Page 8 - bne Magazine August 2022

8 I Companies & Markets bne August 2022
Kremlin reminds Nur-Sultan who’s boss over Kazakh oil exports
Fuad Shahbazov
When it comes to the shipping viability of its indispensable oil exports, Kazakhstan is not in a happy place. Nur-Sultan knows it, but more to the point,
so does the Kremlin. Around four-fifths of the oil exported by Central Asia’s largest economy only makes it on to world markets thanks to the Novorossijsk oil terminal located on Russia’s Black Sea coast. What’s more, there are no obvious alternatives should the Kazakhs need to replace much or all of that capacity.
With Russia in the mood to pull multiple levers on world oil
and gas supplies as it strives to battle back against the heavy sanctions imposed by the West in response to its war in Ukraine, the vulnerability of Kazakh oil consignments has already been amply demonstrated. Let’s delve into events so far.
On July 5, a Russian court in Novorossiysk ordered the Caspian Pipeline Consortium (CPC) that transits Kazakh
oil to the port’s oil export terminal to halt shipments for 30 days, allegedly due to oil spill concerns. The terminal handles around 1% of global oil, thus the move was far from unnoticed on energy exchanges. Analysts also sat up as they assessed the latest development in relations between Moscow and ex-Soviet state Kazakhstan. Nur-Sultan has offered next to no backing for Russia’s decision to invade Ukraine, and some observers see the Kremlin pulling the strings on Kazakhstan’s oil exports as a method of reminding the country’s Tokayev administration exactly who’s in charge in the ex-USSR space.
The CPC pipeline transits Kazakh oil around the Caspian Sea to a Black Sea export terminal in Novorossijsk, Russia (Guido Grassow, wiki, GNU general public licence).
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Tokayev caused a stir at the St Petersburg International Economic Forum when face to face he told Putin that Kazakhstan does not recognise the so-called people's republics in occupied Ukraine. / Kremlin.ru.
Tense appearance with Putin
Kazakhstan, which has provided 82 tonnes of humanitarian aid to the people of Ukraine, experienced tensions with Russia when the country’s President Kassym-Jomart Tokayev attended the 25th St Petersburg International Economic Forum (SPIEF) in June. Tokayev made it clear during an appearance with Russian President Vladimir Putin that Kazakhstan did not recognise the so-called Luhansk and Donetsk “people’s republics” in occupied Ukraine, labelled them "quasi-states."
Tokayev’s remarks, awkward for Moscow at such a high-profile economic event, provoked some provocative statements from various revanchist Russian critics. The suspension of the CPC pipeline followed shortly after.
However, this was not the first suspension of Kazakh oil exports at the mercy of Russia since the Ukraine conflict began in late February. In March, Russia temporarily froze oil exports via the CPC infrastructure claiming storm damage to the shipments facility, while in June it did so again after citing potentially hazardous items allegedly discovered in Black
Sea waters, namely what Moscow officials said were possible WWII mines.
According to reports, the long-term halting of CPC’s operations would remove as much as 1.5mn barrels a day of much-needed crude from the global oil market, whereas for Russia, it would have virtually no impact as Russian
oil makes up only 10% of CPC volumes. With shareholders like Shell, ExxonMobil, and Chevron, the CPC carries up to 1.4mn barrels/day of Kazakh oil to the European market, which is already constrained partly due to a supply cut from Libya amid political unrest. Of all stakeholders, Chevron is exposed the more as it accounts for 12% of the total output of the CPC.
Cuts to CPC pipeline flows have cost Kazakhstan hundreds of millions of dollars in lost revenue. With alarm bells ringing loudly in Kazakhstan over oil export dependence on Russian infrastructure and territory, Tokayev turned to US companies invested in drilling for Kazakh oil to help diversify oil exports