Fuel flaring in Kazakhstan
Burning pure fuel related to oil extraction — referred to as fuel flaring — has been practiced within the oil and fuel trade during the last 160 years, based on the World Financial institution Group.
Regardless of this trade follow, nevertheless, fuel flaring not solely causes air pollution, however can also be a waste of beneficial pure sources that can be utilized to energy communities and generate financial advantages.
Kazakhstan started prohibiting fuel flaring within the mid-2000s. In a 2022 report, the World Financial institution’s International Fuel Flaring Discount Partnership cited Kazakhstan as having the most important general flare discount of all international locations within the final 10 years, decreasing absolute flaring from 4 billion cubic meters (bcm) in 2012 to 1.5 bcm in 2021.
Regardless of the constructive enhancements in fuel flaring rules in Kazakhstan, the efficient and environment friendly utilisation of the related petroleum fuel launched throughout oilfield improvement continues to be a giant problem for the event of the Kazakh oil sector.
The secret is to strike a stability between financial necessity and the federal government’s carbon-free targets.
The 100% fuel utilisation tips set by the Kazakh Ministry of Vitality, while commendable, has impacted the event of small to mid-sized producers within the nation. These producers have historically struggled to construct their enterprise past the exploration stage. Having discovered oil, the flexibility to pursue and monetise their discoveries has introduced critical challenges — the largest one being the upfront capital expenditure required to construct the topside infrastructure wanted to allow these smaller producers to maneuver into full industrial improvement.
The infrastructure has an unsure payback interval as it’s required earlier than it’s even clear what the long-term efficiency of the oil discoveries can be — and unsure payback results in problem to find third events which might be ready to help within the funding course of.
Jupiter Vitality’s mission in Kazakhstan
Jupiter Vitality started life in Kazakhstan in 2008 after buying a exploration licence space of roughly 123 sq. kilometres within the Mangistau area. Having shot 3D seismic over the licence space and drilled 9 profitable exploration wells, the corporate found three separate oilfields, overlaying a complete of 35 sq. kilometres, with independently audited 2P recoverable reserves of 36.5 million barrels of oil. The corporate at the moment produces roughly 640 barrels of oil per day from 4 manufacturing wells and sells all its oil into the Kazakh home market.
The problem for Jupiter Vitality, and any small oil producer in Kazakhstan, has historically been to monetise its discoveries. To be able to transfer into full industrial manufacturing, corporations has to have entry to the monetary sources that will allow them to construct the requisite topside infrastructure to not solely deal with the related fuel produced from its preliminary manufacturing wells, but in addition the anticipated related fuel that will circulation as extra wells have been drilled on their licence space. The long run Area Growth Plans agreed between the producer and the Kazakh Ministry of Vitality define the quantity of wells that can be drilled and the related fuel that can doubtless outcome from it.
Regardless of being cashflow constructive, Jupiter Vitality would historically have required important upfront capital funding to construct the fuel utilisation infrastructure it wanted to satisfy its long-term peak manufacturing outlook of about 4,500 barrels of oil per day. And It’s this step that many smaller producers, like Jupiter Vitality, have had problem taking.
The Kazakh Ministry of Vitality has recognised this dilemma. The Ministry, while completely dedicated to a inexperienced financial system and a cloth discount in carbon emissions over the approaching many years, additionally desires to assist smaller producers like Jupiter Vitality who’re recognised as being beneficial contributors to the native financial system. Jupiter Vitality employs a 100% Kazakh workforce, engages native Kazakh contractors for nearly all its on-field work necessities, sells all its oil to native Kazakh buying and selling corporations and pays its Kazakh taxes.
“Small organisations like Jupiter Vitality have historically wanted to take a position closely in constructing complicated fuel remedy crops, fuel turbine models, compressor stations, fuel pipelines — the record goes on,” stated Jupiter Vitality CEO Geoff Gander. “This funding must be executed upfront — earlier than any important oil manufacturing has been achieved. No gross sales are permitted into the export oil markets till the infrastructure has been constructed and authorized to function.”
