Kazakhstan has decided to route all its oil exports through Russia, abandoning the competing Azerbaijani pipeline route. Why did Astana have to take such a step?
Kazakhstan has decided to route all its oil exports through the CPC (Caspian Pipeline Consortium) territory in Russia. Astana has abandoned oil supplies through the BTC (Baku-Tbilisi-Ceyhan) pipeline.
The country made this temporary move due to issues with Mediterranean oil pipelines that were contaminated with Azerbaijani Azeri Light containing chlorine. The contamination occurred back in late July. Reports indicated that this chlorinated oil reached an Italian refinery and even the Czech Republic. Romania faced the most significant challenges, as 92,000 tons of contaminated Azerbaijani oil, loaded in the port of Ceyhan, arrived in July. Oil imports were halted, leading the country to declare a state of emergency and request emergency stocks of oil and diesel to ensure the uninterrupted operation of refineries and maintain market fuel balances. One Romanian media outlet even unfoundedly accused Russia of possibly introducing several barrels of chlorine into the Baku-Tbilisi-Ceyhan pipeline.
"It could take about three months to eliminate the consequences of chlorine contamination, which includes not only repairs on the pipelines but also inspections to ensure that the quality of the crude meets buyer requirements," said Sergey Tereshkin, General Director of Open Oil Market.
Moreover, there is nothing catastrophic about chlorine contamination in oil. While organic chlorides are generally used to boost oil production, exceeding their limits in crude can harm oil refineries.
"When chlorinated organic compounds got into the Druzhba pipeline, what did we do? We quickly pumped all this oil into storage tanks, as there are many storage capacities along the pipeline, and additionally pumped oil into empty branches of the pipeline, which became used as storage systems. After pumping the oil, we cleared one line of the pipeline and sent clean oil through it. Then gradually, over a month, we added this chlorinated oil to the clean oil in a way that did not exceed the permissible limits," explains Igor Yushkov, an expert at the Financial University under the Government of the Russian Federation and the National Energy Security Fund (FNES).
In other words, there is no need to dispose of the chlorinated oil; it doesn't even need to be purified. One just needs to find a place for storage and gradually mix it with clean oil.
Storage systems can include tanks at the refinery, in the port, and even the tankers themselves, the expert noted.
"The oil that arrived by tanker in Romania should have simply been pumped back into the tanker. Gradually, this oil could then be mixed with regular oil. It is not a major issue, and it's not expensive to store oil in tankers. The main point is that the contaminated oil won’t go to waste," Yushkov adds.
As for Kazakhstan, it routes oil both through Russia via the CPC and through the Azerbaijani Baku-Tbilisi-Ceyhan pipeline. Tereshkin believes that Kazakhstan's diversification of supply routes is a normal practice even under conditions of so-called 'technological' stability in oil and gas exports. However, the Azerbaijani route is significantly longer and more costly than routing through Russia.
"The Azerbaijani route is more expensive because, first, oil must be pumped to the coast of Kazakhstan, then loaded onto a tanker, transported across the Caspian Sea, and unloaded in Baku. Only after this begins pumping through the Baku-Tbilisi-Ceyhan pipeline. In the port of Ceyhan, the oil must again be loaded into a tanker before it reaches the markets in France, Italy, and other Southern European markets. Moreover, the tariffs for transportation through this pipeline are high," explains Igor Yushkov.
According to him, the decision to route a portion of the oil through this channel was politically motivated to reduce the volume transported through Russia, given that the CPC passes through Russian territory. Kazakhstan is attempting to diversify its oil delivery routes and demonstrate independence from Russia, the expert asserts.
Traditionally, over 50 million tons of oil flow through the CPC. This is a separate pipeline, but there are other lines in Russia. Overall, Kazakhstan delivers more than 10 million tons of oil annually to the Transneft pipeline system. Oil exports occur not only through Novorossiysk but also through Ust-Luga.
"These are fabricated threats from Kazakhstan directed at Russia. Russia has never denied Kazakhstan's requests to transport oil.”
There have been periodic accidents on the pipelines; for instance, in 2022, there were delays due to difficulties in delivering repair equipment. However, Russia has never put obstacles directly in the way of Kazakh oil. Even when Kazakhstan requested the transportation of its oil through Ust-Luga to Germany, it could have easily refused due to Germany's acquisition of its oil refineries. Nevertheless, we did not do that, and Germany is receiving 2 million tons of Kazakh oil passing through Russia,” says the FNES expert.
However, it is challenging to regard the Baku-Tbilisi-Ceyhan pipeline as a competitor or threat to the transit of Kazakh oil through Russia. The fact is that Kazakhstan is unlikely to switch all of its exports to this route.
"Azerbaijan cannot accept a large volume of Kazakh oil through this pipeline. Because, as Baku itself states, if they take more than 1.7 million tons of Kazakh oil, it will be economically unfeasible. Kazakh oil is heavier and more sulfurous, more resembling Russian Urals, while Azerbaijani oil is light and low-sulfur and also costs more. If more than 2 million tons of Kazakh oil is fed into the pipeline, the type of oil exiting the pipeline will already change. This results in Azerbaijani companies delivering more expensive oil into the pipeline while receiving cheaper oil at the outlet. Who will cover this price difference? As of now, Kazakhstan is clearly not ready to endure such economic and humiliating sacrifices," explains Igor Yushkov.
Source: VZGLYAD
