Important for Kazakhstan to pursue oil export choices exterior of Russia, investor says

Kazakhstan’s capability to diversify its seaborne crude oil export routes away from Russian territory is important to the nation’s financial system, the developer of an alternate port informed CNBC.

“I consider it is much less political, extra existential query, and we hope that additionally worldwide group goes to assist that initiative to have various routes so as to decrease the consequences of any provide shortages,” Nurzhan Marabayev, CEO of Kazakh infrastructure investor Semurg Make investments, informed CNBC’s Dan Murphy and Hadley Gamble.

His firm has been working to develop the Kuryk port on the japanese coast of the Caspian Sea — a undertaking that features a bulk cargo terminal, designed for the transshipment of oil, bulk oil cargo and liquefied petroleum gasoline. 

As soon as full, the port might present an alternative choice to Kazakhstan’s important seaborne crude oil export route, which at present transports volumes throughout Russian territory through the 1,511-kilometer (939-mile) Caspian Pipeline Company’s pipeline, for later cargo from the CPC terminal close to Russian port Novorossiysk.

Since Moscow’s full-scale invasion of Ukraine final 12 months, considerations have mounted that Kazakhstan’s reliance on cooperation with Russia — with whom Kazakhstan shares a 7,644-kilometer (4,750 miles) border and a historical past of shut political alignment — might endanger its oil provides. Exports from the CPC terminal have been intermittently disrupted in 2022, with Russia citing technical and regulatory points. This included a delay within the port’s restart after storm harm, whereas Russian technical watchdog Rostekhnadzor carried out an unscheduled inspection, and a short and unenforced Russian court docket ruling for CPC to halt exports for 30 days.

“Roughly 95% of oil goes by Russian territory, and we’ve seen some disturbance final 12 months, and truly … it is fairly a menace to the Kazakhstan financial system, as a result of we’re relying on the oil revenues,” Marabayev informed CNBC on Wednesday.

Oil main ExxonMobil — which holds a 16.8% curiosity within the Kasahagan area and a 25% stake within the Tengizchevroil consortium that operates the Tengiz and Korolev fields — signaled comparable considerations in a Feb. 22 securities submitting.

“Within the occasion that Russia takes countermeasures in response to present sanctions associated to its army actions in Ukraine, it’s attainable that the transportation of Kazakhstan oil by the CPC pipeline might be disrupted, curtailed, quickly suspended, or in any other case restricted,” the corporate mentioned, warning of a “loss in money flows of unsure period” below such circumstances. ExxonMobil’s after-tax earnings linked to its Kazakh pursuits have been roughly $2.5 billion in 2022.

Kazakhstan is the second largest producer of the non-OPEC contingent of the OPEC+ coalition and has usually aligned itself with Russia within the group’s petropolitics. Kazakh output slipped to 1.66 million barrels per day in January, in line with the February situation of the Worldwide Vitality Company’s Oil Market Report.

The nation has been learning potential various transport routes past Moscow’s borders, together with the potential of sending oil shipments through Azerbaijan’s Baku-Tbilisi-Ceyhan pipeline and thru the unfinished Kuryk port undertaking.

“Main infrastructure has been executed, however nonetheless we’d like extra assist and a focus to the port so as to fast-track the event of the non-public terminals,” Marabayev mentioned. Improvement started in 2010, with operations beginning six years in the past.

Russia and Kazakhstan have traditionally noticed a decent alliance, with Kazakh President Kassym-Jomart Tokayev final 12 months calling on the Moscow-led Collective Safety Treaty Group to ship paratroopers into Kazakh territory after nationwide protests erupted over gas worth will increase.  

However Russia’s warfare in Ukraine has stranded Kazakhstan in a precarious balancing act between Western powers and the Moscow administration of Vladimir Putin. Tokayev deepened engagement with Washington in the course of the Tuesday go to of U.S. Secretary of State Antony Blinken, who repeatedly harassed that the U.S. backed Kazakhstan’s “territorial integrity.”

“Ever since being the primary nation to acknowledge Kazakhstan in December of 1991, america has been firmly dedicated to the sovereignty, territorial integrity, and independence of Kazakhstan – and nations throughout the area,” Blinken mentioned.

“In our discussions as we speak, I reaffirmed america’ unwavering assist for Kazakhstan, like all nations, to freely decide its future, particularly as we mark one 12 months since Russia launched its full-scale invasion of Ukraine in a failed try and deny its people who very freedom.”

The world’s third-largest oil producer, Russia has discovered its footing within the crude markets destabilized by EU and G-7 sanctions carried out in opposition to its seaborne exports of crude oil and oil merchandise in December and February, respectively. Kazakh oil has been exempted from the measures regardless of transiting and exiting a port on Russian grounds.

The G-7 has put in place a scheme that permits Western suppliers to facilitate important monetary and delivery providers to non-G-7 nations that buy Russian volumes beneath a selected worth. Moscow has repeatedly denounced this measure and threatened to disclaim its crude and oil merchandise to those that observe such a worth cap.  

The withdrawal has pressured its manufacturing ranges, which the IEA pegged all the way down to 9.77 million barrels per day in January. Moscow introduced it might scale back crude oil output by 500,000 barrels per day in March. 

Russia has additionally been pushed farther into the Asia markets, now primarily counting on Chinese language and Indian purchases:

“I believe Russia, successfully, is an Asian nation by now. I believe India and China will, for an extended interval, be the principle patrons of Russia. It is going to change into the brand new norm,” Viktor Katona, lead crude analyst at Kpler, informed CNBC’s “Squawk Field Europe.”

“I believe that is going to be the top consequence Russia out of Europe, Russia perennially into Asia, there’s going to be new hyperlinks into these nations, and that is just about it.”