The Ministry of Vitality, backed by the brand new carbon neutrality tips set by President Kassym-Jomart Tokayev, has developed an progressive resolution that takes benefit of the strategic location of Jupiter Vitality’s licence space, permitting the corporate the chance to adjust to Kazakh rules but in addition ship financial and social advantages to the local people.
Jupiter Vitality’s resolution
Certainly one of Jupiter Vitality’s oil fields is positioned subsequent to an oilfield operated by MangistauMunaiGas (MMG), a serious oil producer within the area, 50 % owned by the most important Kazakh producer, KazMunaiGas, and 50 % owned by Chinese language oil main, CNPC. Its oilfields are effectively established and a few are shifting in the direction of full maturity.
The Kazakh Ministry of Vitality proposed that Jupiter assemble the required pipelines on its fields to combine all its wells into one system, guaranteeing that every one related fuel produced from manufacturing may very well be captured and transported to the prevailing MMG fuel utilisation infrastructure.
“This method could be less expensive for Jupiter, would tackle Jupiter’s present and future fuel utilisation necessities and, on the identical time, present low value related fuel to MMG, enabling them to replenish their declining fuel reserves, as a few of their bigger fields attain maturation,” Gander explains.
One other essential side of this resolution, he provides, is the flexibility for MMG to move any portion of Jupiter’s related fuel that isn’t required by MMG to close by native communities for his or her consumption.
Jupiter Vitality was charged with constructing the fuel pipelines on its oilfields to hook up with the MMG pipeline on the nearest level to the border between the 2 corporations. Jupiter Vitality was additionally requested to put in a fuel metering unit to document the quantity of fuel bought to MMG.
In flip, MMG was accountable for processing the fuel, thus offering Jupiter with an answer to its 100% fuel utilisation commitments.
The mission was scoped by an authorized, unbiased institute after which authorized by Jupiter Vitality, MMG and the Kazakh Ministry of Vitality. Contracts for the sale of fuel have been signed between Jupiter and MMG, and the Kazakh Ministry of Vitality maintained an overseeing function within the improvement of the mission and in the end gave last approval for the development of the pipeline.
The transportation and first sale of the fuel commenced in early November 2024. The mission has now turn into a possible blueprint for different smaller producers confronted with discovering an answer to the 100% fuel utilisation requirement, which is a serious obstacle to their improvement impacting their means to completely contribute to the long-term progress of the Kazakh oil trade.
Key takeaway
This collaborative resolution is without doubt one of the first examples in Kazakhstan of how neighbouring producers of various sizes, underneath the steerage of the Ministry of Vitality, can work collectively to ship a cheap resolution to the essential problem of fuel utilisation.
It’s success tales akin to this, constructed on offering advantages for each the non-public sector, the local people and Kazakhstan as a complete, that can construct a stronger and cleaner oil and fuel trade in Kazakhstan.
This INNSpired article is sponsored by Jupiter Vitality (ASX:JPR). This INNSpired article gives data which was sourced by the Investing Information Community (INN) and authorized by Jupiter Vitalityto be able to assist traders be taught extra concerning the firm. Jupiter Vitality is a shopper of INN. The corporate’s marketing campaign charges pay for INN to create and replace this INNSpired article.
This INNSpired article was written based on INN editorial requirements to teach traders.
INN doesn’t present funding recommendation and the knowledge on this profile shouldn’t be thought-about a suggestion to purchase or promote any safety. INN doesn’t endorse or advocate the enterprise, merchandise, providers or securities of any firm profiled.
The data contained right here is for data functions solely and isn’t to be construed as a suggestion or solicitation for the sale or buy of securities. Readers ought to conduct their very own analysis for all data publicly obtainable in regards to the firm. Prior to creating any funding resolution, it’s endorsed that readers seek the advice of straight with Jupiter Vitality and search recommendation from a professional funding advisor.
