Kazakhstan Oil Exporters Relieved as Russian Court Lifts Ban on Pipeline  

Pipeline politics continue to grab headlines in Kazakhstan. When a Russian court ordered the Caspian Pipeline Consortium (CPC) to stop operations, citing administrative violations, on July 6, Kazakh exporters wondered how they would ship oil to their foreign customers, since 80 percent of the country’s exports travel through the pipeline.

Political and business pressure helped reverse the court’s decision on July 11, as the 30-day suspension was renegotiated into a fine equal to just $3,250. Kazakhstan’s oil industry breathed a sigh of relief.

Built in 2001, the CPC is a semi-private international oil pipeline that runs from the Caspian region of Kazakhstan to the Russian Black Sea port of Novorossiysk. Its corporate structure is divided between two companies, one Kazakh and one Russian.

The Russian court focused on the documentation relating to the Oil Spill Response Plan from the Russian company, saying the deficiencies posed an environmental threat. The possible month-long suspension of operations on the pipeline, which by default would also have involved the Kazakhstan section, would have been a severe blow to the government budget and company results.

US major Chevron owns 15 percent of CPC. On July 6, the day of the court decision, Chevron’s share price fell 3.5 percent on Wall Street.

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The reversal of the potentially crippling suspension in a token fine on July 11 is perhaps a strong indicator that the pressure on the pipeline is primarily political.

Just one week before the original sanction, CPC had paid out the equivalent of $86.3 million in environmental fines for a 2021 spill in Russia.

Environmental damage claims are among the preferred methods of political pressure on hydrocarbon companies and projects. Both the Russian and Kazakh governments have used environmental fines to extract additional revenue from oil and gas consortiums or to acquire stakes in projects.

This was the case for the Kashagan offshore oil field in the Kazakh section of the Caspian Sea in the first decade of the 2000s. The same thing happened in 2012, when an environmental fine morphed into the sale of a stake in the karachaganak gas and condensate field in northern Kazakhstan.

the rocky relations Y public frictions between Russia and Kazakhstan since the beginning of the war in Ukraine have undoubtedly contributed to the acrimonious management of the CPC issues. In March, a storm reportedly caused massive outages at the maritime terminal of the pipeline; now, the Russian judicial system has essentially flexed its muscles, promoting a disruption that would choke Kazakhstan’s main export vector.

In response, President Kassym-Jomart Tokayev called for a government meeting to address the situation and potentially find viable alternative routes for the country’s oil exports.

The old Russian route from Atyrau to Samara could only pump a maximum of 15 million tons per year, which pales in comparison to the 65 million tons that CPC can pump.

Still, the Russian route remains the most economically viable, as the pipeline to China can only transport 10 million tons of oil from Kazakhstan (another 10 million tons are booked by Russian suppliers through the Kazakhstan pipeline system) and its expansion by rail would entail massive transportation costs. , according to industry specialists.

“The railway tariff for oil transportation along the Makhambet-Atasu route is $64-65/ton. […] The railway tariff for the transportation of raw materials along the Makhambet-Dostyk/Altynkol route is $149-150/ton. That is expensive,” wrote Nurlan Zhumagulov, director of KazService, a lobby group for oil and gas service companies in Kazakhstan, in Facebook.

Another option could be transcaspian routewhich for now involves transferring oil by rail from extraction sites to the port of Aktau, loading it onto barges and shipping it to Baku, Azerbaijan, where it is then piped through the Baku-Tbilisi-Ceyhan (BTC) pipeline to a Turkish port in the Mediterranean Sea.

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This route, however, has proven expensive to climb and fickle in recent years. Potential pipeline construction revived in 2017 after the Aktau-Baku connection was reduced to marginal amounts. At the end of 2015, like in 2010it seemed that the oil link was in its twilight, but the war in Ukraine seems to have given it a new life.

Reliance on transit countries is unavoidable for Kazakhstan, as its geographical distance from its customers in Europe and lack of access to the open sea preclude a direct connection.

The only substantial direct link is with China. The Russian government is paying transit fees to move oil through Kazakhstan’s pipeline system to reach China to fulfill its supply contract. If the Russian-Kazakhstan relationship breaks down further and the Caspian Sea route is increasingly threatened, the domino effect may also affect other aspects of Russia-Kazakhstan energy cooperation.

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