Kazakhstan focused on infrastructure weakness after oil, power outages

Kazakh officials are making a renewed push to address infrastructure weakness after the latest in a series of power cuts impacted the CPC crude oil export pipeline and a swath of oil facilities, highlighting major gaps in Central Asian energy provision.

The country's oil production appeared to be recovering, based on energy ministry data, after a July 3 outage at the aging MAEK combined heat and power plant led to multiple disruptions, including at pumping stations along the CPC pipeline route, at onshore oil fields, at the 110,000 b/d Atyrau refiner and a desalination plant providing water for western Kazakhstan.

In a July 6 update, the Caspian Pipeline Consortium said the pipeline, which exports around 80% of the country's crude production via the Russian port of Novorossiisk, was fully operational, with all four pumping stations on the Kazakh portion of the route back in action.

"The equipment at the CPC installations is intact, currently all pumping stations are operating as normal," a CPC spokesperson said.

Kazakh oil output for July 5 was estimated by the energy ministry's oil and gas information center at 224 million mt, or around 1.7 million barrels, still around 10% below week-earlier levels, but an improvement on an earlier 20% reduction.

Kazakhstan is economically reliant on oil exports via the 1.5 million b/d CPC route across southern Russia, which appear to have been largely maintained despite outages at pumping stations. The route features more than two dozen crude storage tanks at various locations, with the crude taking a week or more to reach Novorossiisk, helping smooth out short-term issues.

The Chevron-led operator of the country's highest-producing field, Tengiz, said its production had continued as normal, even as the pipeline operator announced a series of outages at pumping stations.

The relatively light, low-sulfur CPC Blend is sought-after in the Mediterranean and beyond, and prices for the grade have recovered since the immediate aftermath of the invasion of Ukraine in 2022. Platts, part of S&P Global Commodity Insights, assessed CPC Blend at a $2.30/b discount to Dated Brent benchmark on July 5.

However, the extent of the impact of the MAEK power outage, including for the population, prompted concern, with Prime Minister Alikhan Smailov saying it was the second such incident to hit the Atyrau refinery in two years.

Officials at some legacy onshore fields said their facilities were subject to frequent, costly power outages – in the last six months state-owned OzenMunaiGaz had suffered 11 outages leading to 13,000 wells being shut in, according to its head, Nurdaulet Kilybay, quoted by parent company KazMunaiGaz.

CPC Blend is mainly sourced from three giant fields with their own generation facilities, however other Kazakh production is from a large number of mature fields, mainly producing heavy crude in the western province of Mangystau. The province saw serious social unrest in early 2022.

President Kassym-Jomart Tokayev has ordered an investigation into the MAEK outage, while Smailov visited the Atyrau refinery to order faster progress on building a backup power plant.

Atyrau "is a facility of strategic importance. It shouldn't depend on external energy supplies — in an emergency power outage your own substation should start up," Smailov said. "Such a project shouldn't take until 2028," he said, ordering completion of the project in two to-three years, according to his press service.

Regionwide need

Kazakhstan and its Central Asian neighbors are home to vast natural resources, but face issues with rising domestic energy demand and aging infrastructure, much of it, like the MAEK plant, from the Soviet era and badly in need of renovation.

Kazakh reliance on swap deals with Russia and Uzbekistan to meet its gas needs, together with a lack of gas processing capacity, were highlighted in a June 20 speech in London by Eric Rudenshiold, senior officer for Central Asia at the US Agency for International Development.

In the winter of 2022-23 both Kazakhstan and Uzbekistan had to interrupt gas exports to China, fully or in part, due to domestic energy crises, he noted.

"There's a critical need for infrastructure development," Rudenshiold told the Caspian Connectivity Conference. "There are energy use subsidies across the region. Cheap energy has always been a given, but in this day and age you just can't give it away anymore and needed reforms come at a price.