Is the route bypassing Russia for Kazakh oil just an unattainable dream?

At the end of November, it was announced that Kazakhstan intends to increase its oil exports through the Baku-Tbilisi-Ceyhan (BTC) pipeline by over 13 times. This serves as an alternative to shipments via Russian territory, although challenges may arise, according to Orda.kz.

2024-12-10 07:30:08https://orda.kz/put-v-obhod-rossii-dlja-kazahstanskoj-nefti-nesbytochnaja-mechta-395500/

Furthermore, SOCAR's management has stated that they do not wish to transport Kazakh oil through their pipelines in order to maintain the quality of their own brand, Azeri Light. The reason is that the raw material from Kazakhstan contains a higher sulfur content, which directly impacts its value.

“Currently, we can accept no more than 2.2 million tons from Kazakhstan via BTC to avoid compromising quality. Buyers appreciate the low sulfur content in Azeri Light supplied through BTC,” said Elshad Nasirov, Vice President of SOCAR (quote from Pipeline & Gas Journal).

Azerbaijan has no compelling reason to jeopardize the quality of its oil merely for the sake of friendship with Kazakhstan. Oil industry expert Nurlan Zhugumgulov, director of the public foundation Energy Monitor, points out that Azerbaijani oil is currently priced two to three dollars above Brent, while Kazakh oil is priced one to two dollars below Brent. Thus, the price gap can reach up to five dollars per barrel.

Another reason why the plans of the Ministry of Energy may fail is the cost of transporting oil. This cost could triple if Kazakhstan genuinely attempts to use an alternative route bypassing Russia.

“Logistics via BTC costs an average of 120 dollars per ton for Atyrau oil compared to 38 dollars for CPC. In any case, the Azerbaijani side will require a long-term contract (at least 10 years) under Ship or Pay terms when filling the pipeline to the projected 20 million tons per year. Who would want to take such risks?”
questions Nurlan Zhugumgulov.

So far, the volume of oil supplies from Kazakhstan through the Baku-Tbilisi-Ceyhan pipeline is quite modest. As reported by KazTransOil, from January to November 2024, one million and 342 thousand tons were shipped via this route. This is less than what Kazakhstan supplies to Germany through the Transneft pipeline system and to the Russian city of Makhachkala via the Caspian Sea.

Read here the opinion of a foreign entrepreneur on why there are such corruption issues in Kazakhstan's oil sector.