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  • The new energy transition: events in the energy world, prospects and concerns for Kazakhstan

The new energy transition: events in the energy world, prospects and concerns for Kazakhstan

15 June, 2021 16:49
The new (fourth) world energy transition came close to Kazakhstan. Kazakhstan’s energy sector will undergo serious changes from 2020. The European Union is planning to impose a carbon tax on companies supplying oil to these countries. They will be established greenhouse emission limits. Strategy2050.kz correspondent sat down to talk with Almaz Abildayev, energy expert and political analyst, about the ways these and other EU plans for decarbonization of economies might influence Kazakhstan.

– Almaz, why does Europe need a carbon tax? 

- The events of the latest five years show that the technological breakthrough in shale oil and gas turned the United States from the oil purchaser to an oil exporter though by many sorts of heavy oil the country imports much oil because its refineries are adapted to the brands from Venezuela, Canada and a number of other suppliers. These circumstances allowed the EU to understand that there appeared an opportunity to avoid dependence of the EU countries from key suppliers of energy resources tying it to the global climate agenda. Thus, the EU conducted the energy policy in a proper direction. 

The EU will implement its plans by subtle energy diplomacy at the global level. As for a political aspect of the issue, there is an economic constituent – estimates, innovative investments. 

- How will it affect Kazakhstan?

- We, Kazakhstan, are assigned to the role of a supplier of raw materials, natural gas, perhaps hydrogen in the future. Will it be mutually beneficial cooperation? I think it depends on us and in many respects on the pragmatic work arranged with the new energy actors in the new energy cooperation. What sort of dialogue will it be? There is a rising Asia without demands, imposition of its plans, and taxes. 

- How will the imposition of carbon tax affect Kazakhstan?

– It will affect the competitiveness of our oil at the EU markets reducing profit from sales of the raw material. It is good that the Western industry needs oil brands supplied by us, diesel fuel, lubricants and other products which can be produced from light oil are produced from our oil. Moreover, they do not refuse natural gas. There will be great gas replacement in oil consumption and supply. In this situation, Russia does not lose anything as compared to us. It steps up its presence at the EU markets. In future, it plans to increase supplies of natural gas, LNG and, perhaps, hydrogen which is to a greater extent produced from gas.

According to the experts’ opinion after 2030 oil production will drop in Russia, they plan to replace it with gas. The logic is simple – to sell oil as much as possible while it is marketable. 

- What are the risks for us?

- There is a risk of a reduction of sales of exported oil after 2025. Europe is our key trading partner – Italy and Germany would claim that due to their high efficiency and gas replacement they do not need such an amount of raw material. In this connection, gas production would drop as many fields in Kazakhstan are oil and gas condensate bearing. To put it bluntly, we have a tight link between oil and gas. The relationships with Asia should be developed before the oil consumption peak is passed. There is observed hope for a new super cycle of oil prices, based on OPEC opinion the world oil consumption will restore until the end of the year, as it happened in the pre-COVID period. However, high energy carrier prices will accelerate the decarbonization of the economies of the OECD countries.

– It turns out that decarbonization plans will affect the purchase and consumption and reduction of our oil and gas production? 

– Yes, in this connection our oil production might drop so that we will not be able to ensure current volumes of supply to the country. As oil companies operating in our fields will suddenly drop production due to objective reasons, the absence of a sales guarantee is a potential challenge. The national operator does not produce but purchase gas from subsoil users. It can cause vulnerability of gas consumers from oil producers.  

In general, the new EU strategy is not to consume oil and coal at all - to stop consuming it, beginning from 2030. By 2025 they plan to purchase oil with low content of sulfur. Our oil is sulfurous. It relates to Kashagan, Tengiz and Karachaganak. Of course, it will cause additional expenses. How will they remove sulfur? Again, it will affect oil prime cost. Besides it is not good news for the Republic. Such things or surprises will be constantly generated by the consuming countries therefore we should have a strategy. We should analyze what is planned by oil purchasers and how they will behave in five years at least. 

- What energy policy do you think our state will follow?

- I think that following its current energy policy Kazakhstan will keep holding on to an opportunity of maximum oil production applying world practices, technologies for modernization of the economy and creation of conditions for sustainable development. However, given the tendency of most developed countries to restructure their economies on a large scale to archive zero greenhouse gas emissions, it is necessary to develop a new foreign energy policy taking into account trends unfavorable for us. 

