CPC pipeline
Caspian oil pipeline reports first ever profit
The Caspian Pipeline Consortium (CPC), pumping oil from Kazakhstan to Russia’s Black Sea coast, reported on Tuesday it had recorded its first ever net profit in 2007 of $423 million after raising shipping fees.
The consortium, which has U.S. oil major Chevron as the top private shareholder, did not give comparative figures.
Russia clears plan to boost Kazakh oil transit
Russia said on Wednesday it had lifted its opposition to a plan to double the capacity of a Kazakh transit oil pipeline in a move to allow Chevron and other energy majors to boost exports via its territory.
Kazakhstan’s Pipeline Dependence: Current State and Future Outlook - Part Two - China
Kazakhstan and China
China has a growing presence in Kazakhstan, even though it is a relative newcomer in the race to develop its hydrocarbon reserves. Initially, China’s main goal in establishing relations with Kazakhstan and other Central Asia states lied in delineating and securing its borders following the fall of the Soviet Union. At that time, the Shanghai Cooperation Organization was established as a forum to bring together China and its neighboring Soviet legacy states and help resolve the decades old border dispute.
Another important aspect of Chinese foreign policy towards the newly established Central Asian states was the containment of its Uighur minority. The Western Chinese province of Xinjiang has a large population of Muslim Uighurs, Turkic people and historically and ethnically part of Central Asia. While China has kept any separatist tendencies in Xinjiang under a tight lid, the fall of the Soviet Union and sudden independence of other Central Asia states could not come as a welcome development for the Chinese. Therefore, China has spent a greater part of its diplomatic efforts towards the new Central Asian countries making sure that there would not be any official and unofficial sanctioning of the Uighur separatist movement.
These two security concerns dominated China’s policies towards Central Asia in the 1990’s. China’s approach started changing slowly only in the later part of the decade when China awakened to its needs for both energy and export markets. Trade between China and Kazakhstan commenced almost immediately after the fall of the Soviet Union, mainly driven by the so-called shuttle traders. However, it really took off after 1998 when Kazakhstan and China resolved their dispute over the 1700-kilometer common border. In 2006, the China-Kazakhstan trade volume reached $8.36 billion, and in the half of 2007, it reached $5.97 billion.
Chinese Energy Policy in Kazakhstan
China’s first significant step in its Kazakhstan energy policy occurred in September 1997 when both countries signed a $9.5 billion agreement. The contract confirmed the award to the China National Petroleum Corporation (CNPC) of two projects. The first project involved the development of two new oil fields, Zhanazhol and Kensayak, in the Aktyubinsk region, and the rehabilitation and exploration of the Uzen oil field. The second project was the construction of a 3,000-kilometer pipeline connecting these oil regions to Chinese Xinjiang province.
This agreement was at that time the largest oil deal between a foreign investor and a former Soviet country but the subsequent Asian financial crisis and depression of oil prices delayed both the construction of the pipeline and the rehabilitation of the Uzen field, as well as a more significant Chinese entry into Kazakhstan’s hydrocarbon markets.
The second push to become a significant player in Kazakhstan has been more successful. While CNOC’s bid in 2003 to buy into the consortium developing the Kashagan field did not succeed, in 2004 it was able to take control of the Canadian oil company PetroKazakhstan for $4.0 billion. Overall, while China has not yet achieved a position in one of Kazakhstan’s blue-chip fields like Tengiz or Kashagan, it has amassed, mainly through acquisitions, a significant portfolio of oil assets in Kazakhstan.
In 2004, CNOC began construction of the pipeline to connect its new acquired fields to the Xinjiang province that was agreed upon in 1997. The construction of the pipeline is to be conducted in three stages. The first section of pipeline from the Aktöbe region’s oil fields to the Atyrau was completed in 2003. The construction of the 987 kilometer long second section of pipeline from Atasu to Alashankou started in September 2004 and was completed in December 2005. It includes an oil meterage station at the Alataw Pass. In Alashankou this section is connected with the Alashankou-Dushanzi Crude Oil Pipeline, which runs to the Dushanzi District supplying mainly the Dushanzi refinery. The first oil through this pipeline reached the refinery in August 2006. The third section of the Kazakhstan-China oil pipeline will be Kenkiyak-Kumkol and it is expected to reach full capacity in 2011.
