Grand export plans
The Turkmenistan government unveiled a new energy policy this summer. It wants to boost foreign investment as part of an ambitious plan for an increase in its oil and gas exports. The country’s oil and gas and mineral resources minister, Kurbannazar Nazarov, talks to Petroleum Economist
Q You want to increase annual output from 8m tonnes of crude and 51bn cubic metres (cm) of gas to 28m tonnes and 85bn cm, respectively, by 2005. How will you go about this?
A This new production will come from onshore and offshore prospects that have been identified by the state-owned Turkmengeologia. We have allocated $93m to an appraisal programme, which is focused on many areas, but, in particular, the southeast, where we see the greatest potential for increasing crude oil output.
This year has seen a major increase in geological exploration from 2001. Some 4,050 km of 2-D seismic, 600 square km of 3-D, and 700 square km of gravimetric data should be acquired by the end of the year. We have identified nine promising structures where we are preparing to start drilling by the end of the year. We expect this work to increase our reserves base to 74m tonnes of crude and 470bn cm of gas by the end of 2005. This is in addition to reserves that are discovered by foreign operators. Between 1998 and 2001, reserves growth was relatively modest—we added 16m tonnes of oil and 162.7bn cm of gas.
Q How confident are you that the country holds these reserves and can meet its increased output targets?
A Since early 2001, reserves, including the Turkmenistani sector of the Caspian, were estimated at 43.21bn tonnes of oil equivalent, with 28.38bn tonnes of recoverable resources. But we think only 24% of Turkmenistan's hydrocarbons resources are in production or have been discovered.
We have been using state-of-the-art technology, such as 3-D seismic. This has highlighted the potential of the deep Altyn Asyr structure, on the Amudaria river, and given more precise information about earlier discoveries in the southwest.
We have also expanded the scope of the deep drilling programme.
We are working on unmapped, deep Miocene and Mesozoic deposits in central and eastern Turkmenistan. In the west, we are looking at similar deposits at depths of up to 7,000 metres. By 2005, we expect at least 44% of our oil and 8% of our gas will be sourced from deposits at these kinds of depths.
Q How have Turkmenneft and Turkmengaz managed year-on-year production increases in 2002 of 10-12% in the case of crude and 13-15% in the case of gas?
A This year, 40 new wells will be commissioned, 242 idle wells rehabilitated and about 770 overhauled, with 100 wells switching to new technologies, such as deep perforation, hydraulic fracturing and sidetracking. These developments are taking place on projects being pursued by Turkmenneft and foreign firms through production-sharing agreements (PSA).
Q What is the involvement of foreign and domestic operators in new production?
A Most projects are being carried out by Turkmenneft and Turkmengaz, but there are some foreign firms operating PSAs. We have four projects with foreign partners under way, two offshore.
Foreign operators include Dragon Oil, Burren Energy, Mitro International and Petronas. Three projects are in production and the fourth is at the exploration stage. Foreign operators produced 0.94m tonnes of crude last year, but this will rise by about 160% this year, which means the share of 'foreign' crude produced will rise from 10% to 15%.
The growth in gas production is being led by Turkmengaz and Turkmenneft, which are expanding output at the major fields of Dauletabad, Garashsyzlyguin 10 Yilligui, Malai and Korpeje. A new field, Chartak, has also come on stream this year.
Q You recently signed an energy co-operation agreement with Russia. Could you explain what this involves?
A We are working on documentation to be presented by the end of the year, which will include a gas-sales contract to Russia until 2020 and agreements for Russian firms to participate in major projects. We are particularly interested in working with Russia on new gas transportation systems, as well as field services.
We are also discussing co-operation in refining and pipeline projects and have a proposal tabled by Yukos and Transneft that would supply oil from western Siberia to the Seidi refinery, at Chardzhou, and modernise the Pavlodar-Chimkent-Seidi crude pipeline.
One important outcome of the first meeting of the Russian-Turkmenistani inter-governmental commission was an agreement on shared gas production in Turkmenistan's sector of the Caspian Sea.
Gazprom and domestic companies will co-operate in this area. The commission also approved the Russian firm's involvement in geological exploration of promising areas in the Turkmenistani sector. Gazprom plans to upgrade the Turkmenistan (Bekdash) to Europe gas pipeline (formerly known as CAC-III), which runs along the Caspian coast.
