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About Commodity Insights
07 Jun 2022 | 14:52 UTC
By Nick Coleman
Highlights
Drive to differentiate Kazakh crude as sanctions on Russia tighten
EU says Kazakh exports via Russia exempt from sanctions
Rebrand applies to volumes not marketed as light sweet CPC
Kazakhstan is rebranding the crude oil it exports via Russia's Transneft system as it conducts an "explanatory" campaign offering assurances its crude is not subject to sanctions against Moscow, state company KazMunaiGaz said June 7.
The rebranding of the crude under the name KEBCO (Kazakhstan Export Blend Crude Oil) comes as sanctions against Russia throw up potential difficulties for the landlocked Central Asian nation, which relies on Russian ports and pipelines for exporting its crude. Kazakhstan is not a party to the invasion of Ukraine, which spurred an intensifying sanctions campaign against Moscow, and therefore not a target of sanctions.
However, Kazakh oil is in some cases mingled with Russian exports, as a result of which US authorities have issued a waiver for the flagship CPC crude grade, which is mainly of Kazakh origin.
In its June 7 statement, KMG said the rebrand applied to crude it exports via Russia's main Transneft system, used also for transporting Urals and Siberian Light crude, and was a response to European Union's moves to restrict Russian oil imports.
The EU restrictions "do not apply to purchases of crude oil from other countries and delivered by sea if such crude oil is loaded into or transits the Russian Federation. Thus... KMG, as well as other crude oil companies in Kazakhstan, carry out activities to inform its customers about the lack of restrictions on operations with Kazakh crude oil... transported on [Russian] territory," it said.
Kazakh crude "is currently traded under Urals and Siberian Light. Starting from June in the commercial documents for the sale of Kazakh crude oil (certificate of origin...), which is delivered through the pipeline Atyrau-Samara and loaded in Russian ports, it will be mentioned as 'KEBCO'," the KMG statement said, adding: "This is a necessary measure for the market differentiation of crude oil of Kazakh origin."
KMG CEO Magzum Myrzagaliyev added agreement "has been reached on unrestricted access to crude oil transiting the Russian Federation on the European market," ensuring access to Kazakh crude for refiners including KMG's own Petromidia refinery in Romania.
In an emailed comment, a European Commission spokesperson pointed to a regulatory change of June 3 published in the EU official journal saying sanctions should be "without prejudice" to oil originating in third countries and "only transiting through Russia," although Kazakhstan and its crude was not mentioned specifically.
"Those prohibitions should not apply in the situation where Russia is identified as the state of export in the customs declarations, if the country of origin for the crude oil and other petroleum products is identified in those declarations as a third state," the regulation says.
Kazakhstan has faced problems not only due to worries about sanctions, but physical war risk and higher insurance costs in the Black Sea as a result of the war in Ukraine. However, prices for the flagship CPC crude blend have recovered following a steep drop in the aftermath of the invasion, while Russia's Urals crude remains heavily discounted.
CPC was assessed at a $5.1/b discount to Dated Brent on a CIF Augusta basis on June 6, while the medium sour Urals grade was assessed at a discount of $35.2/b, by Platts, part of S&P Global Commodity Insights.
The flagship CPC Blend, a relatively light sweet grade loaded at Novorossiisk, accounts for the bulk of Kazakh crude exports and utilizes a dedicated pipeline from the Caspian Sea, with volumes approaching 1.5 million b/d. Remaining Kazakh oil exports not via the CPC route are mainly mixed with Russia's Urals, with the volumes being relatively modest, in the region of 200,000 b/d. Other producers reportedly affected include China-owned CNPC-AktobeMunaiGas, although the latter did not respond to a request for comment.
Referring to the imminent rebrand, London-listed independent Caspian Sunrise, which produces modest volumes in western Kazakhstan, said June 6: "Our oil is Kazakh oil not Russian oil, even though at present they are both termed Urals Oil. It is only an accident of geography that the current delivery mechanism takes it through Russia. We sell in Kazakhstan to international oil traders, who can then sell anywhere in the world. We expect the Kazakh government shortly to rename the oil produced in Kazakhstan."
KMG added in its statement that together with state authorities it "is carrying out activities aimed at minimizing the negative consequences of international sanctions on Kazakh crude oil exports."