Kazakhstan has leapt forward in securing its oil shipments across Russia to international customers and reaped additional benefits of closer ties with Moscow despite the threat of secondary sanctions from the West.
Last year, Kazakh oil transits hung in the balance as the West imposed extensive sanctions against Russia and its corporations, prompting Moscow to seek revenge.
The Kremlin retaliated by cutting capacity at Caspian Pipeline Consortium, which operates a key pipeline transporting about 80% of Kazakh oil exports — mainly from the Western-led developments of Tengiz, Kashagan and Karachaganak — to a floating terminal near the Russian Black Sea port of Novorossiysk.
Russia repeatedly threatened to interrupt operations as Caspian Pipeline Consortium had to battle with sudden court rulings and technical compliance warnings last year.
However, the pipeline has been working without a snag this year, completing a major capacity upgrade in anticipation of higher production at the Tengiz field — operated by an international consortium headed by US major Chevron.
Moreover, despite last year’s call for the diversification of oil export routes, Kazakhstan sent more oil via a legacy pipeline connection with Russia, known as Atyrau-Samara, for the delivery to Germany and the Russian ports of Ust-Luga and Novorossiysk.
This year, Kazakh President Kassym-Jomart Tokayev has met frequently with Russian President Vladimir Putin to discuss mutual co-operation, despite growing Russian isolation on the international arena.
Tokayev’s diplomacy has paid off. In November, during his visit to Astana, Putin started a meeting with the Kazakh President by acknowledging the countries are “closest allies”.
Tokayev has praised trade relations between the two countries and with Russia’s corporations, that have got stronger this year. Putin is predicting a 7% annual growth in mutual trade in 2023 from an estimated $28 billion in 2022.
Tokayev welcomed hundreds of Russian companies that moved their business to Kazakhstan to reduce the burden of international restrictions imposed since February last year, and said more Russian firms have agreed to relocate soon.
Following a recent visit to Kazakhstan, representatives of the International Monetary Fund (IMF) upped their projection for the GDP growth in the country this year to 4.8%, from 4.6%.
The growth is driven by the oil and non-oil sectors, while the impact of the war in Ukraine remains limited. Inflation has dropped since it peaked at 21% in February and is projected to be at about 10% by the end of this, the IMF said in its statement.
Energy ties
Energy deals have remained at the top of the co-operation agenda this year, with Russia agreeing to build new gas-fired power plants in Kazakhstan which has been repeatedly suffering energy blackouts, affecting its oil and gas production.
During this year, Kazakhstan has also grown its role as a transit country for Russian natural gas flows to Central Asia and China, with gas giant Gazprom contracted to invest into the reversal of a legacy pipeline network.
Known as Central Asia-Centre, the network will enable Russia to deliver its gas across Kazakhstan to Uzbekistan, Turkmenistan and other former Soviet states in Central Asia.
Initial upgrades to this system this summer allowed Gazprom to start supplies to Uzbekistan at about 2.8 billion cubic metres of gas per annum.
Gazprom has now agreed to invest in more upgrades at the Central Asia-Centre network to further increase its shipping capacity in the reverse mode before the end of 2025.
Additionally, Kazakhstan has been discussing a major project with Gazprom to supply its gas to the northern and northeastern regions of Kazakhstan.
Astana hopes Russian gas supplies at a discounted price will become a more efficient solution for the country instead of investing into laying domestic pipelines from its gas-rich provinces in the west to reach these regions.
As Kazakhstan negotiates terms to import Russian gas, Astana is also urging Gazprom to invest in further pipeline upgrades in these two regions to permit the Russian giant to transit some of supplied gas to China.
Moscow sees China as the main market for it excess gas after the loss of demand from Europe.
Astana has been also looking at Russian producer Lukoil to partner oil and gas holding KazMunayGaz in exploring and developing offshore blocks in the Caspian Sea. KazMunayGaz has also teamed with Russian regional producer Tatneft to tap into deep layers at onshore Karaton field.
Kazakhstan has turned to Russia and to China — which has not condemned the war in Ukraine — after Astana faced unwillingness from Western oil majors to invest in long-term oil and gas exploration and developments in Kazakhstan due to their focus on renewable-energy projects elsewhere.
Western major still run three largest oil and gas projects in Kazakhstan at Tengiz, Kashagan and Karachaganak, but Astana expects them to gradually reduce their investments.
With just two upstream deals with Lukoil and Tatneft in hand, Kazakhstan has shifted its attention towards midstream projects to process natural and associated gas and produce polymers and chemicals, seeking investments and expertise for these plans in Russia and China.
Source : UpStream