International credit rating agency S&P Global Ratings has lowered its outlook on Kazakhstan to negative, from stable, citing the Caspian Pipeline Consortium's challenges in exporting oil to international markets.

Kazakhstan has seen capacity restriction issues out of its control at its major oil export pipeline, operated by Caspian Pipeline Consortium, following Russia’s invasion of Ukraine in February.

The downgrade was motivated by an assessment that the pipeline remains vulnerable to potential disruption.

“The negative outlook reflects risks to Kazakhstan’s oil exports through the Caspian Pipeline, as well as rising debt financing costs,” the rating agency said.

Caspian Pipeline Consortium carries 80% of Kazakh crude exports via its pipeline network across Russian territory to the export terminal at Novorossiysk

As the major export route for the key Kazakhstan’s Tengiz, Kashagan and Karachaganak oilfields — all three of which are operated by foreign consortia —the pipeline was not targeted by Western sanctions imposed on Russia following the invasion of Ukraine.

However, two out of three floating tanker loading buoys used by Caspian Pipeline near the Russian Black Sea port of Novorossiysk were damaged during a storm in March and repairs were reportedly affected by sanctions.

Then, in August, the consortium, which has Chevron, ExxonMobil, Shell and Eni among its stakeholders, said it had been forced to “temporarily suspend” crude shipments after cracks were discovered in connections between subsea offloading hoses and submerged buoyancy tanks on the SPM-1 and SPM-2 mooring points due to damage at “the attachment points of underwater sleeves to buoyancy tanks”.

The tanks are anchored midway between the buoys and seabed templates and serve to stabilise the oil feeding hoses during adverse weather conditions.

Against this backdrop, S&P Global Ratings lowered its expectations for Kazakhstan’s annual oil production to 85.6 million tonnes in 2022 (1.8 million barrels per day), from a previous estimate of 87.5 million tonnes.

Access to oil export pipelines is important to all local producers because domestic consumption is limited by the size of country's population and the lack of any strong economic growth in Kazakhstan.

Kashagan technical issues

As well as issues with Caspian Pipeline, Kazakhstan is expected to see lower than planned output from its large Kashagan offshore oil development project in the north of the Caspian Sea led by a group of international oil majors.

Following maintenance work earlier this summer, technical issues have been identified at slug catchers and compressors that handle associated sour gas produced with the oil.

Energy Minister Bolat Akchulakov was quoted by local press in Kazakh capital of Nur-Sultan as saying that repairs at a second compressor on Kashagan are expected to be complete soon, allowing oil production to grow to 200,000 bpd, still barely half of pre-maintenance levels.

Kashagan is operated by North Caspian Operating Company, in which KazMunayGaz, Eni, Shell, ExxonMobil, TotalEnergies, China National Petroleum Corporation and Inpex hold stakes.

Domestic expectations worsen

In another setback, Kazakhstan authorities have forfeited about 9.2 trillion tenge ($19.5 million) in expected signature bonuses after the winners of three major licences at a recent auction failed to raise financing to back up their bids, according to the country’s Energy Ministry.

The unpaid licences covered the Kamenistoye and Shalva oilfields, and the Zhalganoy exploration block — located in the country’s Mangistau region which one of country's legacy oil province with well developed supporting infrastructure.

The Kamenistoye field was discovered in the early 1980s and lies next to the large Zhetybay oil asset being developed by state owned oil and gas producer KazMunayGaz.

The Energy Ministry did not reveal the indentity of the companies that failed to provide the financing, but said that the new owners of the 18 other auctioned asset licences have made their payments, totalling about 11.9 trillion tenge.

The three unclaimed blocks will be offered at the next auction, the date for which has yet to be set, the ministry said.

Kazakh authorities have offered oil and gas assets via online auctions since 2020 and have drawn interest from domestic companies.

Western companies have opted to stay away from the auctions, despite acreage on offer lying close to existing blocks or located in prospective areas.

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