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Kazakhstan’s oil may be moving through Azerbaijan on the way to the global markets

Viktoria Panfilova, April 20

55Kazakhstan’s president has examined the idea and a minister has announced possible changes to the country’s energy policies. This, of course, meant transferring Kazakhstani oil exports towards Azerbaijan and away from the Caspian Pipeline Consortium (CPC) – which passes through Russian territory on its way to the port at Novorossiysk and further onwards to the global market. Kazakhstan Oil and Gas Minister Uzakbai Karabalin stated that one of the reasons for this move could be possible sanctions against Russia. The Minister believes that if sanctions were to affect the energy industry, Kazakhstan would suffer as well. The Caspian Consortium is presently moving over 32 million tons of Kazakhstani oil. Karabalin has stated that new routes are being explored to move this volume of oil. “It is necessary to think of other possibilities. Today, we are looking at many different options,” Minister Uzakbai Karabalin stated during a “government hour” in the country’s parliament.

Kazakhstan is presently one of the largest oil producers in the world. The country’s oil history dates all the way back to 1899 when the first oil deposit in Karashungul produced the country’s first oil. Throughout the years, the republic has explored and developed numerous oil deposits while constructing many kilometers of oil pipelines. Oil production peaked during the republic’s years of independence. During that time, however, Kazakhstan de facto lost control over the majority of its hydrocarbons while failing to become a “second Kuwait”. Kazakhstani researchers have calculated that the government’s share in the overall production of oil amounts only to about 27%. Foreign companies, meanwhile, hold, export and profit off the rest of the oil produced in the country. The foreign leader in Kazakhstani oil is China, with Chinese companies controlling over 40% of the Kazakhstani oil, which will eventually become half of the country’s annual production of oil. Oil is pumped into China through the Atasu-Alashankou pipeline from oil deposits in the country’s central regions. However, there are currently talks about moving oil from the country’s western regions as well. A loading rack has already been constructed in Atasu in preparation for this, which will unload oil from tank cars and pump it through the Atasu-Alashankou pipeline. Oil and Gas Minister Uzakbai Karabalin further noted that the Atasu-Alashankou pipeline should begin operating in full in the near future, moving 20 million tons of oil, stating that “we have a 2-year program to further develop in this aspect, so that we can pump 20 million tons of oil to China”.

However, the most powerful existing pipeline is the Caspian Pipeline Consortium (CPC), which is able to move over 30 million tons of oil annually. The pipeline connects oil deposits in western Kazakhstan, including the largest deposit at the Tengiz field, to the Russian port of Novorossiysk. This is the route that will need to be altered to go around Russia and to access the Black Sea, the Persian Gulf and the Arabian Sea.

“One of the possibilities could be a route through the Caspian Sea to Azerbaijan, to Georgia, and to the Black Sea and the port in Batumi with its excellent capabilities. We are also not forgetting about Iran. If the sanctions against Iran are lifted, then we already have an export route worked out, since, some time ago, we pumped oil from Aktau to the Iranian port of Neka,” Karabalin stated. He also noted that China will remain an important country for oil exports, “Additionally, we know that to the south, Uzbekistan and Turkmenistan are in need of oil. We will also need to further expand in this export direction as well, which includes exporting various petroleum products.”

All of this points to a route through the Caspian to Azerbaijan. Yet the problem lies in the fact that oil will need to be transported by tankers from the port at Aktau to Baku, which means increased transporting costs. Building a pipeline at the bottom of the Caspian Sea to connect the two ports is not a feasible option. Firstly, the tectonic structure of the sea bed is very complicated, making the construction of a pipeline on the sea floor very dangerous and costly. Secondly, the Caspian Sea lies between five different nations, who have been unable to come to an agreement on many issues, including the sea’s status. Only three countries have presently signed the Caspian Sea delimitation agreement – Russia, Kazakhstan and Azerbaijan, thereby dividing 64% of the sea bed, with Kazakhstan receiving 27%, Russia obtaining 19% and Azerbaijan – 18%. A share of 14% is planned for Iran, while Teheran seeks 20%, insisting on moving the border 80km north from the previous Iran-Soviet sea border.

