New Gas Supply Infrastructure in Kazakhstan and Central Asia 4/21/2017 8:59 PM New Gas Supply Infrastructure in Kazakhstan and Central Asia Andrew Neff IHS, Senior Energy Analyst 20th Anniversary Kazakhstan International Oil & Gas Conference 4-5 October 2012

Kazakhstan Gas: Main Points Kazakhstan is surrounded by other gas producers with larger gas reserves, more gas production Hence, finding outlets for Kazakhstan to monetise its own gas output is more difficult…or is it? Investments in gasification are geared to supply domestic energy needs, develop system for potential future exports What markets are there for Kazakhstan’s gas production? Kazakhstan is better positioned than Uzbekistan and Turkmenistan to supply gas to Russia…and eventually (maybe) to Europe Direction of Central Asian gas transit via Kazakhstan is changing Trans-Caspian Pipeline: premature, but not out of the question

Central Asia: Gas Production and Exports Compared Source: IHS CERA

Existing and Proposed Gas Infrastructure Source: Intergas Central Asia

Kazakhstan’s Gas ‘Role’ in Central Asia…So Far Primary role as transit state for other exporters ~80% of transportation volumes are international transit (~10% exports, ~10% domestic market) Transportation volumes still not recovered to pre-crisis level Impact of Gazprom dispute with Turkmenistan felt in continued lower transit volumes via Kazakhstan Reduced utilisation rates on Central Asia-Centre and Bukhara-Urals pipelines (~40%) Gazprom gas purchases from Central Asia (2011): 11.2 bcm (Turkmenistan) 7.95 bcm (Uzbekistan) Source: KazTransGas

IGA Gas Transportation Revenue Breakdown* (2011) Source: Intergas Central Asia; * figures in USD

Domestic Supply Focus Economic growth = increasing internal demand for gas Domestic demand, gas exports constrained by lack of infrastructure Gross output nearly twice commercial gas production Re-injected to support oil production What else to do with it?? Government support for gas sector Law on Gas and Gas Supply (Jan. ‘12) Mandatory utilisation of associated gas Strategic investments in gasification KazTransGas as national gas operator (July ‘12)

Laying the Ground for Future Exports Gasification projects galore to supply domestic consumers Expansion and/or modernisation of pipelines to supply Almaty, Almaty province, city of Kyzylorda, South Kazakhstan province, Zhambyl province, Mangystau province Two strategic gas pipeline projects of national importance Beyneu-Bozoi-Shymkent pipeline (1,475km; estimated USD3.6 billion) Goals: energy independence from Uzbekistan, tie-in to Central Asia-China pipeline Phase 1: Bozoi to Shymkent/Akbulak (1,164km; construction launched Sept. 2011, due to be completed 2013) Stage 2: Beyneu to Bozoi (311km; due to start 2014, end 2015) Kazakhstan-China Main Gas Pipeline (1,304km; estimated USD7.3 billion) Goals: gas transit from Turkmenistan, Uzbekistan, future exports (5 bcm/y) from Kazakhstan July 2011: construction launched on Line C (25 bcm/y)

Turkmenistan’s Gas Export Options

Turkmenistan’s Motivation For TAPI Turkmenistan has strong incentive to pursue TAPI pipeline construction TAPI as key economic driver Soviet-style economy relies heavily on gas export revenues (estimated at over 50% of GDP) Long-term gas production and export targets require additional export capacity 230 bcm/y of gas output, 180-200 bcm/y in exports (2030) TAPI as necessary for diversification Traditional dependence on Gazprom has highlighted Turkmenistan’s vulnerability Price disputes in 1997 and 2009 led to supply stoppages, dealt heavy blows to Turkmenistan’s economy April 2009 explosion on CAC pipeline cut exports to virtually zero; January 2010 resumption of supplies, but at a fraction of previous level (10-12 bcm/y rather than 40-45 bcm/y) Risk of new over-reliance on China? Central Asia-China pipeline shifting Turkmenistan’s dependence on Russia to China instead Source: IHS Global Insight

