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British Involvment in Kazakh Oil and Gas Industry

British Involvment in Kazakh Oil and Gas Industry

Source: Speech by Minister of State John Battle, to the Kioge 2000 Conference, Almaty, Kazakhstan, October 4, 2000.

Excellencies, Ladies and Gentlemen, it is a pleasure to be here today at the opening of the KIOGE 2000 Conference at what is a very exciting time for the oil and gas industry in Kazakhstan. The impressive turnout and the comments we have just heard bear powerful testimony to the importance of this event for the people of Kazakhstan.

The relationship between the UK and Kazakhstan

Our agenda today - a shared common vision of the future of the oil and gas industry in Kazakhstan. Let me spell out from the outset, the UK is committed to a long term partnership with Kazakhstan. We are keen to support Kazakhstan in every way we can. It is in our shared interest to help realise the full potential of this country as a major regional player and a link between east and west. Of course, we want the states of the region to enjoy internal stability and good relations with their neighbours, and mutual respect. We want to help achieve this. That means devoting time experience and expertise. It also means listening and responding to other concerns, whether over security or environmental problems or the international drugs trade and promoting excellence - we are proud that so many Kazakh students are now choosing British institutions to help enhance their skills.

The relationship between the UK and Kazakhstan are close and want to get closer still. One measure of the strength of our relationship is the frequency of high level interchanges. My government colleague, Nick Raynsford, led a British construction industry mission to Almaty and Astana in June. The Duke of Gloucester was here last month and the Chief of Defence Staff will be here later this month. We have had the pleasure to welcome many senior Kazakh visitors to the UK, including Foreign Minister Idrisov last month. President Nazarbaev himself was briefly in London a few weeks back and we very much hope we will be able to welcome the President back to London soon to meet the Prime Minister for what we see as an extremely important opportunity to map out the future direction of our relationship.

A good political relationship, but business relations are good too. The UK is already the second largest investor in Kazakhstan, much of this in the oil and gas sector. I was fortunate enough to have the opportunity to spend some time yesterday afternoon at the exhibition, where I was pleased to see a good number of British companies participating. I know from talking to these companies, and from previous discussions with others, that British companies are very keen to look at the opportunities presented by the oil and gas sector in Kazakhstan. Many are looking not only to supply goods and services to the industry here, but also to explore the possibilities for future investment and other forms of co-operation. Indeed a group of companies from the UK were in West Kazakhstan last week to look at these prospects. The visit was organised by Trade Partners UK, the British Government organisation which I co-chair, responsible for assisting companies in their trade and investment activities overseas.

Demand for energy in the new millenium

In this first year of the new millennium, it is clear that the demand for energy is one of two key challenges for the century ahead. A 1998 report of the International Energy Agency predicted that demand would increase by 65 per cent between 1995 and 2020. Fossil fuels were expected to meet 95 per cent of additional global energy demand in this period. Oil was viewed as being particularly important to fuel rapidly increasing demands for transport, whilst gas was seen as the preferred fuel for many applications, especially new power plants. However, this would require restructuring and facilitating the international transportation of gas. The report suggested that further development of oil and gas reserves would be needed worldwide. Russia and the Caspian Basin were highlighted as offering major prospects as suppliers to European and Asian markets in the 21st century. In other words, Kazakhstan is obviously set to play an important role in this.

Involvement of British companies

The reported find this summer by the Offshore Kazakhstan International Operating Company (OKIOC) on the Kashagan field - probably the largest anywhere in the world in the last 25 years I am told - provides clear evidence of this potential. UK based oil and gas companies such as BG, BP, Shell and Amerada Hess fully recognise this potential and are keen to play their part in developing these resources.

Some people think of British companies as being involved solely in offshore developments, and in relatively deep water at that. This is not the case. British companies have been involved in the oil, gas and petrochemical sectors for many years, even before the discovery of the major reserves in the North Sea in the 1960s and 70s. We are renowned for manufacturing highly efficient, low maintenance equipment for use in remote, harsh environments. Our technological expertise is perfect fit for the steppes of West Kazakhstan or the new areas offshore in the North East Caspian, just as much as in the extremely difficult terrain of the North Sea.

Great opportunities exist for British and Kazakh companies to work together in this very important sector. Kazakhstan has been blessed with a wide range of oil/gas fields. Some of these are mature, but in need of new management, technology and capital. Others are still exciting, new prospects that are yet to be fully explored or appraised.

Legislative and regulatory framework

However, there are concerns that recent proposed legislative changes and issues such as quotas for work permits may discourage investment. At the same time I understand there is unease over how some laws are interpreted and applied. It can take considerable effort to balance the equation in a way which ensures a fair return to investing companies and the nation's people.

In the UK we gave careful attention to establishing a durable regulatory framework for our oil and gas industry. We felt it was important to have regulations which gave proper weight to safety and pollution control, for instance, but which did not inhibit investment and technological development. Importantly, the regulatory framework needed to be clearly spelled out and understood by all participants.

One concern that I know the Kazakh authorities have, both central and regional, is maximising use of local content. In the UK, we too shared these concerns. A Government initiative to address this issue, through signed agreements with the international operating companies, remained in place till the end of 1992. Over the last few years that UK content in the oil and gas sector when it was measured, it averaged around 80 per cent of annual expenditure, whereas in the early days of North Sea activity it barely reached 25 per cent. The impact of this policy is self-evident. But such results cannot be achieved overnight.

Conclusion

Given the involvement of many Kazakh enterprises in design and manufacture of high technology equipment and other areas, I have no doubt that the potential exists in Kazakhstan to develop further your capabilities in the oil and gas sector. Some of this you may be able to do yourself. In other cases the help of others, such as the UK, may be of great benefit. I am delighted we have invited the Akims of the Western oblasts to the UK later this year. I do hope they will be able to attend.

I suggested that energy is one of two key themes of the coming decades. It is becoming increasingly clear the other global challenge is water. The wise management of water - locally, regionally and globally - will be one of the great challenges ahead. In Central Asia water mismanagement over the years has sadly turned the Aral Sea into a shrinking toxic lake. For all the countries of Central Asia water remains a source of tension and instability. That is why at the Istanbul Summit of the Organisation for Security and Co-operation in Europe last November, Robin Cook announced a UK initiative to work with the Republics themselves, through the OSCE, to create a political framework for water management across the region. We are grateful that Kazakhstan has welcomed this initiative so positively and we look forward to working with you to develop it.

Central Asia is deservedly coming into its own as an important region for oil and gas supply. Kazakhstan has a pivotal role within the region. Much work remains to be done to realise this potential, but I know that the will and ability to do this exists. I also believe that with the experience and expertise that we in the UK have, both in the Government and in industry, we are well qualified to help you achieve these crucial goals. Our task is to work together to mutual benefit in the 21st century.

 

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Directeur de la publication : Joël-François Dumont
Comité de rédaction : François d'Alançon, Jacques de Lestapis, Hugues Dumont, Richard Labévière, Pascal le Pautremat, Yannick de Prémorel.
Correspondants à l'étranger : François de Vries (Bruxelles), Hans-Ulrich Helfer (Suisse), Michael Hellerforth (Allemagne).
Comité militaire : VAE Guy Labouérie (2S), GAA François Mermet (2S), GB Henri Pinard Legry (2S), CF Patrice Théry (Asie).

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