– What do you propose to include in the new energy policy? What is the way out of this situation? 

– We need to immediately start gas exploration and production. As I said, gas is not produced by the national operator; it is purchased from subsoil users. It is vulnerable. It is recommended to go further – energy-producing companies are to be allowed to find gas for its subsequent use to generate electric power. There should be started gas exploration throughout the country. It should be done under the terms of the Paris Convention on Climate to reduce carbon dioxide emissions into the atmospheric air. 

Geology should be made the main focus. We know that geological exploration is a long-term process – 10-15 years. The green economy process launched in the world creates an opportunity to explore rare earth metals through the country. These are nickel, aluminum, lithium, etc. – metal demanded creating green economy infrastructure. If we lose with respect to oil, we need to react quickly to the factors providing for opportunities. 

We need to enhance the role of national companies operating in the gas industry. They need to make efforts in gas exploration and production. Factors of dependence on the oil sector need to be removed, and the attention is to be directed to nuclear energy given the potential of reactors of the 4th and 5th generations; and finally research and development need state investments. 

If the OECD countries refuse oil we will have to develop the petrochemical industry. Petrochemicals are required everywhere - to manufacture cars, produce rubber, clothing and medicine. They can be used not only as fuel for internal combustion engines but in other industries. If in 2030 a great surplus of unsold oil remains in the country and we will not be able to make export sales, it means that we should build oil refineries as developed states do. 

- What about oil refineries?

- As per oil refineries, their modernization needs to be done to produce Europe-6 and Euro-7 gasoline. Also, I believe that it is time to build a new refinery and continue the modernization of three refineries. If we lag behind Russia and Belarus in processing depth, in the future they pour us kerosene, diesel fuel and high-quality gasoline. In 2025 we should enter the newly created EAEU energy space as equals to participating countries in order to avoid dependence, especially in power engineering.

In the end, I would like to note that Kazakhstan faces more prospects in energy than concerns; the state needs to open its potential first ensuring its energy security, and then implanting integrated projects with its neighbors and far abroad. We also are capable, if we wish, to conduct energy diplomacy. If competition at Western markets increases, attention is to be paid to Asia, India, where the economy and population grow extensively, as well as energy resources consumption.

It should be noted that the announced reports, such as a revolutionary report of the head of the international energy agency dated May 18, 2021 raise concern in connection with the calls to refuse to invest in the oil and gas industry. Closer attention to these calls reveals political slogans; the industries of these countries are not provided real support, hence the conclusion is that the issue can be prolonged, however on July 14, 2021, CBAM mechanism will be presented as a draft law to be approved by all EU countries. Simultaneously there will be conducted negotiations with the WTO on the adjustment of the green agenda to the applicable WTO rules.

In addition, after the IEA report, oil-producing countries activated contacts for, as I think, coordinating efforts in world energy. 

With this respect I agree with the opinion of Mr. Mohammed Barkindo, OPEC Secretary General, on the exclusive approach to the new energy transition that no country becomes vulnerable, expressed on June 3, 2021 at the 1st OPEC-Africa summit meeting. 

I will not be surprised that in future hydrogen OPEC is established where the interests of the countries supplying hydrogen will be considered.

 - I would like to ask you whether the energy agenda is a frequent topic?

 - Oh, currently only a lazy-bone is not trying to get involved (laughs). Much can be said in a florid way, but avoid saying main things – how it can be done and how much it will cost and can a declaration on this theme be complied with right now. Seriously though, this evidently international trend is of a long-term character. Again, the issues of practical application of these BAT instruments in this mainstream are to be attentively studied, in plain words, where there is profit and where there is no profit. We are the signatories of the Paris Convention on Climate Change and should try complying with assumed commitments. 

As for recommendations, it is simple, based on my observations in power engineering and ecology, Kazakhstan needs to understand its place in the world economy hierarchy, world policy, and start developing executable objectives and plans. I believe it is a basic thesis; hence it is real to start moving on. Moreover, the post-COVID world will be as such.

As per real practical steps in ecology, I believe it is necessary to accelerate the work related to the disposal of accumulated different consumption wastes. A number of South Korean and German companies, experienced in the implementation of international practices in this respect are interested in the construction of waste incineration plants, producing energy as a by-product, and heating water. Based on my information, negotiations are commenced with the Akimats of Shymkent and Taraz.

– Thank you for the detailed answers.