Incidentally, the head of Azerbaijan’s Centre for Oil Research Ilkham Shaban has stated that Azerbaijan has the capacity to import oil from Kazakhstan without limitations. Meanwhile, there are plenty of options for export routes from Kazakhstan – through the Baku-Tbilisi-Ceyhan pipeline, through the Georgian terminal at Kulevi and the port at Batumi. Shaban noted that “the Baku-Tbilisi-Ceyhan pipeline has the capacity to move 60 million tons of oil annually, whereas it is currently only transporting about 32.7 million tons. Kulevi’s capacity is 10 million tons. If this will not be enough for Astana, then we can further expand exports through the Azerbaijani Baku-Supsa pipeline and the Caspian Sea fleet. Azerbaijan has the largest fleet and each tanker can take up to 100,000 barrels.”

However, experts in Astana believe that all of this will not be enough to transport the necessary amounts of oil. Forecasts predict that Kazakhstan will expand oil production to 100 million tons in the next 5-10 years through commissioning the new Kashagan fields. This is the largest hydrocarbon deposit that has been found in the last 30 years and the largest marine deposit in the world. This is why a new project is currently in the works, the Kazakhstan Caspian Transport System (KCTS), which includes constructing the Eskene-Kuryk pipeline and creating the Trans-Caspian system (Kuryk-Baku) that would connect with Georgia and then further on with Turkey. This system will have the capacity to move 60 million barrels annually.

“There’s nothing to be surprised about. This is exactly why Kazakhstan has been building backup gas pipelines to China and fostering ties around the Caspian, as a sort of insurance from certain unpredictable emergencies. In terms of pricing, Kazakhstan has not gained anything either from China nor from the Baku-Tbilisi-Ceyhan pipeline. From the viewpoint of economic feasibility, this is a smart policy. But I would like to note that there will likely not be any special measures taken with respect to transporting Russian oil and any other oil passing through Russian pipelines. This is why the apprehension in Astana is for nothing, and the announcement could have been made to pressure Moscow into additional concessions of an economic nature,” Russian Institute of Strategic Research expert Azhdar Kurtov commented on the situation. He believes that this preliminary statement made by the Kazakhstan Minister “is in line with their multi-faceted policies. Because Astana made a political announcement with respect to Russia’s stance on Ukraine, they needed to back that up with a further step, which is what we’re seeing here.” The Trans-Caspian system is beneficial for Kazakhstan in order to diversify their oil supplies and to decrease reliance on Russia in terms of exporting their own oil.

The Director of the Alternativa Centre for Research in Alma-Ata and political analyst Andrei Chebotarev believes that “if the USA and the EU would truly enforce their sanctions against Russia, they would, most likely, begin to put pressure on Chevron, ExxonMobil, Shell, Eni and British Gas, whose subsidiaries are involved in the Caspian Pipeline Consortium, and insist that these companies uphold the sanctions, including leaving the consortium. However, this would greatly impact the economic interests of both these companies themselves and Kazakhstan. And, as we have already seen, the west is not one to make enemies out of Kazakhstan.” Chebotarev believes that, taking all of this into account, Washington and Brussels will do everything themselves to ensure that sanctions against Moscow do not somehow harm Astana. This is why Astana will not have to move any closer to Beijing than it already is. Another matter altogether is that at a time when Russia is having an increasingly active role in the post-soviet environment, China’s role not only as a neighbor and partner, but also as a balance to Russia could increase for Kazakhstan. The most important thing is for the current foreign policy maneuvers to be well thought-out and effective.

Viktoria Panfilova is a political columnist for Nezavisimaya Gazeta, exclusively for the online magazine “New Eastern Outlook”.