Turkmenistan-Afghanistan-Pakistan-India Pipeline

State of Play in the Long-Running TAPI Project TAPI proposal continuing to move forward, despite security concerns Alignment of political goals and economic needs among four participating countries Significant progress post-2009 Four-party framework agreement (2010) Uniform transit tariff agreed (2012) Formal gas supply and purchase agreement (2012) Pakistan: 38 mmcm/d India: 38 mmcm/d Turkmenistan-Afghanistan MoU on gas sector cooperation Next steps: now the REALLY difficult part starts Attempts to attract financing (international roadshows) Formation of consortium to design, build, and operate TAPI Desire, government political support insufficient to bring TAPI to reality Security risks can be mitigated, but TAPI needs a commercial champion TAPI At A Glance Length 1,735km* Throughput Capacity 33 bcm/year Estimated Cost USD10-15 billion *including 145km in Turkmenistan, 735km in Afghanistan, 800km in Pakistan, and 55km in India

Uzbekistan Caught in the Middle Geography and history leaves Uzbekistan few options for its gas Turkmen gas supplies supplanted Uzbek volumes in CAC flows in Soviet era Doubly landlocked = no sea access = no LNG export possibilities China, Russia, India, Iran: all markets with closer suppliers Vast majority of Uzbekistan’s gas production absorbed internally Government determined to monetise its gas reserve wealth Export focus as LUKoil-led projects boosting Uzbekistan’s gas output Start of Uzbek gas exports via Central Asia-China pipeline (April 2012) Billion-dollar investments to add value to gas production, find new outlets Gas-chemical projects with foreign investors: Surgil (Uzbek-South Korean consortium), Mubarek (UzIndorama joint venture), Oltin Yo'l GTL (Sasol, Petronas, Uzbekneftegaz) CNG retail fuel network expansion to supply vehicle market

TCP: Dead, or Just Premature? Neither Azerbaijan nor Turkmenistan is ready to strike a deal that would pave the way to construct Trans-Caspian gas pipeline (TCP) External political support/pressure notwithstanding Azerbaijan focusing on securing routes for its own gas exports Not ready to transit Turkmen gas when it hasn’t sorted a final plan to monetise its own gas resources Turkmenistan lacks capacity to supply sufficient gas volumes to make TCP economically worthwhile Gas from Block 1 insufficient to offset potential further loss of gas exports to Russia East-West gas pipeline across Turkmenistan still under construction Kazakhstan taking the “wait and see” approach Resolution of maritime border dispute could open the door for Kazakh gas supplies

Key Questions Karachaganak dispute resolved, but what future for phase-3 gas? Russia, yes, but what about China? What about Tengiz, Kashagan gas eventually? Kazakhstan is better positioned to replace Uzbek and Turkmen gas volumes sent via CAC to Russia Loss of Central Asia transit volumes offset by increased exports of Kazakhstan’s own gas TCP prospects will get a boost with development of ‘southern corridor’ Will Central Asian gas transit (to China) offset decline in revenues from reduction in gas transit via CAC (to Russia)? Turkmen, Uzbek gas volumes transiting Kazakhstan in new direction Kazakhstan’s own gas production, exports will make the difference

One Possible Outlook for 2025 2008 2011 2025* Gas exports to Russia from Turkmenistan 38 10 from Kazakhstan 14 15 20 from Uzbekistan TOTAL 62 35 30 Gas exports to China 45 65 Kaz participation in trans-Caspian --resolution of Az_Turkmen deal (use info from Caspian Gas internal presentation) --need infrastructure in place (Kaz as wait and see, rather than leader) --flow into Turkmen gas section Source: IHS CERA; * indicative projection. All figures in billion cubic meters (Bcm).

7/5, Bolshaya Dmitrovka Street Questions? Andrew Neff Senior Energy Analyst IHS Energy 7/5, Bolshaya Dmitrovka Street Bldg. 2, 5th Floor 125009 Moscow, Russia andrew.neff@ihs.com www.ihs.com