Baku helps Astana diversify oil exports
Caliber.Az review

ANALYTICS  28 March 2023 - 14:51

The geopolitical shifts that have been reigning since the Ukraine war outbreak have had a very negative impact on the transport and energy routes linking the countries of Central Asia with Europe and passing through Russia. Kazakhstan faced such problems particularly due to repeated violations of the stable operation of the Caspian Pipeline Consortium (CPC) oil pipeline. Amidst conflicts around the CPC last year, Astana decided to diversify exports by setting up oil transhipment through Azerbaijan and further along the Baku-Tbilisi-Ceyhan (BTC) oil pipeline to Georgian and Turkish ports. Deliveries along the trans-Caspian route started this year in the second decade of March, and yesterday (March 27), another batch of Kazakh oil produced at the Tengiz field left the port of Aktau.

The war in Ukraine, which has been going on for more than a year, has acted as a trigger, reformatting transport and logistics schemes that have been established for years. The EU states were forced to urgently abandon Russian energy carriers and diversify transport routes passing through the territory of the Russian Federation in favour of increasing the supply of oil and gas raw materials from other sources (countries in Africa, the Middle East, the Persian Gulf), including from Azerbaijan and Kazakhstan. Moreover, the situation has been exacerbated by repeated interruptions in the operation of the main pipeline system through which Kazakhstan has been transporting about four-fifths of its oil exports for many years. Thus, from March to August last year, under various plausible pretexts, the Russian authorities repeatedly stopped the operation of a branch of the Caspian Pipeline Consortium, starting lengthy repairs, for example, at the Novorossiysk Oil Terminal - the endpoint of the CPC system. However, stoppages with the shipment of Kazakh oil via the CPC occurred in February of this year due to severe storms in the Black Sea, which forced the shutdown of the same Novorossiysk terminal.

Either way, for Kazakhstan, the uninterrupted and sustainable operation of the 1,511-kilometre-long CPC pipeline, with an annual capacity of 67 million tonnes of crude, is vital, as it supplies 80 per cent of all export oil from Kazakhstan's fields. Despite last year's force majeure, which reduced the CPC to 52 million tonnes of oil, Astana intends to continue using the pipeline on a long-term basis, as for the republic redistributing nearly seven dozen million tonnes of oil through alternative corridors is not feasible in the foreseeable future, especially in view of the production build-up plans for this year and next year. Oil production at Kazakhstan's biggest field, Kashagan, is expected to rise to 18.2 million tonnes in 2023 from 12.7 million tonnes in 2022, while at the Karachaganak field, it will rise to 12.2 million tonnes from 11.3 million tonnes seen last year. Moreover, by the end of 2024, Kazakhstan also plans to increase production at the Tengiz field, where a certain decline in output is forecast for this year. Under these objectives, the CPC consortium (main shareholders Russia, Kazakhstan and Chevron) has been removing bottlenecks last year and this year to increase the mechanical capacity of the pipeline system to 72.5 million tonnes in Kazakhstan and 81.5 million tonnes in Russia, according to the latest Reuters data. However, despite all these efforts, Kazakhstan's Ministry of Energy plans to increase oil exports through the CPC to only 56.5 million tonnes in 2023.

Nevertheless, since the middle of last year, long-term plans have been worked out in Astana to reduce the dependence of the country's oil-producing sector on the dominant positions of the CPC. In particular, the President of Kazakhstan, Kassym-Jomart Tokayev, instructed the national company KazMunayGas (KMG) to increase the capacity of the Atyrau-Kenkiyak and Kenkiyak-Kumkol oil pipelines, through which it is planned to transfer excess oil produced, including to the processing capacities of local refineries. Another task assigned to KMG is the construction of a large oil storage facility in the Atyrau region in the future, which would allow the republic to store considerable volumes of oil for 3-4 months without additional supplies. Also, options for transporting Kazakh oil by rail tank cars to Uzbekistan and China are being considered. Well, Azerbaijan was considered the main alternative direction for the transit of Kazakh raw materials: about 1.5 million tonnes per year are planned to be transferred through the Baku-Tbilisi-Ceyhan oil pipeline, and about 1.2 million tonnes more can be transshipped by ferries to Alat and further along the railway in the direction owned by Kazakh investors Batumi oil terminal.

“In addition to transit through the CPC, Kazakhstan exports oil through the Atyrau-Samara pipeline, as well as by tanker via the Aktau-Makhachkala route. And soon 1.5 million tonnes of Kazakhstani oil will start to be transported via the Aktau-Baku route," Roman Vasilenko, Deputy Foreign Minister of Kazakhstan, said recently. A little earlier, Kazakhstani Prime Minister Alikhan Smailov also spoke about the possibility of further growth of Trans-Caspian oil transit to 6-6.5 million tonnes per year.
In assessing the prospects outlined above, it is appropriate to recall that this level of cooperation with Astana was quite productive in the past: before the 2014 energy crisis, Kazakh exporters were actively using Azerbaijan's transit potential (3-4 million tons of oil were transshipped annually to the Batumi terminal alone), but over the past nine years, Kazakhstan's crude oil supplies declined to zero. After a significant decline in world oil prices in 2014-2017, given the relatively high tariffs for pumping through BTC, Kazakh exporters found it more profitable to use the potential of the CPC pipeline passing through the Russian territory. However, presently, in view of the tangible increase in the cost of oil, the resumption of transhipment of Kazakh hydrocarbons through Azerbaijan is justified, as the world prices cover the logistics costs of trans-Caspian tanker crossing and the tariffs for pipeline transit through BTC. Last year Azerbaijan and Kazakhstan were negotiating another alternative route - to use the potential of the temporarily idle Baku-Supsa pipeline, but for now, it has been decided to direct the main flow of oil to the BTC system.

“The first batch of oil produced at the Tengiz field was delivered from the port of Aktau to the Sangachal terminal in Baku by tanker President Heydar Aliyev on 23 March. The next batch of Kazakh oil will be shipped by tanker "Shusha" and will move from Aktau port to Baku on March 27,” the press release of SOCAR Midstream Operations, a subsidiary of the State Oil Company of Azerbaijan (SOCAR) says. The company said in a statement that transportation of Kazakh oil via BTC is carried out within the contract concluded between SOCAR and KazMunayGas, which stipulates the transit of 1.5 million tonnes of oil per year. According to SOCAR Midstream Operations, 12-14 tanker voyages from Aktau to the Sangachal terminal are planned to organise the transit of Kazakh oil via BTC until the end of 2023. It should be noted that important projects to upgrade the pipeline network were implemented at the terminal last year, in particular, the capacity to receive oil from tankers was expanded.

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