No. 7).

The Intergas network comprises about 9,000 km of pipelines of 530-1,420mm, 29 compressor stations and a total of 4 BCM of underground storage capacity. The network has the capacity to carry 65 BCM/year of gas.