The pipeline is to supply China with Kazakh oil from its oil fields in the Aktyubinsk region as well as from the Kumkol fields of the newly acquired PetroKazakhstan project. Its projected annual capacity is initially 10 million tons, to be expanded to full capacity of 20 million tons. However, it is becoming clear that the pipeline will not be able to operate at capacity without additional oil from non-Chinese controlled sources. The two options are oil from the Kashagan field that is currently being developed and western Siberian oil by connection with Russia’s Omsk-Pavlodar-Shymkent-Türkmenabat pipeline.
Energy-rich Kazakhstan and energy-hungry China seem to be a match made in heaven. China tries to diversify its sources of supply as it becomes increasingly dependent on oil imports. These have rapidly increased from less than 30 percent in 2000 to predicted 50 percent in 2010. In recent years, China has been active through its state-owned oil companies all over the world, not just in Kazakhstan, trying to gain access to oil. However, Kazakhstan is one of the very few sources of oil (Russia being the other important one) that can offer supply by land through a pipeline linking the two countries. This is of strategic importance to China which is forced to import the rest of its oil by tankers. And at present time China’s navy is not at a state that it could assure protection to ships delivering overseas oil, should it ever come to a conflict between China and the United States. An often suggested scenario is that the United States could attempt to energy-starve China with a naval blocade in an event of an escalation of the Taiwan conflict. Therefore, while Kazakhstan’s oil supplies at present and likely in the future will not make up a large share of China’s imports, they are of geostrategical importance.
For Kazakhstan, the oil pipeline to China helps it to diversify its oil exports. Currently, the vast majority of its oil is exported through Russia which has shown that it is not afraid to use its energy resources to exert pressure on its partners overseas. In the future, it’s likely that the majority of Kazakhstan’s oil exports will continue going through Russia. A diversification of its transport options to China and Azerbaijan, however, is an important symbolic step in exerting itself from Russia’s tight grip.
While currently China’s role in Kazakhstan’s energy sector is relatively small compared to that of Russia or Western oil companies, it is safe to assume that it is going to keep on growing. The geographical vicinity of the two countries and the mutual benefit that both countries are set to derive from a common energy policy make this development likely and logical. The question that will be answered in the near future is how the growing influence of China will affect the current status quo in Kazakhstan.
Pipelines as a Foreign Policy Factor: The Americans Turn Their Attention to Pipelines in Central Asia
Rossiiskiye Vesti - Yuri Yeremin
The United States is playing its own energy game in the Central Asia-Caucasus region - and it doesn’t Russia to join in. One of the main objectives is to build pipelines that bypass Russian territory. Russia is taking steps to counter this.
Foreign experts in the energy sector suspect that the United States arranged a series of official meetings with leaders of the Central Asian and Caucasus states as a prelude to development of alternative oil and gas shipment routes from Kazakhstan and Turkmenistan to Europe bypassing Russia.
Visiting regional capitals, representatives of the US State Department openly admitted that Washington has long-term interests in the Caspian region and promoted diversification of routes intended to abolish Europe’s and America’s dependence on Russia in so crucial a sphere.
Daniel S. Sullivan, US Undersecretary for Economic, Energy, and Agricultural Affairs, signed an agreement with the Azeri Foreign Ministry on August 16. Washington will provide $1.7 million for the technical and economic assessment of two trans-Caspian pipelines to bring Kazakh oil to the Baku-Tbilisi-Ceyhan pipeline and take Kazakh and Turkmen gas across the Caspian Sea. The agreement on the US grant is supposed to signalize to would-be investors that Washington is prepared to minimize risks in this project. Winner of the grant will be determined in a tender which will apparently be won US companies. Insiders in the Azeri oil industry imply that the US doesn’t want Russian involvement in these future pipelines.
