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.
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