JPMorgan - KASE

Exports
General
In 2001, the export of hydrocarbons and minerals accounted for 58% of Kazakhstan’s total
exports, which totaled $8.6 billion, were oil and gas condensate. Despite Kazakhstan’s substantial
hydrocarbon resources, the production and export of hydrocarbons has been constrained by
Kazakhstan’s land-locked position and its significant dependence on Russia’s transportation
network. Russia retains the right to suspend and impose restrictions on the flow of Kazakhstan’s
oil into the Russian transportation network and Russian enterprises have priority access to
Russian export terminals. Russia imposes an annual quota on Kazakhstan’s exports through
Russia, which is currently set at 121 million barrels, excluding the CPC of which 102.6 million
barrels will be transported via the Atyrau-Samara pipeline and 18.3 million barrels through the
Makhachkala-Novorossiysk route. Kazakhstan has also been invited to participate in the
development of other export routes, including Russia’s Baltic Pipeline System, the Bourgas-
Alexandropolis pipeline and the integration of the Druzhba and Adria pipelines. Modernization
of the Atyrau-Samara pipeline, conducted in 2000, boosted that pipeline’s annual throughput
capacity from about 7.3 billion barrels to about 10.9 billion barrels.
Other export outlets will be needed in order for Kazakhstan to realize the full economic
potential of its oil and gas reserves. The Government and the Company are participating in
several projects to diversify export routes and to expand export capacity.
The Caspian Pipeline Consortium
The CPC was established for the purpose of developing a 1,500 kilometer export pipeline from
the Tengiz oil field to the Russian seaport of Novorossiysk on the Black Sea, together with oil
pumping stations and oil storage and loading facilities. The CPC was formed in July 1992 by
Russia, the Sultanate of Oman, Kazakhstan and a number of international oil companies.
In April 1996, CPC members and a group of eight oil companies signed a protocol on
restructuring the CPC, which called for the oil companies to provide all of the new capital for the
completion of the pipeline in return for 50% ownership of the overall project. The Russian,
Kazakhstani and Oman governments agreed to reduce their stakes in the CPC to 24%, 19% and
7%, respectively. The other shareholders of the CPC are Chevron Caspian Pipeline Consortium
Company (15%), LukArco B.V. (a joint venture between LukOil and Arco) (12.5%), Rosneft-Shell
Caspian Ventures Ltd. (a joint venture between Rosneft and Shell) (7.5%), Mobil Caspian Pipeline
Consortium Company (7.5%), BG Overseas Holdings Ltd. (2%), Agip International (N.A.) N.V.
(2%), Oryx Caspian Pipeline Ltd. (1.75%) and Kazakhstan Pipelines Ventures L.L.C. (1.75%).
A consortium comprising the American company, Fluor Daniel, and Giprovostokneft Institute
from Russia, have the contract to build the pipeline. The first stage of construction of a pipeline
with a capacity of 205 million barrels per year was completed and is expected to be fully
operational by the end of the second quarter of 2003. The second stage to expand the capacity
of the pipeline up to 490 million barrels per year is expected to take up to three years.
Oil Swaps
In 1997, Kazakhstan and Iran entered into a ten-year oil swap agreement. Under its terms,
Kazakhstan has the right to ship 15 million barrels of oil per year to Iran for the first two years of
the agreement, increasing to 44 million barrels annually by the sixth year. The oil is to be shipped
via the Caspian Sea to refineries in Tehran and Tabriz for refining and distribution in the
northern Iranian provinces. Iran, in turn, will supply equivalent amounts of Iranian oil from the
Persian Gulf to customers of Kazakhstan.
The United States prohibits American companies from purchasing or selling Iranian oil. Further,
there have been technical problems refining the oil in Iran associated with the high sulphur
content of the oil received. As a result, there has been little progress to date with the Iranian
swaps. Kazakhstan has delivered only a trial shipment of 461,790 barrels of its oil.
C-2