Exclusive: Kazakhstan to start oil sales via Azeri pipeline to bypass Russia

An interior view shows the new pumping station of the Caspian Pipeline Consortium (CPC) near the city of Atarau, Kazakhstan on October 12, 2017. REUTERS/Maria Gordeyeva/File Photo

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  • Russian court threatens to shut down CPC pipeline
  • Many options are possible, but less practical
  • The rail option will cross Russia to Georgia

MOSCOW/LONDON, Aug 12 (Reuters) – Kazakhstan expects to sell some crude through Azerbaijan’s largest oil pipeline from September, as the nation looks for alternatives to a route Russia has threatened to close, three sources familiar with the matter said.

Kazakh oil exports account for more than 1% of global supply, or approximately 1.4 million barrels per day (bpd).

For 20 years, they have been shipped via the CPC pipeline to Russia’s Black Sea port of Novorossiysk, providing access to global markets.

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In July A The Russian court threatened CPC’s closure prompted the Kazakh government and major foreign manufacturers to set up contracts for other outlets as a precaution.

Neither option is practical, such as the CPC pipeline, which increases the risk of further volatility on energy markets.

International crude prices hit a 14-year high shortly after Russia invaded Ukraine in February and remained at record highs in July, averaging above $100 a barrel.

Kazakhstan’s state oil company Kazmunaigaz (KMG) is in advanced talks with the trading arm of Azerbaijan’s state company SOCAR to be allowed to sell 1.5 million tonnes of Kazakh crude annually through the Azeri pipeline, which delivers oil, a source with direct knowledge of the matter said. to the Turkish Mediterranean port of Ceyhan.

At just 30,000 bpd, the volume is a pittance compared to the usual 1.3-1.4 million bpd that flows through the CPC pipeline.

A final agreement is scheduled to be signed at the end of August, with the Baku-Tbilisi-Ceyhan (BTC) pipeline flowing a month later, the source said.

Another 3.5 million tonnes of Kazakh crude could flow through another Ajri pipeline to Georgia’s Black Sea port of Supsa in 2023, the two sources said.

Combined with BTC flows, the volume would be just over 100,000 bpd or 8% of CPC flows. KMG declined to comment and SOCAR declined to comment on specific contracts.

Relying on Azerbaijan would allow Kazakhstan to side with Russian territory. Last month, BP Azerbaijan said it would redirect flow from the Baku-Supsa pipeline to the larger BTC pipe. Read on

However, the new BTC route means Kazakhstan will have to rely on a smaller fleet of tankers to transport oil across the Caspian Sea to Baku, which has limited spare capacity, the sources said.

other ways

Tengizchevroil (TCO), a joint venture led by oil major Chevron, has its own marketing arm and is independently negotiating its own routes by pipeline and rail, two of the sources said.

A BTC pipeline could also be an option for TCO, but a source said if agreed, it could take six months to start flowing. The TCO declined to comment.

Another factor hindering a quick deal is quality. Kazakhstan’s flagship grade CPC Blend, a light, sour crude, is sold at a large discount to Azerbaijan’s flagship BTC grade, which is an easier-to-refine medium, sweeter grade.

TCO already began sending a small amount of oil back by rail to Georgia’s port of Batumi in April after storm damage rendered part of the CPC terminal unusable.

Two sources said TCO is booking more rail volumes and may pick up in September or October.

Kazakhstan independently exports up to 1 million tons, or 250,000 bpd, of Urals to Black Sea and Baltic Sea ports through Russia’s pipeline system.

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Reuters reporter and Julia Payne in London reported; Additional reporting by Nailia Bagirova in Baku; Editing by Barbara Lewis

Our Standards: Principles of Thomson Reuters Trust.

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