The search for alternative export routes remains a pressing issue for the oil and gas industry of Kazakhstan.
Kazakhstan produced 90 million tons of oil and gas condensate in 2023 and exported 70.5 million tons.
The main export route is the Caspian Pipeline Consortium (CPC). It shipped 80% of the country’s total export oil, or a little more than 56.5 million tons, including 27.5 million from Tengiz, 9.6 million from Karachaganak, 17.9 million from Kashagan and about 1 million more from other fields.
Production increased by almost 7% over the year, export by 10%, (including CPC by 8%) compared to 2022.
Last year, the operator completed a program to eliminate bottlenecks, as a result capacity of the Tengiz – Novorossiysk pipeline increased from 67 million to 83 million tons per year, for Kazakh oil from 55 million to 72.5 million, or by 17,5 million tons. This is an impressive capacity, even taking into account the increased Tengiz production (10-12 million tons) after the FGP commissioning in 2025.
General Director of CPC Nikolai Gorban said at a press conference in Astana on January 16 that the Ministry of Energy was satisfied with the CPC operation over the past year. The operator shipped all the declared volumes of oil. The speaker associated the increasing number of oil pipeline shutdowns with an increase in the number of storms in the Black Sea. According to him, until 2017, there were an average of 60-75 stormy days a year at sea; in 2023, a number increased to 111. This affects the ability of the sea terminal to load oil onto tankers. If in 2021, due to weather conditions, the pipeline did not operate for 16 calendar days, then last year – 27. Due to the fact that CPC pumps oil into tankers through remote mooring devices (SPM) (5 km from the shore) oil is shipped even in unfavorable weather conditions. Therefore, the number of downtime days is not directly proportional to the number of storm days per year.
It is interesting to identify where CPC will receive an additional oil (taking into account increased capacity of CPC) if Kazakhstan produces only 90 million tons and it has already been distributed (in addition to the CPC) in other directions as China, Atyrau-Samara (Germany) ) and others.
CPC deputy General Director Kairgeldy Kabyldin stated that today there is no alternative to CPC. He said that the Baku-Tbilisi-Ceyhan (BTC) pipeline, China or Iran routes could be considered as additional routes for the additional oil that in the future may be in Kazakhstan and which will exceed the capacity of the Tengiz-Novorossiysk system.
BTC is growing
Today, CPC is the most profitable route for exporting oil from Kazakhstan to world markets. It is shorter and cheaper compared to BTC and is more profitable than transportation to China or Iran. The exporters (the operators of three large Kazakhstani fields) agree with this, and analysts who are familiar with this issue also came to this conclusion.
Nevertheless, Kazakhstan is looking for the development of alternative export routes. First of all, probably because of Russia (through Russian territory the Tengiz-Novorossiysk pipeline passes) who is in a state of war with Ukraine. Since the CPC also exports Russian oil and the Russian Federation finances its military operations, the pipeline can be considered a target by the Ukrainian military. This is also supported by the Russian oil and gas experts. Last summer, incidents already occurred on the Black Sea in the CPC marine terminal which led to a temporary ban on ship traffic. Near Novorossiysk there is another Russian port, Sheskharis where Kazakh oil is also shipped. It is delivered there via the Atyrau-Samara oil pipeline and the Transneft system. Later, the KazTransOil company which is responsible for exports in this direction stated that if the situation in the Black Sea worsens, part of the oil will be redirected to the Baltic Sea, namely, to the port of Ust-Luga. However, on January 21, the Ukrainian military attacked this port with drones. It turns out that today all Russian sea oil terminals used by Kazakh exporters are under the threat of military attacks. This means that the search and development of alternative routes is more relevant than ever.
The past year was a record for transportation volumes in the entire history of the CPC – (with Russian 7.4 million tons) 63.5 million tons. The indicators increased due to Kashagan export increased by almost 8 million tons.
In the spring it was announced that shippers had announced the shipment of 66 million tons of oil for 2023, including 59 million from Kazakhstan. Shipments decreased also because Tengiz and Karachaganak oil was also shipped via other routes.
More than 1 million tons of Tengiz oil were shipped via the BTC. In total, almost 1.4 million Kazakh oil was exported via this route which is 5.5 times more than a year earlier (250 thousand tons). KMG and the Azeri SOCAR entered into an agreement providing for the transportation of up to 1.5 million tons of Tengiz oil via the BTC with a further increase to 5 million tons per year.
Almost 1 million tons of Karachaganak oil were shipped via Atyrau-Samara and Druzhba to Germany. This is also a new, alternative route. Previously, Kazakh oil was not supplied through it. It was activated after a request from the German authorities to supply to the refinery in the city of Schwedt where Russian oil had previously been exported. A total of 1.2 million tons were planned to be shipped via this route in 2023. KazTransOil applied for transportation of the same volume this year. In total, 9.3 million tons (+9.3%) were shipped via Atyrau-Samara, taking into account shipments to the ports of Novorossiysk and Ust-Luga.
Oil exports along the route “port of Aktau – Makhachkala – Novorossiysk” remained at the same level – 2 million tons.
The Atyrau-Alashankou pipeline transported 1.2 million tons to China.
The most promising alternative route is transporting oil through the Caspian Sea with access to world markets through Azerbaijan (via BTC) or Iran (swap supplies). It is necessary not only to agree with these countries and pipeline shareholders on transportation volumes but also to acquire tankers. Therefore, KMG, together with the Emirati group Abu Dhabi Ports created a maritime transport company in February last year and already in November, the first two new oil tankers with a deadweight of 8 thousand tons were delivered to the port of Aktau. It is planned to order the construction of tankers with a deadweight of 12 thousand tons.