Q Does the agreement with Russia mean there will be fewer opportunities for other foreign energy firms?
A We already have foreign companies working in oil exploration and production in the Caspian. But, given our plans for increasing gas output and exports, there will be many opportunities for other companies.
Turkmenistan has just signed a production-sharing agreement with Denmark's Mærsk Oil at two blocks in the Caspian. As for onshore projects, we plan to develop co-operation with international service companies and to benefit from their expertise and technology. We plan to continue modernising our two refineries and are also developing a programme for the installation of liquefied petroleum gas (LPG) facilities at several locations, which will create more opportunities both onshore and offshore.
We envisage the construction of at least 20 small- to medium-sized LPG plants in the next several years in the west and the northwest, where there are several gas condensate fields with reserves of over 100bn cm of gas. We have already seen strong interest from Japanese companies, including Itochu, which has proposed building a 300,000 t/y LPG plant.
Potential destinations for LPG exports include Afghanistan, Pakistan, China, Japan, South Korea and Iran. We estimate one LPG plant will generate $8.4m-12m a year in export revenues. Most importantly, the LPG programme will allow us to increase gas exports and improve the gas transportation system.
Q What are your main gas export projects at present?
A Russia and Ukraine have historically been important gas export markets and we expect this to continue. Russia wants to increase the amount of natural gas it buys from us and we recently signed an agreement with Ukraine for 250bn cm of gas between now and 2005. This is why keeping the gas pipeline system in good condition is a priority.
This year we have brought a 20bn-cm gas-treatment plant on stream at our largest field, Dauletabad-Donmez. We have also installed a new metering centre at the 90-megawatt Deryalyk compressor station on the border with Uzbekistan. The control and data acquisition system at the gas pipeline used to deliver gas to Russia has also been refurbished, as has the Dauletabad-Deryalyk gas pipeline.
This means there has been a significant increase in the reliability of gas exports from production, through treatment and transportation, to volume-metering at the border.
Q What other gas export markets are you looking at?
A Reserves at Dauletabad total around 2 trillion cm. With this and our other fields, we have the capacity to export up to 100bn cm/y of gas. This could easily be used to supply a variety of pipeline projects carrying gas to markets in Afghanistan, Pakistan, Turkey and Europe.
So, it is important that we keep improving our gas transmission system. For example, we have begun a project to build several bypasses in the Deryalyk-Europe pipeline, CAC-IV. We are also building new compressor stations at Deryalyk and Yilanly. We are spending around $400m on these projects alone.
We have also begun work to increase capacity and reliability on the Turkmenistani sector of CAC-III. We are refurbishing the Belek, Goturdepe and Korpedzhe compressor stations and modernising the 70-km Hazar-Goturdepe line, which carries gas from onshore and offshore Caspian fields into the pipeline system. These projects have cost around $330m.
Q What is the status of the trans-Afghan gas pipeline project?
A The inter-governmental agreement to build the Turkmenistan-Afghanistan-Pakistan pipeline was signed in May, in Islamabad. It will cost around $2bn and will have a capacity to carry around 30bn cm/y of gas to Pakistan and India. Construction is due for completion by 2005. The project already has the support of major international companies and financial institutions.
A lot of work has been carried out on the project. We are working closely with the Asian Development Bank (ADB), which has awarded a $1.5m grant to conduct a feasibility study. The bank has also said it is prepared to contribute funds for the pipeline.
The project steering committee has drawn up a detailed plan for an accelerated project-development programme that would see the simultaneous implementation of several preparatory steps: executing the feasibility study, forming a consortium and establishing the legal basis for the project. A draft inter-governmental gas-pipeline agreement is being prepared to regulate the consortium-formation process as well as gas-pipeline transit and security issues.
This document will be tabled for signature to the leaders of Turkmenistan, Pakistan and Afghanistan during the third steering committee meeting (due to have been held at the end of October, in Ashgabat). ADB will present the results of its studies of the gas markets of Pakistan and India by 30 November, providing a basis for purchase and other contracts for gas to be signed.
A DB has also helped to compile a long list of potential bidders for the feasibility study consultant's contract. Once the feasibility study is completed, in June 2003, invitations for bids to create a project consortium will go out. The feasibility study will also look at the possibility of a liquefied natural gas export plant at Gwadar, Pakistan.