EU offers Kazakhstan ‘targeted’ exemptions for oil exports through Russia

The European Union on Friday approved a set of exemptions from sanctions for the Caspian Pipeline Consortium, allowing the company to continue transporting oil produced in Kazakhstan through a marine terminal on the Russian Black Sea coast.

More than 70% of the oil produced in the Central Asian nation passes through the terminal en route to Europe and other international destinations.

The EU made the announcement upon the approval of an 11th package of sanctions against Russia, its corporations and individuals.

The bloc said it has inserted “strict and very targeted derogations to the existing export bans to enable the maintenance of the Caspian Pipeline Consortium oil pipeline”, which runs for over 1500 kilometres and is being upgraded to boost its shipping capacity.

A Russian affiliate of the pipeline operator repeatedly complained last year that its traditional European suppliers had been unable to deliver the specialised spare parts needed to repair offshore tanker loading buoys and hoses that transport oil from the onshore terminal.

The operator had also been unable to charter a specialised support vessel to conduct offshore repairs, forcing it to seek a replacement from a Russian contractor.

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Caspian Pipeline has always been excluded from international sanctions imposed on Russia after the Ukraine invasion but some Western suppliers had cut ties nonetheless.

Caspian Pipeline has not commented on the derogations, however, its executive director Nikolay Gorban told state-owned news agency Ria Novosti that the company had identified potential Russian-based manufacturers for as many as 136 of the spare parts previously purchased from international suppliers.

He conceded that no alternative Russian suppliers have been lined up to supply offshore loading buoys and hoses.

Caspian Pipeline said before the invasion that two of its three buoys were nearing the end of their service lives.

Gorban said replacement of the buoys has been pushed ahead to 2026, possibly giving a Russian manufacturer time to get up to speed.

Caspian Pipeline expects to invest about $300 million this year, with $100 million earmarked for the replacement of pumps, valves and other onshore pipe-related parts.

The remainder will go to debottleneck and upgrade the transportation network, increasing throughput capacity for Kazakhstan producers to 545 million barrels per annum from the current 503 million barrels.

Gorban said that a group of western shareholders led by Chevron rubber-stamped a proposal to replace some 27 kilometres of legacy pipes in the network.

A company spokesperson said it hopes to find a pipe supplier in Russia but no tender has yet been issued.

A long-term pipe maintenance programme calls for the replacement of about 400 kilometres of the network.

Forecast adjustment

Gorban has also adjusted downward the anticipated Kazakh oil exports this year by about 10%, to between 455 million and 464 million barrels.

Last year’s disruptions and the perceived higher risk of transiting Russia prompted Kazakhstan to seek alternative oil export routes.

On Thursday, Kazakh state oil and gas producer KazMunayGaz signed an agreement with Azerbaijan’s state oil and gas producer Socar calling for joint cooperation in increasing Kazakh oil deliveries to international markets via the Baku – Tbilisi – Ceyhan pipeline.

The pipeline runs from a terminal near the Azeri capital of Baku across Georgia and Turkey and ends at a tanker-loading terminal on the Mediterranean Sea.

Kazakhstan restarted shipments of its oil across the Caspian to Baku in March. Shipments had been halted in 2015 in favour of Caspian Pipeline Consortium higher throughput capacity and lower pricing.

Gorban has played down Kazakh efforts to diversify oil shipments away from Caspian Pipeline.

He said that from April 2024, Kazakhstan’s largest oil-producing project, Tengiz, is set to start growing output by 250,000 barrels per day after multibillion-dollar upgrades are commissioned.

Caspian Pipeline Consortium has sufficient capacity and is prepared to “ship any additional oil that will be produced in Kazakhstan”, he said.