KAZAKHSTAN’S OIL EXPORT PICTURE DETAILED

At last week’s energy summit of Baltic, Black Sea, and Caspian countries, hosted by Lithuania in Vilnius (see EDM, October 12), Kazakhstan’s Energy and Mineral Resources Minister Sauat Mynbayev provided a remarkably detailed picture of the country’s oil export policies, both ongoing and projected.

Oil production in Kazakhstan is almost stagnant at present, and the production growth forecast is being scaled down. Thus, importers of Kazakhstan’s oil must reckon with lower availability than had been anticipated for the remainder of this decade and the first part of the next.

Extraction totaled 64.8 million tons (including condensate) in 2006 and is anticipated at 65.3 million tons in 2007. The main causes of stagnation — not named by Mynbayev — are failure to ramp up production at Tengiz and delays in bringing Kashagan on stream. Russia has caused the situation at Tengiz by blocking the planned capacity expansion of the export pipeline to Novorossiysk and imposing onerous conditions on Western companies (primarily ChevronTexaco and ExxonMobil) for allowing pipeline expansion in the years ahead. At Kashagan, apparently unanticipated geological and technical difficulties have forced the operator, ENI-Agip, to delay the start of commercial production from the originally planned 2005 until well into the next decade.

Thus, Kazakhstan’s oil production forecast for 2015 has officially been revised to 120-130 million tons per year, down from the originally anticipated 150-160 million tons. Moreover, the revised figure appears to have been calculated just prior to ENI-Agip’s August 2007 announcement of yet another postponement of commercial production at Kashagan.

Kazakhstan uses internally 11 million tons of oil per year at present and expects to use 16 million tons per year by 2015. Thus the export availability is proportionately high. However, the lion’s share is being routed through Russia.

The oil export picture in 2006 — which remains constant in 2007 and presumably the years immediately thereafter — is as follows. Total exports by all producers from Kazakhstan amount to 57 million tons annually. Of this amount, 24 million tons go through the Caspian Pipeline Consortium’s (CPC) line to Russia’s Black Sea port of Novorossiysk for loading on tankers. Another 16 million tons annually go through the pipeline Atyrau (Kazakhstan)-Samara (Russia) in Transneft’s system. A further 2.8 million tons annually go to Russia by railroad. These three directions lead, via Russia, to ultimate destinations beyond those countries. In addition, Kazakhstan delivers 2.4 million tons of condensate annually to Russia’s Orenburg processing plant.

In other directions, Kazakhstan’s port of Aktau sends 9 to 10 million tons of oil annually by small-capacity tankers across the Caspian Sea to several destinations, mainly Baku in Azerbaijan and Neka in Iran. The volumes reaching Baku are transported by railroad to the Georgian terminals of Batumi and Kulevi on the Black Sea.

Finally, the Kazakhstan-China Atasu-Alashankou pipeline, operational since mid-2006, carried 2.2 million tons of oil from Kazakhstan in the second half of that year and is expected to carry 4.5 million tons in 2007. Exports to China are expected to rise to 20 million tons annually, thanks to the Kenkiyak-Kumkol pipeline from 2010 onward.

Should Western companies in the CPC and Tengiz consortiums accept Russian Transneft’s conditions for transit to Novorossiysk, the export of Kazakhstan’s oil in that direction would double from 24 to 50 million tons annually, according to Mynbayev. (Another 17 million tons of that line’s expanded capacity would be reserved for Russian oil, mixed with superior Kazakhstani oil and diminishing the latter’s value). Mynbayev implied, correctly, that Western companies are in the process of accepting most of Russia’s conditions regarding transit tariffs, debt restructuring, and other issues on that pipeline (see EDM, July 23).

In that case, the added oil volumes (i.e., volumes on top of the existing flow of 24 million tons annually) would be carried by tankers from Novorossiysk into the Burgas (Bulgaria)-Alexandropolis (Greece) pipeline, to be built by a Transneft-Gazpromneft-Rosneft consortium — the first Russian-controlled pipeline on European Union territory. This is one of Moscow’s conditions for permitting Western producer companies in Kazakhstan to increase exports via Novorossiysk or else limit their production for lack of an outlet.

The obvious alternative is trans-Caspian shipments westward, from Kazakhstan to Azerbaijan, on a large scale commensurate with the export potential at Tengiz and Kashagan. Presidents Nursultan Nazarbayev and Ilham Aliyev and the respective state companies have signed several agreements of intent, most recently in August 2007, on creating an oil shipping line from Kazakhstan to Azerbaijan. The Kazakhs, possibly under Russian intimidation, take the position that this system would only carry oil volumes that are not already committed to Russian transit routes.

According to Mynbayev, 25 to 30 million tons of Kazakhstani oil would be available annually by 2015 for the projected shipping line to Baku and pumping into the Baku-Tbilisi-Ceyhan (Turkey) export pipeline. The volume of such shipments would largely depend on capacity available for Kazakhstan’s oil in the BTC pipeline. At present, that extra available capacity is only 6 million tons. That availability may remain limited for a number of reasons, e.g., renouncing the intention to boost the BTC line’s capacity or coping with an unanticipated increase in Azerbaijani production.

In that case, Kazakhstan’s and Azerbaijan’s state oil companies will consider building a new pipeline from Baku to export terminals on Georgia’s Black Sea coast. This possibility is specifically envisaged in the two companies’ August 8 memorandum of understanding on a trans-Caspian oil transport system, signed in the presence of the two heads of state.

Mynbayev’s report at the energy summit concedes, “Any possible redirection of oil volumes to other [than Russian] transit routes is a matter that will have to be coordinated with Russia.” The clear implication is that Kazakhstan needs Western political support in order to choose those transit routes freely. By the same token, Western producer companies in Kazakhstan need political support not for maximizing the share of their exports via Russia (as a few companies unwisely seek), but rather for opening the westbound trans-Caspian route at maximum volume.

The suggested continuation route from Baku to Georgia’s Black Sea coast looks like the optimal solution. It would decongest the projected Turkish overland corridor for oil and gas (plans for which seem about to reach a saturation level). It would capitalize on Georgia’s great transit potential, from the country’s Black Sea coast on the shortest route to European Union territory. And it would bring Kazakhstani oil to the planed Odessa-Brody and Constanta-Trieste pipelines, two EU-backed projects, instead of putting that oil through Russian state-controlled pipelines.

(“Directions of Energy Cooperation in the Caspian and Black Sea Regions to Broader Markets,” Kazakhstan report at the Vilnius energy summit, October 2007)