Kazakhstan Tries New Oil Export Routes

Kazakhstan’s oil producers have begun testing new export routes as the war in Ukraine continues to pose risks to pipelines passing through Russian territory.

On October 20, sources said Reuters that Tengizchevroil (TCO) plans to export oil produced in western Kazakhstan to Finland as early as this month.

TCO is a joint venture between Chevron (50 percent), ExxonMobil (25 percent), Kazmunaigas (20 percent), and LukArco (5 percent) that has operated the Tengiz field in the Atyrau region since 1993. As of 2021, it extracted about 26.6 million tons of crude oil, about a third of Kazakhstan’s total production.

The shipment to Finland is expected to amount to 1,000 tonnes. “The volume is small, it looks like a test shipment,” a source familiar with the company’s plans told Reuters. TCO management had no comment.

In September, Reuters published another report on TCO by diverting some of its exports to a rail link to the Georgian port of Batumi. The plan was later abandoned, as Georgian ports were overloaded due to an increase in cargo shipments, caused by the ongoing Russian war in Ukraine.

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The rail and tanker link across the Caspian Sea has become a concrete alternative to the Caspian Pipeline Consortium (CPC) or the Atyrau-Samara vector. The first is an international pipeline that connects oil fields in western Kazakhstan with the Russian port of Novorossiysk on the Black Sea coast. The latter is a Soviet-era pipeline that has allowed oil extracted in Kazakhstan to be sold in Russia or shipped to Lithuania.

CPC has suffered a series of interruptions this year, due to inclement weather either regulatory disputes. The last suspension of operations arrived early octoberwhen oil shipments were suspended for three days.

Kazakhstan’s Energy Minister Bolat Akchulakov said the outages were sporadic and were due to the aging pipeline and adverse weather conditions.

“That all this happened this year could be just a coincidence”, Akchulakov told reporters on October 21. “By October 25, the pipeline will be fully operational.”

Oil shipped through CPC was marketed to European and US buyers. Since the Russian invasion of Ukraine in February, CPC oil sales to US customers fell by two-thirds. Chevron owns a 15 percent stake in CPC, which handles 80 percent of Kazakhstan’s exports and about one percent of global oil shipments.

In early October, global rating agency S&P downgraded Tengizchevroil to BB+ with a negative outlook, mainly due to problems related to its main export route.

“We see the possibility of more disruptions in exports through CPCs”, S&P analysts saidaccording to media reports.

Operating in the western region of Mangistau, Total & Dunga, a production-sharing agreement between France’s Total (60 percent), Oman Oil Company (20 percent) and Portugal’s Partex (20 percent), said it has started shipments to through the port of Aktau to the Baku-Tbilisi-Ceyhan Pipeline, which pumps oil from Azerbaijan, through Georgia, to the port of Ceyhan in Turkey. In September, the company shipped 25,000 tonnes and plans to increase volumes about three times by the end of the year.

plans to enforce sanctions against Russian oil trade for the member states of the European Union (EU) seem to be getting stronger. The EU is set to ban sea shipments of crude from December and sales of petroleum products from February 2023.

interviewed by VedomostiRussian analyst Alexander Frolov, who serves as deputy director of the National Energy Institute, said oil shipped through CPCs could cause regulatory ambiguity because its port of departure is on Russian territory.

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“The testing of new alternative routes for the supply of oil from Kazakhstan is related, among other things, to the fear of the companies that the EU regulators will confuse the oil from Kazakhstan, which they transport through Russia, with the oil Russian,” Frolov said.

While rail transit to Mediterranean or Baltic ports is more expensive than the CPC connection, the political risk associated with the pipeline could soon outweigh its advantages.

In March, during the first weeks since the beginning of the war, Akchukalov said that a possible diversion of the CPC would be “difficult to achieve quickly”. Now, companies and state officials seem increasingly eager to find alternatives.

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