Publication: Eurasia Daily Monitor Volume: 2 Issue: 161

Interviewed in the current issue of the Caspian Investor monthly, Kazakhstan’s Energy and Mineral Resources Minister Vladimir Shkolnik confirms that negotiations are advancing toward an agreement on the transportation of oil from Kazakhstan to Azerbaijan and through the Baku-Tbilisi-Ceyhan (Turkey) pipeline.

At the same time, Shkolnik seems to cold-shoulder the proposal for Kazakhstan to pump even a small volume of that oil — once it reaches Tbilisi — into the existing pipeline to Supsa for shipment to Ukraine and through the Odessa-Brody pipeline, contingent on the latter’s extension into Poland. The proposal envisages using the Supsa export terminal for feeding 6 million tons of oil annually into an extended Odessa-Brody pipeline. Of that relatively modest amount, Kazakhstan would supply 50%, Turkmenistan 30%, and Azerbaijan is willing to make a commitment for 20%. A commitment by Kazakhstan could decisively improve the prospects of extending the Odessa-Brody pipeline, a U.S.-backed energy project of the European Union.

Shkolnik also reviews — without indicating endorsement or reservations — Kazakhstan’s oil export options that are currently under active consideration. (The enumeration does not include fanciful ideas about export routes to Iran or India, or mini-tanker shipments to other Caspian ports.) Apart from the proposed trans-Caspian transport system to Baku, the other major active options are:

–Expanding the capacity of the Caspian Pipeline Consortium’s (CPC) line, from Tengiz to Russia’s Black Sea port Novorossiysk, from 28 million tons annually at present, to 67 million tons annually in accordance with the initial design. Commissioned in 2001, the CPC pipeline operates at less than half the design capacity and below its existing capacity — it pumped 22 million tons in 2004 — due to onerous financial conditions imposed by Russia on its territory that inflict commercial losses and inhibit expansion plans.

–Expanding the capacity of the Atyrau-Samara (Russia) pipeline from 16 million tons annually at present to 20-25 million tons annually. This Soviet-era pipeline, rehabilitated during the late 1990s, would require further modernization if its capacity is to be expanded.

–Going ahead with the China National Oil Company’s project for an Atyrau-Urumchi (Xinjiang) pipeline with an annual capacity of 10 million tons in the first stage and 20 million tons in the follow-up stage.

Apart from the pipeline routes, Kazakhstan currently exports some 10 million tons of oil annually from the port of Aktau in three directions: to Baku, Neka in Iran, and Makhachkala in Russia’s Dagestan. Those small volumes are bound for Batumi in Georgia, northern Iranian cities, and Novorossiysk, respectively.

Oil output in Kazakhstan is expected to increase from some 50 million tons in 2004 to 100 million by 2010 and some 150 million tons by 2015. Of those amounts, Kazakhstan expects to use some 15-20 million internally. Shkolnik’s enumeration of the export options and volumes under consideration shows that Russia, and corporate interests behind some of those options, may severely limit the oil volumes available for the planned trans-Caspian route to Baku. This situation underscores the need for political coordination among the upstream and transit countries, together with the U.S. government and the EU, to maximize the share of Kazakhstan’s oil exports through the trans-Caspian system and via Azerbaijan and Georgia.

That system is currently envisioned to combine a tanker line (presumably with large-capacity tankers to be procured or built on-site) and a seabed pipeline. The system’s transport capacity is envisioned to reach 20 million tons annually after 2010 and up to 30 million tons annually after 2015. Those volumes would represent Kazakhstan’s inputs into the Baku-Tbilisi-Ceyhan pipeline. The growth of those inputs is correlated with the expected downward curve in Azerbaijan’s oil output (barring discovery of new commercial fields in Azerbaijan).

Kazakhstan’s output increase will primarily come from the offshore Kashagan field, where the KCO consortium is expected to begin commercial production by 2007-2008. Four of the consortium’s shareholding companies — the project operator Agip/ENI of Italy, Total of France, ConocoPhillips of the United States, and the Japanese-based Inpex — are also shareholders in the BTC pipeline company. As such, they are entitled to preferential tariffs for using that pipeline. This overlap increases the chances of a timely start to the trans-Caspian oil pipeline project. In addition, ChevronTexaco has also expressed its interest in using the Baku-Tbilisi-Ceyhan pipeline.

However, at least part of the additional volumes from Kazakhstan — specifically from Kashagan — could also be routed to Supsa for shipment to Ukraine or Romania, and on to EU countries — by an extended Odessa-Brody pipeline in Ukraine’s case. In this context, the option of expanding the capacity of the Baku-Supsa pipeline to carry major volumes of Kazakhstani oil should be of keen interest to the EU.

(Caspian Investor, August 2005; Kazakhstan News Bulletin (Washington), August 10; Azernews, August 11; Interfax, August 4, 13; see EDM, May 16, 31, August 16)