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DE RUEHTA #2101/01 2970834
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O 230834Z OCT 08
FM AMEMBASSY ASTANA
TO RUEHC/SECSTATE WASHDC IMMEDIATE 3635
INFO RUCNCIS/CIS COLLECTIVE 0717
RUCNCLS/SOUTH AND CENTRAL ASIA COLLECTIVE
RUEHZL/EUROPEAN POLITICAL COLLECTIVE
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UNCLAS SECTION 01 OF 03 ASTANA 002101 
 
SIPDIS 
 
STATE FOR SCA/CEN, EUR/CARC, EUR/RUS, EEB 
STATE PLEASE PASS USTDA FOR DAN STEIN 
 
E.O. 12958: N/A 
TAGS: PGOV PREL EPET EINV RS GG KZ
SUBJECT:  KAZAKHSTAN:  HIGHLIGHTS FROM THE 2008 KAZAKHSTAN 
INTERNATIONAL OIL AND GAS EXHIBITION AND CONFERENCE (KIOGE) 
 
¶1.  SUMMARY:  The 16th annual Kazakhstan International Oil and Gas 
Exhibition and Conference (KIOGE) was held during October 7-10 in 
Almaty.  The exhibition featured more than 550 companies from 30 
countries and was visited by more than 15,000 oil and gas industry 
professionals.  The conference included presentations by more than 
50 high-level representatives from government, business, and 
academe, including State Department Coordinator for Eurasian Energy 
Diplomacy Ambassador Steve Mann.  This cable summarizes the comments 
of several speakers, including Lyazat Kiinov, Kazakhstan's Vice 
Minister of Energy and Mineral Resources; Kairgeldy Kabyldin, 
President of KazMunayGas (KMG); Vadim Gustov, Chairman of the CIS 
Affairs Committee of Russia's Federation Council; and Alexander 
Mikheyev, Gazprom's First Deputy Chief for Marketing and Processing 
Gas and Liquid Hydrocarbons.  END SUMMARY. 
 
KIINOV'S KEYNOTE 
 
¶2.  Lyazat Kiinov, Kazakhstan's Vice Minister of Energy and Mineral 
Resources, delivered a keynote address to the conference on "The 
Vital Role of Kazakhstan in the Global Petroleum Market."  He 
announced that Kazakhstan expects to export 62.8 million tons of 
crude in 2008, while processing 13.8 million tons for domestic use. 
According to Kiinov, Kazakhstan's three oil refineries have a total 
processing capacity of 14.5 million tons of oil a year.  By 2010, 
Kazakhstan expects to produce 80 million tons of crude and by 2015, 
100 million tons. 
 
OIL TRANSPORTATION OPTIONS 
 
¶3.  Kiinov reiterated Kazakhstan's multi-vector transportation 
policy and listed the transportation capacity of several important 
oil pipelines:  Atyrau-Samara (with a capacity of 15.9 million 
tons), Uzen-Samara (15 million tons), Ayrau-Novorossiisk (26 million 
tons), the Caspian Pipeline Consortium (CPC) pipeline (31 million 
tons, and up to 67 million tons with expansion), and 
Atasu-Alashankou (20 million tons, with construction of the final 
Kenkiyak-Kumkol segment currently underway).  He called 
Atasu-Alashankou -- which is a Kazakhstan-China pipeline -- "a 
backup in case we transport less oil via Russia, but the Russian 
route is preferred."  Kiinov was skeptical of Baku-Batumi's transit 
capacity, saying that even with expansion, that option would move 
only 10 million tons of oil per year.  He referred to the Kazakhstan 
Caspian Transportation System (KCTS), noting that KMG is negotiating 
with Tengizchevroil and the Kashagan consortium to construct an 
Eskene (onshore) to Kuryk (sea port) oil pipeline to transport 
Tengiz and Kashagan crude.  Kiinov also noted that Kazakhstan 
supplies oil to Iran via swaps and he announced that Kazakhstan is 
studying the possibility of increased oil shipments to the Persian 
Gulf via Iran.  Kiinov dismissed the idea of a trans-Caspian oil 
pipeline, noting the financial, technical, environmental, and legal 
challenges of such a project.  "We would have to have the agreement 
of all Caspian littoral states," he said. 
 
