The US has excluded the Chevron-led Caspian Pipeline Consortium (CPC) from its ban on Russian oil and gas imports announced this week in an attempt to leave open the export route via Russia’s Black Sea coast.
The US Treasury stated that CPC “can segregate various sources of crude oil, allowing crude oil that is not of Russian Federation origin to be marketed and loaded separately”.
CPC operates a 1500-kilometre oil export pipeline from Kazakhstan to a terminal near the Russian port of Novorossiysk that is a key route for three Western-led Kazkah oil developments — Tengiz, Kashagan and Karachaganak.
However, the pipeline also handles smaller quantities of Russian oil, mostly from the country’s largest oil producer, Rosneft, with Russian cargoes accounting for about 13% of total shipments of over 1.3 million barrels per day last year, according to CPC.
The CPC pipeline is currently undergoing a major throughput capacity increase project that entails debottlenecking its pumping and marine loading facilities to allow combined exports of Kazakh and Russian oil to increase to 1.8 million bpd between 2023 and 2024.
Of this amount, about 1.6 million bpd of capacity will be available to suppliers in Kazakhstan.
Even before the US and the UK announced plans to halt imports of Russian oil, cargoes with Russian oil were widely reported as trading at a huge discount to oil benchmark Brent in Europe due to the reluctance of buyers for Western markets to take them following the invasion of Ukraine.
Western buyers have voluntarily avoided Russian cargoes in response to growing public pressure over Russia’s invasion of Ukraine, according to trading reports.
In contrast to CPC, Kazakhstan’s other oil producers — including state-owned KazMunayGaz, which produced at a rate of 470,000 bpd last year — depend on the Russian trunkline network for their international oil shipments.
These Kazakh oil producers are currently major suppliers of oil from Novorossiysk and Russia’s Baltic Sea port of Ust-Luga.
According to the Russian Energy Ministry, they sent about 292,000 bpd of oil to international markets via the Russian trunkline network and these two ports during December and January.
The CPC monitors the varying characteristics of crude to differentiate suppliers and has just one short connection between a Transneft-operated network and the CPC line, allowing Rosneft to add volumes into the CPC system while the pipeline transits Russia.
However, the Russian network mixes all incoming crude into the Urals blend that is sold from Ust-Luga and Novorossiysk, according to oil market intelligence reports.
Such blending could potentially “open a route for Russian producers to continue exporting, by labelling their production as originating from Kazakhstan”, according to Mikhail Krutikhin, managing partner at Moscow based consultancy RusEnergy.
Kazakhstan has taken a neutral stance on the conflict in Ukraine.
In January, Russian troops helped President Kasym-Zhomart Tokayev maintain control over the country following massive unrest and street protests.
Kazakhstan hopes it will be able to expand its total oil production by about 2% to 1.8 million bpd this year, mostly as a result of major upgrades at the Tengiz and Karachaganak fields.
Close to 80% of that output is expected to be sent to international markets due to the low domestic energy demand.
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