Experts point out that President Ilham Aliyev of Azerbaijan visited Kazakhstan on August 6 and 7 (not that long before the signing of the agreement) where he discussed with the Kazakh leadership all nuances of financial and oil cooperation, including interaction in construction of trans-Caspian pipelines.
Seeing the US go active in the Central Asian region, experts draw the conclusion that the US State Department makes an emphasis in relations with Kazakhstan, Turkmenistan, and Azerbaijan on its national interests in the energy and military spheres and that observation of human rights and freedoms has definitely faded into the background. When the 10th annual US-Azeri security conference in Washington on July 9 culminated in the traditional press conference, journalists asked spokesmen for the US State Department what they thought about the state of affairs with human rights in Azerbaijan. Their reply was quite simple: the US State Department acknowledges existence of problems in Azerbaijan in this sphere, but the need to solidify positions in this country and secure better opportunities for American companies was taking precedence.
All these grandiose plans charted by the United States and its allies generate justified fears that this exceptionally expensive colossal transport infrastructure may be rendered obsolete by shortage of hydrocarbons in the region and made a vast heap of scrap metal and an unbearable burden for Central Asian countries. Specialists maintain that neither Turkmenistan nor Azerbaijan have sufficient explored reserves to fill all these pipelines.
Kazakhstan’s Pipeline Dependence: Current State and Future Outlook - Part One - Russia
This is the first part of an analysis of current state of Kazakhstan’s distribution system - the study will show the existing and potential distribution options for both oil and natural gas out of Kazakhstan to markets in Europe and Asia.
Background
When in May 2007 the presidents of Russia, Kazakhstan, and Turkmenistan met in the Turkmen city Turkmenbashi on the Caspian Sea and agreed on two major gas pipeline deals to export Kazakh and Turkmen gas through the Russian gas pipeline system while at the same time ostentatiously shunning the Krakow energy summit focusing on alternative routes of bringing Caspian oil and gas to European markets, observers proclaimed Russia the victor of the geopolitical struggle for influence in Central Asia. In the race to build pipelines to deliver oil and gas from the landlocked Central Asian countries between the U.S., China, Iran and Russia, Vladimir Putin seemed to achieve a significant victory. Three months later, Putin’s victory seems less certain as both Kazakhstan and Turkmenistan announced new deals with China to transport their vast reserves of oil and gas to the East, and even the almost buried and forgotten Trans-Caspian-Pipeline received a boost when the U.S. State Department announced that it commissioned a feasibility study for the project.
Kazakhstan and Russia
Despite the fall of the Soviet Union and the (in the case of Kazakhstan very reluctant) independence of the former Soviet republics, Russia still considers its former territories firmly within its sphere of influence. While its influence was represented in a diminished form in the 1990’s, with the arrival of Vladimir Putin as Russia’s president and the prices of oil and other commodities reaching all-time highs, Russia’s claim to influence in the “near abroad” has become more and more accented. It has been manifested in many ways from subsidizing oil and natural gas exports as a reward to friendly regimes to actively supporting separatist movements in countries considered on anti-Russian path.
While the influence-seeking behavior may be a result of Russia’s imperial ambitions and desire to regain its superpower status, it is strongly pronounced by the remnants of Soviet Russia-centric infrastructure. It is important to note that while the fall of the Soviet UnionRussia and never before existed as independent nation states. created independent republics, the majority of them actually had no infrastructure in place to exist independently of Kazakhstan is a clear example of Soviet social and geopolitical engineering that left the country as a supplier of natural resources for the Soviet Union. The result is that even now 15 years after the Soviet Union became history and Kazakhstan is hailed as the new source of accessible oil, Kazakhstan is still almost completely dependent on Russia.
