Transcript PRM: A Quantitative Approach to Risk

Strategic Advisors in Global Energy
Developments in Kazakhstan’s
Refining Sector
Julia Nanay
Senior Director
KazEnergy Forum
Astana
September 5, 2008
Politics of Refining
 Economic growth has
led
to
increasing
domestic demand since
2000
and
upward
pressure on prices
 Need
to
ensure
adequate supplies of
gasoline and diesel,
while keeping domestic
prices in check
 There are plans to
upgrade 3 refineries to
meet demand for high
octane gasoline and
diesel
 Net importer of high
octane
gasoline
&
jet/kero
and
net
exporter of fuel oil, low
octane gasoline and
diesel
Kazakhstan Oil Product Demand
tb/d
140
120
100
80
60
40
20
0
2000
2001
Naphtha
2002
2003
Gasoline
2004
2005
Total Gasoil
2006
Jet Fuel
 Naphtha demand growth small, due to limited
development of a petrochemical industry
 Gasoline demand growth significant
 Gasoil/diesel demand growth more modest,
driven by agricultural use
 Jet fuel demand is growing strongly, but volumes
remain small
Kazakhstan’s Downstream | Page 2
2007
Achieving Balance by Administrative Means
 Russian prices for both gasoline and diesel are higher than in
Kazakhstan which creates incentives to sell these products in Russia.
Ukraine has been a market for diesel – surplus diesel is drawn to export
markets
 With large volumes of diesel being exported, domestic diesel’s price
surpassed A1-92 gasoline in May. Kazakh farmers were forced to pay
very high prices for diesel which meant that food price increases of 35%
were expected by end-2008
 Exports of oil products – mainly gasoline and diesel -- in first quarter
2008 were 50% higher than in the same period 2007
 The government tries to regulate the situation with a ban on products
exports and has also forced refiners to sell specified volumes of gasoline
& diesel at lower than market prices
 Products prices in neighboring countries will continue rising as crude
prices increase
 Domestic demand will continue to grow – a higher price environment is
inevitable and Kazakhstan will have to adjust to this reality
 Government should foster conditions that will keep prices in check
through competition by allowing small retailers to access supplies at
refineries directly and could consider establishing a refined products
exchange
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Three Refineries in Segmented Markets
 Pavlodar is the most complex refinery,
relying on oil supplied from Russia
– produces gasoline, jet/kero, diesel, fuel
oil, LPG, coke, and bitumen
– Produces more than 40% of the high
octane gasoline in Kazakhstan, of which it
sells a large share in Russia
– KMG is in process of taking a controlling
stake; Gazpromneft seeks equity stake
Kazakhstan has over 420,000 b/d of
refining capacity in 3 refineries
– Processes 240,000 b/d
– Domestic demand is 220,000 b/d
Pavlodar
Atyrau
 Shymkent, least complex, with 90% of oil
from area’s Kumkol fields, 10% Russia
– produces diesel, gasoline, vacuum gasoil
(VGO), jet/kero and LPG
– located in proximity to Almaty market
– supplies fuel oil to China, Kyrgyzstan,
Afghanistan
 Atyrau, close to production in the west
– produces fuel oil, diesel, gasoline,
vacuum gasoil, coke, LPG and jet/kero
– Produces 40,000 b/d of winter & summer
diesel
– Can refine high sulfur oil from Tengiz &
other fields
Shymkent
Kazakhstan Refineries
Refinery
Ownership
Capacity
(mb/d)
Complexity
Index
Atyrau
99% KMG
104
2.8
Shymkent
50% KMG-50% CNPC
160
2.2
Pavlodar
51% KMG-49% MMG *
163
6.4
427
4.0
Total
* KMG in process of taking 51%
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Product Balance in 3 Refineries
 Refinery yields overall: 29% diesel,
20% gasoline and 20% fuel oil
 Kazakhstan is short of gasoline and
jet/kero and relatively balanced on
diesel (net importer of gasoline,
jet/kero and LPG)
2007 Refinery Products Balance mmbbl
 95% of imports are of Russian origin
and these imports - mostly gasolinemake up over 20% of domestic
demand
 Recent price increases, domestic
shortages and concern over inflation
led to ban on all oil product exports
till January 2009
 At end-May, oil export duty became
effective, resulting in additional oil
for domestic refineries – increase
products output, including gasoline.
Products export ban means extra
products will not be exported
 After January 2009, crude export
duty will lead to substitution away
from crude exports toward product
exports, due to altered incentives.
Domestic products prices will rise
again
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Refinery Upgrades
 Domestic
refinery
upgrades
underway:
they are quality-oriented
units to meet demand
for more stringent fuel
specs & improve light
product yields
– Number of cars on the road
in Kazakhstan hit the 3
million in April 2008
– For
gasoline,
Euro-2
standards from 2009; Euro3, 2011; Euro-4, 2014,
though leaded gasoline is
still used to some extent
 Longer-term,
with
continued growth in
domestic
demand,
emphasis will be on
adding refining capacity
rather than on exporting
crudes and importing
products
Kazakhstan Projected Refining Capacity Additions
tb/d
40
35
30
25
20
15
10
5
2008-2010
2011-2015
Crude
2016-2020
Conversion
2021-2025
2026-2030
Upgrading
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Continuing Gasoline Shortfall
 Even
with
refining
investment, Kazakhstan is
likely to remain short in
gasoline
– Because of logistical issues, these
shortages will be isolated for
certain markets and demand
centers
– Gasoline imports will continue to
come from Russia, particularly
from Gazprom Neft’s Omsk refinery
– Kazakhstan will continue to supply
gasoil and some gasoline to
neighbors within the region
– Naphtha surplus can be used for
petrochemicals or for easing
gasoline
shortage
if
more
investment is made in reforming
capacity
Kazakh prices have historically been
below prices in more mature markets
like Russia and Ukraine. Given this
situation,
local
producers
have
preferred to exporting products
Kazakhstan’s Downstream | Page 7
European Expansion
 August 2007, KMG acquired 75% of
Rompetrol in Romania – with a
refinery near Constanta on the the
Black Sea coast across from
Batumi
– Petromidia and Vega refineries have
about 110,000 b/d of capacity.
Petromidia is 15 kms from Constanta
while Vega is inland at Ploiesti
– $90 million project to increase
capacity of Midia terminal, north of
Constanta, to 14 mmt/y
– Wholesale/retail distribution network
can handle over 7 million tons per
year of oil products, includes 630
gasoline stations in 7 European
countries
– KMG supplies 2-3 80,000 t cargoes
each month from Odessa to
Rompetrol
– Batumi is eventually seen as a link to
the Petromidia refinery
– KMG has talked about plans to
invest $340 million in refinery
upgrades and expansion in the
East European oil products market
Rompetrol
Source: EIA
Source: E IA
Kazakhstan’s Downstream | Page 8
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