Kazakhstan sees no 'major problems' with CPC crude route amid rising tension

Kazakhstan anticipates no "major problems" with its vital CPC crude export route, which has operated efficiently through the recent tensions in the Black Sea thanks to dialogue between US, Russian and Kazakh partners, the head of state company KazMunaiGaz said Oct. 4.

The comments by KMG CEO Magzum Mirzagaliyev came as the US has for the first time expressed concerns over a possible impact on the export route from the Russia-Ukraine war, as hostilities in the Black Sea have moved closer to the vital oil port of Novorossiisk.

Speaking in Astana, Mirzagaliyev voiced confidence in the 1.5 million b/d CPC route, which comprises a 1,500 km pipeline that runs from the Tengiz field in Kazakhstan across southern Russia to the port of Novorossiisk, taking in oil from a number of other fields along the way. The route carries around 80% of Kazakhstan's crude production.

CPC Blend is a vital source of crude for the European market following the imposition of sanctions on Russian oil and has been trading close to the Platts Dated Brent benchmark: the grade was assessed at a $1.60/b discount to Dated Brent on Oct. 3, according to S&P Global Commodity Insights data.

However, shippers have contended with heightened war risk in the Black Sea, reflected in spiraling insurance costs, according to market participants.

"This is the most sophisticated, very efficient route that we have been using for more than 20 years and the fact is that this is the largest pipeline in the world," Mirzagaliyev told the Kazakhstan Energy Week event.

He went on to thank the shareholders in the pipeline by name, including Russian pipeline operator Transneft, Chevron, ExxonMobil and Shell, for "making sure that the dialogue of the shareholders continues to happen."

Mirzagaliyev alluded to disruptions in 2022, which included storm-related damage to loading facilities and a legal dispute over environmental issues -- both against a backdrop of military tensions.

"The challenges that we have been facing, especially last year, I think they are currently being managed, and we do not forecast any major problems," Mirzagaliyev said.

US fears

However, US government officials have spoken for the first time about the risk to CPC exports following an escalation of the conflict between Russia and Ukraine in the Black Sea, including reported sightings of floating mines, and attacks on Russian naval assets.

In August, a naval landing ship was seriously damaged in an attack near the CPC loading facilities. The nearness of the hostilities has prompted speculation that CPC crude exports could fall foul of wider tensions.

US Ambassador to Kazakhstan Daniel Rosenblum voiced concern Sept. 29, telling Kazakh media a formal agreement should be reached on respect for the security of the CPC route.

Following those comments, a US State Department spokesperson condemned Russia's war against Ukraine, "including the impact ... on humanitarian and commercial transport infrastructure like the Caspian Pipeline Consortium."

The US has held discussions "concerning the security of the pipeline with the government of Kazakhstan and the energy companies who rely on the infrastructure," the spokesperson added.

Despite the broadening of attacks on Russian assets, industry figures remain relatively optimistic CPC Blend shipments will continue unscathed, noting the wide range of parties with an interest in the route, including US and European oil and gas majors, and the Russian state. Some Russian oil is transported in the pipeline from fields operated by Lukoil, amounting to 10% of CPC flows.

The US has issued an explicit sanctions exemption for CPC crude, noting its origin predominantly in Kazakhstan.

Russian minister

Russian energy minister Nikolai Shulginov, speaking at the same event in Astana, offered his country's assurances on the pipeline.

"We have normal interaction, constructive cooperation... so we do not have any worries for the time being. We think about energy. We do not think about influencing infrastructure. Any action against energy infrastructure -- oil pipelines or gas pipelines -- is inadmissible," Shulginov said in a response to a question on the security fears from S&P Global Commodity Insights.

The shareholders in the Caspian Pipeline Consortium include Russia, with the largest stake at 25%, and KazMunaiGaz on 19%. Smaller stakes are held by Chevron, ExxonMobil, Shell, Eni and Russian companies Rosneft and Lukoil among others.