PROMISING PROVEN GAS RESERVES 
 
¶4.  Kiinov reported that Kazakhstan's proven reserves of natural gas 
total 3.3 trillion cubic meters, the majority of which is located at 
Tengiz, Kashagan, Karachaganak, and Zhanazhol.  In 2007, according 
to Kiinov, Kazakhstan produced 29.6 billion cubic meters (bcm) of 
gas and expects to produce 42.6 bcm by 2010 and 61 bcm by 2015. 
Kiinov noted that Kazakhstan's northern regions are dependent upon 
gas from Russia, while its southern regions import gas from 
Uzbekistan.  He said that imports from Uzbekistan will be 
significantly reduced with the construction of a 
Beyneu-Bozoy-Akbulak gas pipeline.  Kiinov noted that on May 13, 
2007, the Government of Kazakhstan signed an agreement with Russia 
and Turkmenistan to build the Prikaspiskyy gas pipeline, which could 
transport 20 bcm north to Russia (including 10 bcm of Kazakhstani 
gas) by 2010.  He also said that construction of the 
 
ASTANA 00002101  002 OF 003 
 
 
Kazakhstan-China gas pipeline has started and is expected to be 
completed by 2012, at which point Kazakhstan will export up to 2 bcm 
of gas to China.  Kiinov noted that Kazakhstan's gas policy is 
driven by both political and economic factors.  "We used to sell gas 
to Russia cheaply," he said.  "Now, we get a market price." 
 
CROSS-CASPIAN POSSIBILITIES 
 
¶5.  In response to a question from an American lawyer about 
trans-Caspian pipelines, Kiinov said, "We are keeping our options 
open and listening to everyone.  Yes, you are teaching us, but 
remember that you are not the only ones teaching us.  Everyone is 
teaching us.  Some day we might end up knowing more than you do." 
On the subject of cross-Caspian oil tankers, Kiinov said that 
Kazakhstan does not want ships from countries other than Kazakhstan 
or Azerbaijan to sail on the Caspian Sea.  "No other shippers will 
be allowed to enter the Caspian Sea," he said.  Kiinov announced 
that 60,000-ton tankers would be used and said that Kazakhstan is 
considering the possibility of building tankers in Russia and Iran 
and has plans for a ship yard facility in Aktau.  Kiinov warmly 
welcomed British and Norwegian companies to help Kazakhstan build 
new tankers and promised that Kazakhstan would be open and 
transparent in its deals with foreign companies.  He cautioned, 
however, that "the open market is a two-way road.  If Kazakhstan is 
open to foreign business, other markets must be open to Kazakhstan. 
Our companies would like to enter Europe, but for now, Kazakhstan 
has investments only in Romania." 
 
KAZAKHSTAN COMPANIES TO REMAIN IN GEORGIA 
 
¶6.  When asked about reports that Kazakhstan may sell its 
investments in Georgia, Kiinov answered directly, 
"Kazakhstan is not going to pull out of Georgia.  We are not 
leaving.  Someone apparently wants Kazakhstan and Georgia to fight, 
but we have no conflict in Georgia." 
 
KMG'S LONG-TERM STRATEGY 
 
¶7.  Kairgeldy Kabyldin, President of KazMunayGaz (KMG), said that 
KMG's long-term strategy includes the consolidation and optimization 
of KMG assets, investment projects, and further growth.  Kabyldin 
reminded participants that KMG retains a preemptive right to acquire 
oil and gas assets.  He said that KMG has established itself as an 
industry leader by building a berth for offloading construction 
materials, a base for the supply of offshore operations in the 
Caspian, a landfill for toxic industrial waste, a filling station 
for sea vessels, and an oil spill response center.  Kabyldin 
announced that KMG, ConocoPhillips, and Mubadala from Abu Dhabi 
signed a memorandum of understanding on October 3 for the 
exploration of the N Block.  Kabyldin also noted that, in order to 
expand its business geographically, KMG acquired the Batumi oil 
terminal and 70% of Rompetrol in Romania, and established a joint 
venture with Gazprom at the Orenburg Gas Processing Plant. 
 
