Downstream

The Company has completed a number of major modernisation projects across its oil refineries in Kazakhstan and Romania, successfully achieving higher refining depths. KMG’s Strategy until 2031 has set the following goals:

• improving the refining depth at Kazakhstan refineries to at least 89%;
• increasing the output of high-margin petrochemicals at Kazakhstan refineries;
• ramping up vertical integration at KMGI by adding more filling stations across its footprint to boost margins.

Oil and condensate marketing

In 2022, sales of own oil and condensate produced by KMG amounted to 22,126 thous. tonnes, including 13,712 thous. tonnes of oil exports, and 8,415 thous. tonnes of domestic oil supplies. Supplies to KMG refineries in Kazakhstan are fully included in domestic oil supplies: 3,043 thous.tonnes to Atyrau Refinery, 3,340 thous. tonnes to Pavlodar Refinery, and 1,568 thous. tonnes to Shymkent Refinery.

Oil and condensate exports

In June 2022, all oil companies in Kazakhstan adopted the name of Kazkhstan Export Blend Crude Oil (KEBCO) for their products. On 1 November 2022, Platts began publishing quotes for this grade. Amid sanctions against Russian crude and shrinking supply of the Urals blend, KEBCO prices have been on a steady upward trend.

Brent-pegged taxes and levies associated with oil exports grew as global oil prices increased in 2022.

Oil and condensate sales to domestic buyers

Pursuant to the President’s commission to adopt the so-called combined scheme at oil refineries and further commissions from the Government, KMG has been working to introduce this scheme at its refineries, taking into account the amendments being made to the Law of the Republic of Kazakhstan On State Regulation of Production and Sales of Certain Oil Products with respect to oil supplies to local refineries.

The combined scheme and amendments mentioned above provide for a subsoil user’s affiliate to be recognised as an oil supplier subject to at least one of the following conditions:

• the oil supplier owns at least 50% of shares in the subsoil user;
• the subsoil user owns at least 50% of shares in the oil supplier;
• the oil supplier and subsoil user are controlled by one or more persons owning, directly or indirectly, a total of at least 50% of shares in the oil supplier and subsoil user.

OzenmunaiGas, Embamunaigas, Kazakhturkmunay and Urikhtau Operating supply Atyrau, Pavlodar and Shymkent refineries with KMG’s own crude oil, and the resulting refined products are subsequently sold wholesale domestically or for export.

KMG refining assets

Within KMG’s asset mix, four refineries in Kazakhstan and two in Romania are responsible for processing liquid hydrocarbons (primarily oil).

Refining volumes at Kazakhstan refineries

Nearly all key indicators set records in 2022. These included oil refining volumes, and petrol and diesel and jet fuel production. Wastes and flaring were at historical lows.

Shymkent Refinery processed over 6 mln tonnes of oil – more than in any year before – and set the time between repairs to three years, with Atyrau Refinery to follow suit soon.

Pavlodar Refinery is implementing important projects, such as production of winter diesel fuel, which is in short supply in Kazakhstan.

Refinery development plans

Initiatives have been planned to boost the output of high-margin products at Kazakhstan refineries, improving their operational efficiency.

• Technical audit for repairs to be performed once in every three years.
• Implementation of the Action Plan with Energy and Resource Efficiency and Atmospheric Emission Reduction Targets for the Period until 2031.

Atyrau Refinery

• Engineering and survey activities (restoring the reformer’s operability, ramping up the capacity of the Prime D hydrotreatment and dewaxing unit, and building a gas turbine power plant, unloading rack for straight-run naphtha and kerosene / gas oil fraction, and new pumping station to enable complete transition to automatic on-spot loading).
• Feasibility study (upgrading the delayed coker unit and building a de-asphalting unit).
• Installation of an oil metering station and floating roofs for tanks intended to store Tengiz oil before refining.
• Completion of the Tazalyq project, mechanical treatment plants upgrade at Atyrau Refinery, and reclamation of evaporation fields.

Pavlodar Refinery

• Selection of an EPC contractor for the project on reconstruction of the diesel hydrotreating plant including a dewaxing unit.
• Equipment procurement and start of construction and installation for the project on construction of an LPG treatment facility.

Shymkent Refinery

• Completion of the pre-feasibility study for the project on expansion of Shymkent Refinery’s production capacities (bringing the capacity to 9 or 12 mln tonnes per year).

