Eric Watkins
OGJ Oil Diplomacy Editor
Doris Leblond
OGJ Correspondent
LOS ANGELES and PARIS, Oct. 6 -- Kazakhstan President Nursultan Nazarbayev and French President Nicolas Sarkozy, eyeing broader geopolitical engagement between Europe and Central Asia, have announced the signing of a number of agreements between their two countries involving oil and gas.
“We signed 24 agreements,” said Sarkozy, adding, “A new page is being written in the history of relations between France and Kazakhstan…a partnership that we have signed with a long future.”
Nazarbayev said, “An agreement has been reached on the French side’s participation in the project to construct the main export oil pipeline from the Caspian Sea to Baku and Europe.”
He was referring to the draft agreement signed by a consortium of French companies headed by Spie Capag (Vinci group) for the siting of a pipeline between the offshore Kashagan oil field and Baku that will enable oil to be carried to Europe.
“This is an exceptionally important project, which forms the base of the arteries of the transport system for Kazakh gas and oil to Europe,” Nazarbayev said.
Sarkozy agreed, saying, “This oil pipeline is going to create many jobs here and in France” and “will furthermore guarantee the security of our energy supply.”
As one observer noted: “Kazakhstan has long been courted by Western governments for its energy wealth and also as an alternative supplier to Russia, the source for 25% of the gas sold to European Union countries.”
The pipeline agreement, one of several between the two countries involving oil and gas, will bypass Russia and increase Europe’s energy security by diversifying its sources of supply. At the same time, the project will boost Kazakhstan’s economic security by diversifying its markets.
In addition to the pipeline agreement, Total and GDF Suez signed a heads of agreement with Kazakhstan’s state-owned KazMunaiGas (KMG) to acquire half of its 50% stake in the Khvalynskoye gas field, which straddles the Russian-Kazakhstan border in the Caspian Sea.
According to the Kazakh foreign ministry, ownership of the project comes down to KazMunayGas 25%, Total with GDF Suez 25%, and Lukoil 50%. Within that framework, Total will hold a 17% stake in the development consortium and GDF Suez will hold 8%.
No figure was available relating to the purchase price of the 25% stake, but the two French firms will jointly invest $1 billion in the field's development.
Khvalynskoye field, which lies in 25-30 m of water, is operated by Lukoil. Its development will take place under a production-sharing agreement currently under discussion with Russian authorities.
Under an agreement signed by Kazakhstan and the former Soviet Union in 1988, Russia has rights on some borderline fields such as Khvalynskoye field, and all the gas produced there is due for export to Russia.
Total Chief Executive Officer Christophe de Margerie tentatively indicated that the field should come on stream at the earliest in 2016 and production could hover around an estimated 7-9 billion cu m/year. However, officials told OGJ that the full potential of Khvalynskoye has yet to be fully appreciated.
Underlining future business prospects, Aidan Karibzhanov, the managing director of the Samruk-Kazyna national welfare fund, told a French-Kazakh business forum that energy firms in his country need investment.
“If growing demand for energy is to be met, new energy generating capacities must be created and old ones upgraded,” Karibzhanov said.
“We can see vast prospects for cooperation emerging in this sphere, the more so since Samruk-Kazyna has capacities, resources and subsidiaries at its disposal, including Samruk Energy and KEGOC, the national electric power lines operator,” Karibzhanov said.
The government “has made steps to liberalize the local market and to create a favorable environment for investors,” he said.
According to Karibzhanov, Kazakhstan has some competitive advantages in the energy sector: access to cheap fuel reserves given a large reserve of coal, oil, and gas, and the availability of a large number of renewable energy sources, including wind, hydro, and solar energy.
Karibzhanov’s comments coincided with reports that France's BNP Paribas Bank will extend a €10.2 million loan to the Development Bank of Kazakhstan, largely earmarked for energy projects. According to the Kazakh bank's press service, BNP Paribas opened a €200 million credit line for this.
The funds will be used for financing imports of Finnish equipment within the framework of the investment project to build a gas turbine power plant at the Akshabulak oil field.
“A total of 12 agreements, memorandums, and contracts worth $6 billion was signed at the forum,” said Timur Nurashev, head of the Kazakh Industry and Trade Ministry’s investment committee. “The French side's concrete investments will comprise $1.8 billion.”
The BNP Paribas agreement was signed during the Kazakh-French business forum and was timed to coincide with Sarkozy's visit to the Central Asian nation.
Contact Eric Watkins at [email protected].