The strategic goal of the company is the development of tanker fleet for the Caspian Sea and other seas, support and provision of services for offshore projects such as Kashagan, Kalamkas-Sea -Khazar, development of coastal infrastructure, including the construction of ships and port infrastructure facilities, preparation marine specialists in Kazakhstan. If the national company fulfills all its tasks, Kazakhstan will become more independent both in terms of exporting products and developing its offshore fields.
Today, not only Kazakhstan, but also China as well as the countries of Europe and Central Asia are interested in the development of the Trans-Caspian route. We are talking not only about the transportation of energy resources; billions of dollars will be invested in expanding the capabilities of the Middle Corridor over the next decade and Kazakhstan must take advantage of this opportunity.
The Caspian Sea is the future of the oil industry.
One issue is to develop and build export routes and another to have the necessary available oil. According to the PetroMining Association, oil production at medium and small Kazakhstani fields developed by private oil companies has fallen by 17% or 3.6 million tons over the past 5 years. Experts believe that this could lead to a decrease in oil supplies to the domestic market. This, potentially, could lead to decrease of exports and increasing production at Tengiz can support the export. Additionally, there is reason to believe that production will soon increase at Kashagan. Several events and facts that have occurred recently indicate that the government and shareholders of the North Caspian project have finally come to an agreement on the further development of the field. Firstly, the existing technological lines of the North Caspian Operating Company (NCOC) have almost reached their limit. According to experts, the Bolashak oil and gas treatment complex can produce a maximum of 18-20 million tons of oil per year (last year about 18 million tons were produced at Kashagan). This means that if the consortium wants to further increase production, it will have to build another plant or increase the capacity of the existing one, and this is provided only as part of the next stage of field development.
Secondly, the operator of Kashagan announced changes in the top management of the company. Olivier Lazare will step down as Managing Director of NCOC in March this year. He will be replaced by Giancarlo Ruiu who currently holds the position of General Director of Karachaganak Petroleum Operating (KPO). The first is a representative of the British Shell, the second – the Italian Eni. Prior to Karachaganak, Giancarlo Ruiu led onshore projects at the Eni-Adnoc joint venture in Abu Dhabi, managed Eni’s representative office in Ghana and was director of development for Kashagan Phase 1, a position he held from 2013 to 2016.
In 2001-2008, Eni’s subsidiary Agip KCO acted as the field operator on behalf of the consortium. The operatorship was then transferred to NCOC and only seconded specialists from ExxonMobil and Shell had been in charge of the operating company, perhaps because there were many complaints about Agip’s operations during the development of the field. However, it seems that the Italian oil giant Eni will be trusted with the delayed launch of the second phase of field development.
The choice in favor of Eni is indirectly confirmed by the visit of President Kassym-Jomart Tokayev to Italy. The only major shareholder of Eni is the Italian government which controls over 32.4% of the company’s shares, the company itself owns more than 5.3%. Although in the published list of documents signed between the parties after the meeting of Tokayev and Meloni there was no agreement on the further development of Kashagan, this does not mean that they did not talk about it. This list also does not include an agreement on joint geological exploration on the Caspian shelf which was agreed upon by KMG and Eni. This was later announced by KMG chairman Magzum Mirzagaliyev. It is possible that we will learn the information that the Italian company will lead the implementation of the second stage of Kashagan development after the fact, when the operator will begin the practical implementation of the project.
Previously, NCOC proposed to the government its vision for the further development of the field where it was planned to reach a production level of 24.9 million tons per year in 2028. The operator intends to achieve this by lifting some production restrictions on oil and gas at Island D and the Bolashak plant. The preliminary cost of implementing this stage 2A is $4-5 billion. The final investment decision on the project was planned to be made this year. The consortium expected to reach a production level of 34.8 million tons per year only after 2032, postponing the implementation of stage 2B by 2 years. Its implementation is already estimated at $9 billion. The project provides for the construction of another oil and gas treatment complex.
One of the main issues that caused disagreement between the parties was associated gas. Kazakhstan wants it to be processed and used to produce commercial gas as well as other related products. At the same time, the government does not care whether the Kashagan operator will build the gas processing plant (GPP) or QazaqGaz will have to look for investors. The consortium participants did not want to invest in the construction of a gas processing plant because the domestic Kazakh prices for gas are much lower than world prices. It seems, the parties have resolved this issue. It recently became known that NCOC has agreed to supply liquefied petroleum gas from Bolashak plant to the domestic market from 2025.
The head of the Kazakhstan Society of Oil Geologists and President of the Meridian Petroleum company Baltabek Kuandykov believes that in the next 3-4 years, oil production in the country will reach 100 million tons per year and the maximum level of production (105 million tons per year) will last from 5 to 10 years. The expert apparently considers the additional 10 million tons that Tengiz will provide after the FGP commissioning in the second quarter of 2025 as well as (by 2028) about 5-7 million tons of Kashagan phase 2A oil.
If NCOC commissions phase 2B facilities by 2032, the production will increase by 10 million tons. This can support the production in Kazakhstan up to 115 million tons. This does not count oil that will be produced after the commissioning of the Kalamkas-Khazar fields. That’s when the new Trans-Caspian export capacities will be important.