Caspi Bitum

• Plans for reaching the design oil refining capacity of 1.0 mln tonnes per year.
• Procurement of results of the PFS for the project on expansion of CASPI BITUM LLP’s capacity.
• Start of the development of a project design for the project on expansion of CASPI BITUM LLP’s capacity.

• Restoration of the LG-35-11/300-95 reformer’s operability (scheduled for 2022–2025).
• As work progresses to enable the refining of Tengiz oil and with the catalytic cracking unit at full capacity, an excess of off-balance straight-run naphtha is being created, which requires using LG-35-11/300-95 in winter.
• Construction of a gas turbine power plant (scheduled for 2023–2026).
• Upgrade of the delayed coker unit.
• Production of more jet fuel (repurposing the LG-35-11/300-95 hydrotreater, scheduled for 2023–2025).
• Expansion of the Prime D hydrotreatment and dewaxing unit’s capacity (commissioning the third booster compressor).
• Expansion of the existing automatic on-spot loading unit (building a new pumping station).
• Construction of an unloading rack for straight-run naphtha and kerosene / gas oil fraction.
• Refining of Tengiz oil.
• Action Plan with Energy and Resource Efficiency and Atmospheric Emission Reduction Targets for the Period until 2031.

Under this plan, Atyrau Refinery works to reduce direct and indirect emissions by at least 12% by 2031 vs 2019.

Pavlodar Refinery

• Project on reconstruction of the diesel hydrotreating plant including a dewaxing unit. This initiative seeks to achieve a winter diesel fuel output of 160 thous. tonnes per year.
• Project on construction of an LPG treatment facility.

This initiative seeks to achieve a marketable LPG throughput and output of 100 thous. tonnes per year.

• Action Plan with Energy and Resource Efficiency and Atmospheric Emission Reduction Targets for the Period until 2031.

Under this plan, Pavlodar Refinery works to reduce direct and indirect emissions by at least 15% by 2031 vs 2019.

Shymkent Refinery

• Shymkent Refinery expansion project (ramping up the capacity to 9 or 12 mln tonnes per year).

A variety of plant layouts are being considered to expand the existing production capacities to 9–12 mln tonnes per year.

A PFS by US-based Honeywell UOP is in progress.

• Action Plan with Energy and Resource Efficiency and Atmospheric Emission Reduction Targets for the Period until 2031.

Under this plan, Shymkent Refinery works to reduce direct and indirect emissions by at least 13% by 2031 vs 2019.

Refining tariffs

The tariff for refining oil under tolling arrangements embraces an operating and investment parts, financial liabilities and corporate income tax and may provide an opportunity to finance the enterprise’s operation while maintaining efficiency and preventing it from making a loss.

Hydrocarbon refining volumes and oil product output in Kazakhstan

In 2022, hydrocarbon refining volumes at Kazakhstan refineries (net to KMG) amounted to 14,269 thous. tonnes, with oil product output at 13,101 thous. tonnes. The two measures grew by 2.5% and 4.1% respectively vs 2021, showing their best performance since Kazakhstan gained independence. This was driven by the postponing of scheduled repairs at Shymkent Refinery from 2022 to 2023 and higher refining volumes at Pavlodar Refinery.

Acquisition of a stake in PETROSUN. KMG’s purview in oil product marketing

PETROSUN LLC was incorporated in Kazakhstan on 17 January 2012.

The members:
1. CNPC International in Kazakhstan LLP
2. JSC National Company KazMunayGas

In July 2022, the Company acquired a 49% stake in PETROSUN LLC, increasing KMG’s share in the domestic market for oil products from 28% to 80%.

PETROSUN LLC’s core activities:

• foreign trade, commerce, and export and import;
• sales of hydrocarbons and their derivatives;
• refining of hydrocarbons and their derivatives;
• procurement and refining of crude oil, natural gas, oil products, lubricants and fuels in Kazakhstan and elsewhere, including treatment, storage, sales and marketing, distribution, and import and export of crude oil, oil products and hydrocarbons and their derivatives, and procurement of materials and equipment (beyond the scope of natural monopolies);
• acquisition, storage and transshipment of oil products; and
• oil product transportation.

PETROSUN LLC aims to operate efficiently in Kazakhstan’s oil product market, ensure energy security and maximise its profit from selling lubricants and fuels in the domestic oil product market and exporting them.

