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Kazakhstan activates negotiations on oil transit through Baku

The 18th meeting of the Azerbaijani-Kazakhstan joint intergovernmental commission on trade and economic cooperation (Azerbaijan’s co-chair – head of the Ministry of Energy Pyarviz Shahbazov) is taking place in Nur-Sultan on 5 July. Among the discussed subjects is transit of considerable amounts of Kazakhstani oil through Baku.

The negotiations have been activated since March 2022 because of recurrent problems of the Caspian Pipeline Consortium (CPC is the main pipeline for Kazakhstan’s oil exports, it is shipped in the Russian port of the Black Sea).

Recall that Azerbaijan provided transit of some oil from Kazakhstan’s Tengiz field in 2008-16, however, since 2017, oil from this major field has been heading to the CPC through Russia.

Since 2017, small volumes from Kazakhstan’s North Buzachi field, located in the Mangistau region (developed by Chinese companies CNPC and Sinopec) with recoverable reserves of 50-80 million tons of oil and geological reserves of 220 million tons, go through Baku. The route is Aktau (tanker) – Baku terminals – then Baku-Tbilisi-Ceyhan (BTC) oil pipeline.

In 2017, 180,000 tons of oil passed through BTC from North Buzachi, since 2020 transit through Baku has become regular (106,000 tons of Buzachi oil passed through BTC in 2020, about 100,000 tons in 2021, and the same volume is planned for 2022).

SOCAR sources told Turan that this year Kazakhstan wants to increase oil transshipment via Baku by BTC at the expense of “black gold” from other fields, so it discusses technical and commercial conditions in SOCAR, as the larger the transit volume, the smaller the size of the tariff for the Kazakh side.

Note that BTC has a capacity of 1 million bpd, and currently transports on average 530-540,000 bpd of Azeri oil and about 100-110,000 bpd of transit oil from other countries (transit oil under SOCAR Trading contracts with LUKOIL on Korchagin and Filanovskoye oil fields; under contracts with several oil producers in Turkmenistan, as well as under the contract on transportation of some oil from North Buzachi).

A well-informed SOCAR source explained that SOCAR’s partner “Azertrans Ltd” takes part in the chain of transshipment of transit oil of other states (in 2005 this company and BTC Co signed an agreement on construction of a connecting pipeline-jumper between oil terminal “Azetrans” in Sangachal and BTC pipeline, so this connection has been built and operates since 2006).

“Azertrans Ltd” owns two oil terminals (in Sangachal and Dubendi) with a total annual capacity of 25 million tons, and its current traffic mainly consists of transit oil and oil products transported by tankers from the Caspian ports of Turkmenistan, Kazakhstan and Russia.

“As the cofferdam between the receiving terminals of “Azertrans” and BTC was created long ago and for certain volumes of transit oil on SOCAR Trading’s contracts (not more than 120-130,000 b/d), it will have to be quickly expanded for additional volumes of transit oil from Kazakhstan and perform a number of other works to effectively receive oil from third countries. Such work is ongoing and will be completed in autumn 2022,” sources in the Ministries of Energy of Azerbaijan and Kazakhstan told Turan.

The ongoing work, in particular, will allow to receive and send oil in transit to BTC both from Sangachal and Dubendi (i.e. from the Baku terminals of “Azertrans”), whereas earlier these parallel operations were impossible.

“The modernization of the junction will be over within a few months and will give additional capacity of 2.5-3 million tons of transit oil per year,” said the informed source.

It is noteworthy that recently at the meeting of the Public Council of Kazakhstan’s Ministry of Energy it was noted that this year the country would like to send 1.5 million tons of oil from Kazakhstan via BTC after the completion of the modernization of the “Azertrans” interconnector.

In the medium term (2023-2025) up to 10 million tons of Kazakh oil a year could go through all terminals in Baku with the possibility of doubling the volume with additional investment, including the creation of a new transshipment terminal in Baku.

In this case Baku will demand guaranteed oil shipments for 10 years (“ship or pay”), taking into account the quality of Kazakh oil (high-sulfur oil, unlike Azerbaijani oil).

“At the moment there are no agreements on a significant rise in oil transportation from Kazakhstan. This will be possible if there is an oil transit contract and other documents. Work on this issue is ongoing, but it is still difficult to talk about the timing of reaching an agreement,” – said the source.

Note that in 2022, Kazakhstan has planned to produce about 86 million tons of oil, of which about 68 million tons are intended for export.

After 2024, the annual production in the country could reach 100 million tons, which would increase the export of “black gold”.

Source: Turan News Agency