RUSSIA'S GUSTOV CRITICIZES CROSS-CASPIAN INITIATIVES 
 
¶8.  Following Ambassador Steven Mann's presentation, Vadim Gustov, 
Chairman of the CIS Affairs Committee of Russia's  the Federation 
Council (and former Deputy Prime Minister under Prime Minister 
Primakov), discussed the outlook of Russian-Kazakhstani cooperation 
in the oil and gas sector.  Gustov noted that in 1997-98, Russia 
experienced tough times.  "We were on our knees," he said, "and 
Kazakhstan was still a developing country.  But we never abandoned 
our friends.  We have been here in good times and in bad."  Gustov 
was dismissive of Ambassador Mann's support for a possible 
trans-Caspian pipeline, saying, "Some people may not like the fact 
that Russia has invested in infrastructure in Kazakhstan, but it is 
a fact.  It is a fact."  Gustov claimed that for the next 20-30 
years, Russia, Kazakhstan, Uzbekistan, and Turkmenistan will ensure 
 
ASTANA 00002101  003 OF 003 
 
 
the energy security of Europe.  He then observed that politics and 
energy are interrelated, saying, "Whoever owns the energy, defines 
the political structure."  Gustov noted that Russian companies are 
important investors in several major energy projects, including the 
Atyrau-Samara pipeline (which he said was "very important" to 
expand), the CPC pipeline, the Karachaganak project, the Ekibastuz 
coal-fired power plant, an ore processing joint venture, and the 
Orenburg Gas Processing Plant.  Gustov said that Russia and 
Kazakhstan will work closely to deliver energy resources to China to 
meet its growing demand and he called for a new "energy alliance" 
between Russia and Kazakhstan for the joint development of energy 
and mineral resources.  Finally, Gustov said that any decisions 
regarding transportation of oil and gas across the Caspian Sea would 
require the consent of all five littoral states, "particularly given 
the potential environmental impact on the Caspian's sensitive 
ecology." 
 
KASHAGAN OPERATOR REPORTS PROGRESS 
 
¶9.  Umberto Carrara, Managing Director of Agip KCO, which operates 
the Kashagan field, said that up to 80% of Kashagan's sour gas will 
be re-injected to maintain well pressure; 80% of AgipKCO's labor 
force is local; construction of the Bautino Support Base, Koshanai 
sewage facility, and Bolashak processing plant is more than 70% 
complete; and 100% of the sulfur derived from Kashagan will be 
stored in airtight containers and sold as a component in 
fertilizer. 
 
BRITISH GAS GROUP TO STUDY DOMESTIC GAS MARKET 
 
¶10.  Clare Young, Commercial Manager for Downstream Business 
Development with British Gas Kazakhstan (BG Group), announced that 
KMG asked the BG Group to prepare a natural gas market study and 
long-term strategy for domestic gasification.  According to Young, 
the Government of Kazakhstan is keenly interested in promoting 
domestic gas consumption for a variety of environmental, economic, 
and social reasons. 
 
GAZPROM'S INVESTMENT STRATEGY IN EURASIA 
 
¶11.  Alexander Mikheyev, Gazprom's First Deputy Chief for Marketing 
and Processing Gas and Liquid Hydrocarbons, discussed the strategic 
partnership between Russia and Kazakhstan in the natural gas sector. 
 According to Mikheyev, Gazprom's strategy in Eurasia is to invest 
in gas infrastructure projects "regardless of location, in order to 
optimize the gas system."  Mikheyev said that Russia and Kazakhstan 
signed an inter-governmental agreement on gas cooperation on 
November 28, 2001.  He also said that Kazakhstani gas is supplied 
via KazRosGas, noted that Russian gas exports to Kazakhstan and 
transportation volumes from Central Asia to Russia are growing, and 
disclosed that the Orenburg Gas Processing Plant processes up to 1 
bcm of gas annually.  According to Mikheyev, Gazprom is currently 
involved in the following projects in the region:  (1) construction 
of the Prikaspiskyy gas pipeline with Kazakhstan, Russia, and 
Turkmenistan; (2) development of a gas transportation system in 
Central Asia with Kazakhstan, Russia, Turkmenistan, and Uzbekistan; 
(3) a new joint venture with KMG based at the Orenburg Gas 
Processing Plant; (4) exploration of the Tsentralnaya offshore field 
in the Caspian Sea; and (5) the use of an underground gas storage 
facility at Bozoy. 
 
HOAGLAND