PETROSUN LLC refines the acquired crude oil at the following Kazakhstan refineries:

1. PetroKazakhstan Oil Products (Shymkent Refinery) – a 72% stake;
2. Pavlodar Refinery – a 41% stake;
3. Atyrau Refinery – a 29% stake.

PETROSUN LLC’s oil products made at these refineries are sold to farm operators in the spring and autumn farming seasons, KTZ – Freight Transportation for the needs of its locomotive divisions, major filling station networks in Kazakhstan, buyers on an exchange, and town-forming industrial enterprises.

Kazakhstan refineries source and refine oil under the combined scheme, whereby the crude is supplied to and processed at refineries by subsoil users, their affiliated or associated marketing entities, and the refineries in their capacity as oil product makers. After processing the oil, a refinery returns the resulting oil products to the oil owners (resource holders) or sells them. In both cases, the products are then shipped from the refinery.

KMG and PETROSUN LLC dominate the domestic wholesale market for oil products, with aggregate shares of 91.3%, 71.4% and 81% in total sales of the AI-92 and AI-95 petrols and diesel fuel respectively (between October 2021 and September 2022).

Production and marketing of oil products derived from KMG’s own oil

Ozenmunaigas, Embamunaigas, Kazakhturkmunay and Urikhtau Operating supply Atyrau, Pavlodar and Shymkent refineries with KMG’s own crude oil, and the resulting refined products are subsequently sold wholesale domestically or for export.

In 2022, Ozenmunaigas, Embamunaigas, Kazakhturkmunay and Urikhtau Operating supplied 4,966 thous. tonnes of crude oil for refining, including 2,363 thous. tonnes to Atyrau Refinery, 1,992 thous. tonnes to Pavlodar Refinery, and 611 thous. tonnes to Shymkent Refinery. The refineries’ combined output for the year was 4,893 thous. tonnes of refined products, including 60% of light products, 22% of dark products, 0.8% of petrochemicals, and 17% of other oil products.

KMG sells oil products wholesale after the oil purchased from Ozenmunaigas, Embamunaigas, Kazakhturkmunay and Urikhtau Operating is refined at refineries in Kazakhstan. From January to December 2022, KMG sold 4,908 thous. tonnes of oil products, primarily light products and fuel oil (79%).

The bulk of oil products was sold domestically (4,091 thous. or 83% out of 4,908 thous. tonnes), and the remainder was exported (816 thous. tonnes). The share of oil product exports in the total sales volume was down 3% year-on-year due to a ban on light product exports.

KMG supplies diesel fuel for agricultural field operations and provides social and production facilities, and institutions, with fuel oil during the heating season. In 2022, KMG also sold, through KazMunayGas-Aero and through exchange trading, jet fuel to local airports, airlines, and businesses. The rest is sold to third parties domestically or abroad. In April 2022, KMG exported AI-92 petrol (7 thous. tonnes). Exports of light oil products dropped by 85% compared to 2021 due to increased domestic consumption in the Republic of Kazakhstan. In 2022, oil product exports were dominated by dark oil products shipped to Europe. Diesel fuel, petrochemicals, coke, sulphur and butane were supplied to Europe, China, Nigeria, Russia, Uzbekistan and Tajikistan.

Refining in Romania

The core business of KMG International is hydrocarbon refining, as well as wholesale and retail sales of oil products. The KMG International-owned Petromidia Refinery is responsible for primary hydrocarbon refining, with the Vega Refinery focusing on secondary refining. The Petromidia and Vega Refineries operate according to the model where refineries purchase hydrocarbons for their own account, refine them and then sell them either wholesale or retail through an owned retail network of filling stations.

KMG International also owns a major petrochemical complex producing polypropylene and low- and high-density polyethylene (LDPE and HDPE). In addition, KazMunayGas Trading AG, the trading subsidiary of KMG International, is focused on trading in crude oil and oil products produced by KMG International refineries or by third parties.

In 2022, our refineries in Romania processed 5,631 thous. tonnes of hydrocarbons and other feedstocks and produced 5,512 thous. tonnes of oil products. The volumes increased by 14.8% and 14.1% respectively year-on-year on average. The year-on-year growth in crude oil refining and oil product production was attributable to the pandemic-related restrictions of 2021, as a result of which less imported SRGO was processed due to a slumping demand, and to an incident at Petromidia Refinery in July 2021 causing its shutdown.

KMG International’s retail network

Romania’s retail market is the most profitable market for KMG International’s oil products.