While its vast oil and natural gas reserves place Kazakhstan among the world’s top producing countries and perhaps the only non-OPEC country which will experience a significant growth in production in the coming decades, it faces major obstacles in getting its oil and natural gas to the markets. During the existence of Soviet Union, Kazakhstan was connected to the Soviet pipeline system which in Russia is currently operated by Gazprom (natural gas) and Transneft (oil). This link still exists today und up until this date amounts for the majority of Kazakh oil and gas exports. The obvious disadvantage of this situation is the reliance on one partner in getting oil (and the same goes for natural gas) to markets. Even if Russia’s (we have to consider the two pipeline companies as Russia’s political tools and pretty much an extension of the government) intentions towards Kazakhstan or the end-users of its oil were completely harmless, any kind of turmoil or unrest in Russia could have catastrophic consequences for Kazakhstan as oil exporter. The fact that Russia has its own interests and objectives and does not shy from using its pipeline operators to reach them makes this issue for Kazakhstan inherently more alarming. This reliance was decreased with the construction of the CPC pipeline in 2001 that connects Kazakhstan Tengiz field operated by Chevron to Russian Black Sea port Novorossiysk. This pipeline was originally developed by international oil companies and the governments of Kazakhstan, Russia and Oman. While the CPC pipeline is not part of the Transneft system, Russia has lately increasingly frustrated the partners with demands for higher tariffs and a greater share in ownership. Therefore, despite avoiding Russia’s state-controlled pipeline system, the transit through Russian territory to the Black Sea ports and from there to European markets still remains highly vulnerable. Currently, 84 percent of Kazakhstan’s oil exports pass through Russia both through the CPC pipeline and the Transneft system, and with increasing production in the Tengiz and Karachaganak field, the number will grow in the coming years.
Oil pipelines
CPC pipeline
The 1,580-kilometer CPC pipeline connects Kazakhstan’s Caspian oil deposits (currently mainly the Chevron-operated Tengiz field) with Russia’s Black Sea port of Novorossiysk. Oil loaded at Novorossiysk is then taken by tanker to world markets. The project was finished in October 2001 with an initial capacity of 500,000 barrels per day and a projected capacity of about 1.4 million barrels per day by 2015. Although the pipeline transverses Russian territory and was developed in conjunction with the Russian government, it was initially hailed as a viable alternative to the Russian pipeline system operated by Transneft. The reasons for developing the pipeline were twofold. First, a reduction of the political influence Russia exerted over oil exports going through its own pipeline system. Second, to ensure that Kazakhstan’s high-quality, sweet crude oil did not mix with heavier, sourer Russian crude oil which was the case when Kazakhstan exported its oil through Transneft’s Atyrau-Samara pipeline. In retrospect, Kazakhstan and the Tengiz-operators accomplished only the second objective. Recent events when Russian government sought increases in transit fees and hit the Chevron-led consortium with repeated back tax claims, showed that despite being a private pipeline outside the realm of Transneft, it is not immune from politically motivated pressure coming from Russian authorities.
Atyrau-Samara pipeline
Kazakhstan’s other major oil export pipeline, from Atyrau to Samara, is a northbound link to the Russian distribution system Transneft. The 691-kilometer line was recently upgraded through pumping and heating stations additions and has a capacity of approximately 600,000 barrel per day. Before the completion of the CPC pipeline at the end of 2001, Kazakhstan exported almost all of its oil through this system. In June 2002, Kazakhstan and Russia signed a 15-year oil transit agreement under which Kazakhstan will export 340,000 bbl/d of oil annually via the Russian pipeline system in addition to exports through the CPC pipeline. Russia’s trade ministry also pledged to increase the capacity of the line to around 500,000 barrels per day. As the Kazakh production in the Tengiz and Karachaganak oil fields grows, and as the Kashagan field is set to start producing oil (currently predicted for 2011), the pipeline is likely to gain both in absolute volume and significance. Russia’s government openly favors the Atyrau-Samara pipeline option over the privately owned CPC pipeline, and since Transneft currently controls 24 percent of the shares of the CPC, it is debatable how fast the planned expansion of the CPC pipeline will proceed.
Kenkyak-Orsk pipeline
The Kenkyak-Orsk pipeline transports oil from the Aktyubinsk fields in western Kazakhstan to the Orsk refinery in Russia at a current capacity of approximately 130,000 barrels per day.
