Gas flaring in Kazakhstan
Burning natural gas associated with oil extraction — called gas flaring — has been practiced in the oil and gas industry over the last 160 years, according to the World Bank Group.
Despite this industry practice, however, gas flaring not only causes pollution, but is also a waste of valuable natural resources that can be used to power communities and generate economic benefits.
Kazakhstan began prohibiting gas flaring in the mid-2000s. In a 2022 report, the World Bank’s Global Gas Flaring Reduction Partnership cited Kazakhstan as having the largest overall flare reduction of all countries in the last 10 years, reducing absolute flaring from 4 billion cubic meters (bcm) in 2012 to 1.5 bcm in 2021.
Despite the positive improvements in gas flaring regulations in Kazakhstan, the effective and efficient utilisation of the associated petroleum gas released during oilfield development continues to be a big challenge for the development of the Kazakh oil sector.
The key is to strike a balance between economic necessity and the government’s carbon-free targets.
The 100 percent gas utilisation guidelines set by the Kazakh Ministry of Energy, whilst commendable, has impacted the development of small to mid-sized producers in the country. These producers have traditionally struggled to build their business beyond the exploration stage. Having found oil, the ability to pursue and monetise their discoveries has presented serious challenges — the biggest one being the upfront capital expenditure required to build the topside infrastructure needed to enable these smaller producers to move into full commercial development.
The infrastructure has an uncertain payback period as it is required before it is even clear what the long-term performance of the oil discoveries will be — and uncertain payback leads to difficulty in finding third parties that are prepared to assist in the funding process.
Jupiter Energy’s project in Kazakhstan
Jupiter Energy began life in Kazakhstan in 2008 after acquiring a exploration licence area of approximately 123 square kilometres in the Mangistau region. Having shot 3D seismic over the licence area and drilled nine successful exploration wells, the company discovered three separate oilfields, covering a total of 35 square kilometres, with independently audited 2P recoverable reserves of 36.5 million barrels of oil. The company currently produces approximately 640 barrels of oil per day from four production wells and sells all its oil into the Kazakh domestic market.
The challenge for Jupiter Energy, and any small oil producer in Kazakhstan, has traditionally been to monetise its discoveries. In order to move into full commercial production, companies has to have access to the financial resources that would enable them to build the requisite topside infrastructure to not only handle the associated gas produced from its initial production wells, but also the predicted associated gas that would flow as more wells were drilled on their licence area. The long term Field Development Plans agreed between the producer and the Kazakh Ministry of Energy outline the amount of wells that will be drilled and the associated gas that will likely result from it.
Despite being cashflow positive, Jupiter Energy would traditionally have required significant upfront capital investment to build the gas utilisation infrastructure it needed to meet its long-term peak production outlook of about 4,500 barrels of oil per day. And It is this step that many smaller producers, like Jupiter Energy, have had difficulty taking.
The Kazakh Ministry of Energy has recognised this dilemma. The Ministry, whilst absolutely committed to a green economy and a material reduction in carbon emissions over the coming decades, also wants to support smaller producers like Jupiter Energy who are recognised as being valuable contributors to the local economy. Jupiter Energy employs a 100 percent Kazakh workforce, engages local Kazakh contractors for almost all its on-field work requirements, sells all its oil to local Kazakh trading companies and pays its Kazakh taxes.
“Small organisations like Jupiter Energy have traditionally needed to invest heavily in building complex gas treatment plants, gas turbine units, compressor stations, gas pipelines — the list goes on,” said Jupiter Energy CEO Geoff Gander. “This investment needs to be done upfront — before any significant oil production has been achieved. No sales are permitted into the export oil markets until the infrastructure has been built and approved to operate.”
The Ministry of Energy, backed by the new carbon neutrality guidelines set by President Kassym-Jomart Tokayev, has developed an innovative solution that takes advantage of the strategic location of Jupiter Energy’s licence area, allowing the company the opportunity to comply with Kazakh regulations but also deliver economic and social benefits to the local community.
Jupiter Energy’s solution
One of Jupiter Energy’s oil fields is located next to an oilfield operated by MangistauMunaiGas (MMG), a major oil producer in the region, 50 percent owned by the largest Kazakh producer, KazMunaiGas, and 50 percent owned by Chinese oil major, CNPC. Its oilfields are well established and some are moving towards full maturity.
The Kazakh Ministry of Energy proposed that Jupiter construct the required pipelines on its fields to integrate all its wells into one system, ensuring that all associated gas produced from production could be captured and transported to the existing MMG gas utilisation infrastructure.
“This approach would be more cost effective for Jupiter, would address Jupiter’s current and future gas utilisation requirements and, at the same time, provide low cost associated gas to MMG, enabling them to replenish their declining gas reserves, as some of their larger fields reach maturation,” Gander explains.
Another critical aspect of this solution, he adds, is the ability for MMG to transport any portion of Jupiter’s associated gas that is not required by MMG to nearby local communities for their consumption.
Jupiter Energy was charged with building the gas pipelines on its oilfields to connect to the MMG pipeline at the nearest point to the border between the two companies. Jupiter Energy was also requested to install a gas metering unit to record the amount of gas sold to MMG.
In turn, MMG was responsible for processing the gas, thus providing Jupiter with a solution to its 100 percent gas utilisation commitments.
The project was scoped by an approved, independent institute and then approved by Jupiter Energy, MMG and the Kazakh Ministry of Energy. Contracts for the sale of gas were signed between Jupiter and MMG, and the Kazakh Ministry of Energy maintained an overseeing role in the development of the project and ultimately gave final approval for the construction of the pipeline.
The transportation and first sale of the gas commenced in early November 2024. The project has now become a potential blueprint for other smaller producers faced with finding a solution to the 100 percent gas utilisation requirement, which is a major impediment to their development impacting their ability to fully contribute to the long-term growth of the Kazakh oil industry.
Key takeaway
This collaborative solution is one of the first examples in Kazakhstan of how neighbouring producers of varying sizes, under the guidance of the Ministry of Energy, can work together to deliver a cost-effective solution to the critical issue of gas utilisation.
It is success stories such as this, built on providing benefits for both the private sector, the local community and Kazakhstan as a whole, that will build a stronger and cleaner oil and gas industry in Kazakhstan.
This INNSpired article is sponsored by Jupiter Energy (ASX:JPR). This INNSpired article provides information which was sourced by the Investing News Network (INN) and approved by Jupiter Energyin order to help investors learn more about the company. Jupiter Energy is a client of INN. The company’s campaign fees pay for INN to create and update this INNSpired article.
This INNSpired article was written according to INN editorial standards to educate investors.
INN does not provide investment advice and the information on this profile should not be considered a recommendation to buy or sell any security. INN does not endorse or recommend the business, products, services or securities of any company profiled.
The information contained here is for information purposes only and is not to be construed as an offer or solicitation for the sale or purchase of securities. Readers should conduct their own research for all information publicly available concerning the company. Prior to making any investment decision, it is recommended that readers consult directly with Jupiter Energy and seek advice from a qualified investment advisor.
Figure 1 – Maturation map showing expected Vitrinite Reflectance (%) in the middle of the Heath Formation. The peak oil generation zone corresponds to a range in vitrinite reflectance between 0.8 and 1.2% shown in green.
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