Publication: Eurasia Daily Monitor Volume: 4 Issue: 30

Kazakh President Nursultan Nazarbayev’s February 2 visit to Ukraine appeared to be an ill-timed event that triggered controversial speculations in light of the recent gas row between Belarus and Russia and the lingering standoff between Moscow and Kyiv on energy issues. But under the circumstances, Astana is less worried about falling out of the Kremlin’s favor than missing a rare opportunity to break free from its political tethers and find routes for its oil exports to reach European markets.

Before meeting his Ukrainian counterpart, Viktor Yushchenko, Nazarbayev made a three-day trip to Berlin, where he had extensive talks with German Chancellor Angela Merkel. Although the talks in Berlin centered on economic and military cooperation, global security, investment, and other predictable topics, the underlying subtext was clearly energy resources. Two years ago, under former Chancellor Gerhard Schroeder, Russia, Germany, and Ukraine had planned to set up a gas consortium. Russian President Vladimir Putin then highhandedly rejected a Ukrainian proposal to let Uzbekistan, Turkmenistan, and Kazakhstan join the consortium. This short-sighted approach to energy cooperation spurred Kazakhstan to seek ways to diversify its energy export routes. Even the pro-Russian Ukrainian Prime Minister Viktor Yanukovych, who visited Astana on December 13, 2006, said it would be more reasonable for Ukraine to secure direct deliveries of gas from Kazakhstan and Azerbaijan in order to avoid Russia’s energy stranglehold (Delovaya nedelya, December 15, 2006).

While Yanukovych has ambiguously argued that transit routes for Caspian oil must run through Russia and be tied to the Caspian Pipeline Consortium (CPC), Astana believes Yushchenko holds the keys to European markets for Kazakh oil. In Kyiv the two presidents reached an agreement to set up a working group to explore the projected energy corridor to Europe, including the Odessa-Brody-Gdansk oil pipeline, in order to set Kazakh participation in motion. “Today we have reached the highest degree of preparedness to adopt proper political and economic decisions,” said Yushchenko (Kazakhstanskaya pravda, February 3).

Kazakhstan and Ukraine are expected to begin construction of a 52-kilometer section of the Snigurovka-Odessa pipeline, which runs for 154 kilometers to reach Yuzhniy oil terminal at the Odessa seaport. Kazakhstan also plans to develop the Yuzhniy oil terminal and construct an oil refinery in Ukraine that will handle 3 million tons of oil annually and ensure stable oil exports to Europe. Kazakhstan has already invested $100 million in the Ukrainian economy and announced plans to open a Ukrainian branch of Kazakhstan’s TuranAlem Bank — with estimated assets of $10.7 million — that will significantly increase potential Kazakh investment. But Kazakhstan likely will not be the sole player in the Ukrainian energy market. The Ukrainian Ambassador to Kazakhstan, Nikolai Selivon, disclosed that Yanukovych also intends to seek Russian companies for the Odessa-Brody pipeline project (Novoye pokolenie, February 2).

Uzakbay Karabalin, president of the Kazakh national oil company KazMunayGaz, has complained that around $30 billion has been poured into the Kashagan oilfield with no obvious benefit. He fears Kashagan will gobble up even more in the future. On January 26 Karabalin publicly threatened to launch an investigation into the activities of Agip KCO and to hire independent international experts for this purpose. But later that same day he signed a contract with Agip KCO and the TengizChevroil joint venture on a new project to develop oil shipment routes to deliver Kashagan and Tengiz oil to the Baku-Tbilisi-Ceyhan pipeline. The press release distributed by KazMunayGaz executives states that oil extraction from the Kashagan field will begin in 2010. No one at KazMunayGaz could give a plausible explanation for this sudden change of mood (Express K, January 27).

One reason for the Kazakh government’s tolerance of foreign oil companies that do not honor their contract obligations may be that Kazakhstan entirely depends on foreign partners in its quest for alternative routes to bypass Russia. In Kyiv, Kazakhstan made the first serious step toward diversification of its energy exports. It now needs political and economic backing from European countries to continue on this route.