To develop Romanian retail chain, in 2021 KMG’s Investment Committee approved a project to build 44 new filling stations supported by the Kazakh-Romanian Investment Fund. 2022 saw the completion of eight stations on a major highway in Romania.

KMG International’s share of the Romanian retail market in 2022 is estimated at 16.9%, up 0.6% year-on-year (16.3% in 2021 based on actual data).

At year-end 2022, KMG International’s retail network was comprised of the following assets:

• Romania: 304 filling stations and 953 points of sale (DOEX, RBI, and Cuves). 8 CODO, 4 DODO, 19 DOEX, 2 new RBI, and 19 Cuves were opened;
• Neighbouring countries: 262 filling stations and points of sale, including 60 stations in Bulgaria, 105 stations in Georgia (8 stations added, while 19 stations were closed due to contract expiry) and 96 stations in Moldova (3 stations in rural regions were closed as loss-making).

Refinery development plans

With a historic focus on developing refining assets, while also given the previous years’ market conditions and the Paris Agreement under the United Nations Framework Convention on Climate Change governing efforts to lower carbon dioxide concentrations in the atmosphere starting from 2020, a number of concerns arose with respect to the Group such as: 1) the Group’s unbalanced asset portfolio and high exposure to refining margin volatility; 2) logistic limitations as investments in new refining capacities were not followed by the upgrade of logistics infrastructure to accommodate increased volumes; 3) a chain of filling stations disproportionate to increased production capacity.

Vertical integration, along with the accelerated intensive development of controlled sales channels in Romania and neighbouring countries, remain the key focus areas. Further refinery investments are to be limited to the previously approved projects, such as the conversion of a high-density polyethylene production unit into a polypropylene unit, while development projects must become part of KMG International’s decarbonisation strategy.

New technologies, operational excellence and efficiency (case studies, results, future plans)

The Group has set about developing a decarbonisation strategy associated with the EU’s commitment under the European Green Deal to reach climate neutrality by 2050. It has also continued to invest in asset integrity projects for Petromidia, Vega and the Petrochemical Complex in order to maintain their operational availability. The bulk of the projects focus on repairing and restoring the tank farm, ISCIR authorisation, as well as activities associated with the technological shutdown of 2022, with a greater emphasis on safety-related projects. Besides, due to the unusual market conditions and geopolitical landscape during 2022, we adapted and reacted according to the situation maximising fuel gas production and minimising steam costs.

New projects

CHP construction project: approved by KMG’s Investment Committee on 16 March 2020, the project will provide all the necessary steam and electricity to Petromidia Refinery.

Project progress update:

• completed design package: basic design, documentation to obtain construction permit for the CHP and natural gas pipeline; construction permit for the CHP and gas pipeline;
• equipment procurement: gas turbines, main and auxiliary transformers, other electric equipment;
• completed construction works: demolition of old buildings, foundations for all equipment, main control building, installation of transformers;
• ongoing construction works: main pipe racks, underground work, foundations for the natural gas pipeline, installation of gas turbines.

The 44 stations retail network construction project: KMG International’s long-term strategy focuses on developing the retail segment by expanding on the Romanian market considered the most attractive for retail sales. The project’s key mission is to increase the Company’s share of the retail oil product market in Romania. KMG’s Investment Committee approved the project on 4 November 2021.

Project progress update:

• The new concept of highway filling stations was selected through a tender in 2021. As the highway is Romania’s most important strategically-located transit route, a new state-of-the-art concept was developed to offer a larger store (up to 600 m2 compared to 240 m2 in the case of a standard filling station). The format features a restaurant and partnership with fast food operators, which will improve non-fuel profitability and image of the entire retail chain and the company as a whole. In 2023, six more highway sites have been won through a new open CNAIR tender to be approved and built during 2023.
• KMG International updated its annual filling station construction schedule planning to build 8/14/12/10 stations in 2022–2025 (compared to the original plan of building 16/16/12 stations in 2022–2024)
• In addition, as of year-end 2022: 1) land contracts have been signed for 19 sites in accordance with the permit, where 5 construction permits are expected to be obtained during 2023; 2) bidding is underway to acquire construction categories (services and equipment) for standard stations.

The Dolphin project for refineries is a programme to improve operational efficiency with a focus on continuous improvement, energy efficiency, maintenance, organisational efficiency, digitalisation, and process losses.