ExxonMobil defends purchase of Russia-loaded Kazakh crude on US sanctions guidance

ExxonMobil defended March 11 its purchase of a tanker of Kazakhstan's CPC crude oil being delivered to the UK's Fawley refinery from the Russian port of Novorossiisk, saying Kazakh crude was excluded from US sanctions targeting Moscow.

Following protests against the delivery by environmental group Greenpeace, ExxonMobil said the crude, derived from oil fields in Kazakhstan in which the US major is a shareholder, was free of any Russian oil that also uses the pipeline to the Black Sea port, making it permissible for purchase under new US Treasury Department guidance on sanctions. It comes as the UK has moved to block Russian shipping and phase out Russian energy imports in response to the invasion of Ukraine.

"No ExxonMobil equity crude that is transported via the Caspian pipeline en route to the US or Europe is from Russia," ExxonMobil said in emailed comments, adding: "The Caspian pipeline delivers oil and gas from Kazakhstan and is not subject to sanctions at this time."

Kazakhstan's flagship CPC crude oil -- a light, relatively low-sulfur blend and a major export earner for the country -- has traded at a steep discount in the spot market since Russia's invasion of Ukraine and consequent sanctions against Moscow, due to the crude being loaded in Russia, and heightened shipping risk in the Black Sea.

However, Kazakhstan is not a party to the conflict in Ukraine and major oil and gas companies that have stakes in Kazakh production have continued to ship the crude across southern Russia through the CPC pipeline, which is the Central Asian country's main route to global markets, accounting for nearly 80% of Kazakh oil exports.

Total CPC shipment volumes were over 1.5 million b/d in February, with about 90% coming from Kazakhstan, but the remainder from Russian fields in the north Caspian operated by Lukoil.

Several international oil companies including ExxonMobil hold stakes in the pipeline with Russian partners such as Lukoil and state-owned Rosneft, alongside their investments in Kazakh fields such as Tengiz and Kashagan.

However, on March 8 the US Treasury Department issued guidance confirming Kazakh crude is not subject to sanctions despite its reliance on the route, highlighting systems that "segregate" Russian from Kazakh crude.

"Distribution systems such as those within the CPC can segregate various sources of crude oil, allowing crude oil that is not of Russian Federation origin to be marketed and loaded separately. The importation prohibition of Executive Order of March 8, 2022 applies to the import of certain products of Russian... origin to the US and excludes imports that are not of Russian... origin, even if such items transit through or depart from the Russian Federation," the guidance said.

Chevron, a partner with ExxonMobil at Kazakhstan's highest-producing oil field, Tengiz, reiterated March 11 that production operations continue at the site, while Kazakh authorities have said they see no need as yet to use alternative routes.

The Chevron-led Tengizchevroil consortium that operates Tengiz "is monitoring developments, meanwhile production continues uninterrupted and its exports through the CPC pipeline continue as normal," Tengizchevroil said in an emailed comment.

Options available

Meanwhile Kazakh energy minister Bolat Akchulakov was quoted as saying March 10 he anticipated production continuing with no need for reductions relating to the Black Sea route.

He said other routes existed and were viewed as "options," including across the Caspian Sea and pipelines through Russia and to China. However, "for the time being there are no sanctions, so we see no need to redirect any volumes anywhere. We will continue with the agreed regular regime via CPC," Akchulakov was quoted by state news agency Kazinform as saying.

The Moscow-based CPC pipeline operator said its leadership had held a series of meetings with Kazakh officials including Akchulakov and Kazakh bank Khalyk. Pipeline director general Nikolai Gorban told the minister the consortium was "progressively implementing measures to monitor and minimize all risks that might affect the operations and safe transportation of oil through the pipeline system," with all sub-divisions and facilities "operating normally," CPC said.

The Tengiz partners are nearing completion of a $45 billion expansion project at Tengiz expected to lift crude output to some 850,000 b/d.