Oil producers in Kazakhstan have started testing new export routes as the war in Ukraine continues to pose risks to pipelines running through Russian territory.
On October 20, sources told Reuters that Tengizchevroil (TCO) plans to export oil produced in western Kazakhstan to Finland already 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. In 2021, it extracted around 26.6 million tons of crude oil, about one-third of Kazakhstan’s total production.
The shipment to Finland is planned to amount to 1,000 tons. “The volume is small, looks like a test shipment,” a source familiar with the company’s plans told Reuters. TCO management did not comment.
In September, Reuters published another report about TCO diverting some of its exports to a rail link to the Georgian port of Batumi. The plan was later dropped, as Georgian ports were overloaded due to an increase in cargo shipments, caused by the ongoing Russian war in Ukraine.
The tanker-and-rail link across the Caspian Sea has become a concrete alternative to the Caspian Pipeline Consortium (CPC) or the Atyrau-Samara vector. The former is an international pipeline that connects the oil fields in western Kazakhstan to the Russian port of Novorossiysk on the Black Sea shore. The latter is a Soviet-era pipeline that has allowed oil extracted in Kazakhstan to be sold in Russia or to be shipped further to Lithuania.
CPC has suffered a series of interruptions this year, due to inclement weather or regulatory spats. The latest suspension of operations came in early October, when oil shipments were suspended for three days.
Kazakhstan’s Energy Minister Bolat Akchulakov said the interruptions were sporadic and due to the pipeline’s aging and adverse weather conditions.
“That all of this has occurred 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 U.S. buyers. Since Russia’s invasion of Ukraine in February, sales of CPC oil to U.S. 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.
Earlier in October, global ratings company S&P downgraded Tengizchevroil to BB+ with a negative outlook, chiefly because of the issues concerning its principal export route.
“We see the possibility of further disruptions in exports through CPC,” S&P analysts said, according 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 started shipments via 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 tons and it plans to increase volumes by about three times by the end of the year.
Plans to enforce sanctions against the trade of Russian oil for European Union (EU) member states seem to be increasingly more solid. The EU is poised to ban sea shipments of crude from December and oil products sales from February 2023.
Interviewed by Vedomosti, Russian analyst Alexander Frolov, who serves as the deputy director of the National Energy Institute, said that oil shipped through CPC could cause regulatory ambiguity because its port of exit is in Russian territory.
“The testing of new alternative routes for oil supplies from Kazakhstan is connected, among other things, with companies fearing that Kazakhstan’s oil, which they transport through Russia, may be mistaken for Russian oil by EU regulators,” Frolov said.
While rail transit to Mediterranean or Baltic ports is more expensive than the CPC connection, the political risk linked to the pipeline could soon outweigh its advantages.
In March, during the first weeks since the beginning of the war, Akchukalov said that a potential rerouting away from CPC would be “difficult to accomplish quickly.” Now, companies and state officials seem increasingly eager to find alternatives.