Tengizchevroil outlook worsens as Kazakhstan’s oil export obstacles deepen

Kazakhstan’s largest oil producer, Tengizchevroil, has had its outlook downgraded due to anticipated disruption to its key oil export route through Russia, regardless of authorities optimism the route would return to capability quickly.

Worldwide credit standing company S&P World mentioned in its newest report that the Chevron-led firm’s reliance on the Caspian Pipeline Consortium for about 95% of its oil exports meant that publicity to elevated operational dangers on this route might jeopardise Tengizchevroil’s earnings and manufacturing capability.

The Caspian Pipeline Consortium operates a 1500-kilometre pipeline that runs from Kazakhstan’s Atyrau area to a marine loading terminal close to the Russian Black Sea port of Novorossiysk and contains Chevron, ExxonMobil, Shell and Eni amongst its stakeholders.

It carries 80% of Kazakh crude exports through its pipeline community, however has been excluded from Western sanctions in opposition to Russia following the invasion of Ukraine as a result of its community stays the key export route for Kazakhstan’s foreign-led Tengiz, Kashagan and Karachaganak oil producing tasks.

“Full independence [for Tengizchevroil] from Russian oil export channels is unimaginable within the brief time period,” S&P World mentioned.

The company mentioned it considers Tengizchevroil faces an elevated danger of disruptions to its oil exports through Russia because of geopolitical tensions because of the Russia-Ukraine warfare and associated financial sanctions from Russia’s buying and selling companions.

Russian retaliation feared

“Though Kazakhstan strictly adheres to all sanctions in opposition to Russia whereas attempting to keep up the long-lasting relationship with its neighbour, putting the steadiness would possibly show to be tough,” the report urged.

The company added that, with the G7 group of main economies working to introduce a cap on the worth of Russian oil, and Russia unwilling to promote at capped costs, “this would possibly lead Russia to cease exporting oil to the worldwide markets and to dam exports from different international locations in order that it will probably achieve leverage in opposition to its Western opposition”.

Russia may additionally have further encouragement to dam oil flows from Kazakhstan due to the variety of main Kazakh oil producers — and the Caspian Pipeline Consortium — which might be owned by Western firms.

The Russian authorities had earlier designated US and European Union member states that authorized sanctions in opposition to Russia as “unfriendly” and implied it may retaliate in opposition to their firms.

“Though this isn’t our present base case, we consider the chance of blocked or considerably decreased [Kazakh] oil exports by way of Russia has elevated over the previous months,” the company urged.

The company famous a number of earlier disruptions to Caspian Pipeline’s delivery operations earlier this 12 months, together with cracks found in August on subsea buoyancy tanks that might restrict the loading on two of the three single-point mooring tanker buoys “for just a few months”.

The shutdown of two buoys in August left the pipeline with a delivery capability of barely greater than 60%, the company mentioned.

Kazakh hope

Kazakh Vitality Minister Bolat Akchulakov this week reiterated his earlier hope that Caspian Pipeline will be capable of change the buoys and restore the complete delivery capability in October.

A Caspian Pipeline spokesperson declined to touch upon the state of repairs.

Nonetheless, the consortium had earlier reported difficulties in inserting orders with Western contractors, because the works has to carried out inside Russia.

“With few alternate options to the Caspian Pipeline and restricted storage capability — three to 5 days — on manufacturing websites in Kazakhstan and at Caspian Pipeline services, Tengizchevroil can be compelled to considerably curtail its operations inside days of suspended operations on the Caspian Pipeline,” the company mentioned.

Whereas stressing that this situation shouldn’t be a “base case”, the company estimated that Tengizchevroil wouldn’t be capable of export greater than 10% of its present manufacturing to worldwide markets if it has to keep away from Russian export logistics completely.

Akchulakov mentioned that nation’s governmental officers stay in shut contact with Russia, the European Union and the USA with the intention of preserving the Caspian Pipeline “open and in working order” to ship Kazakh oil, regardless of the escalation of the battle in Ukraine, Kazakh information company KazTAG reported.

Akchulakov has additionally speculated on the potential for sabotage on the Caspian Pipeline, implying similarities to the incidents that occurred within the Baltic Sea two weeks in the past, by way of which the Nord Stream 1 and Nord Stream 2 gasoline export pipelines had been severely broken by explosions.

S&P World reported that Tengizchevroil has given assurances that the producer “can function at meaningfully decreased capability of about 20% and that manufacturing restoration [after a potential shutdown period] ought to be potential”.