ANALYSIS-Oil majors face output slump, deep losses if Russia stops Kazakh pipeline


Western vitality majors will reduce output and lose billions of {dollars} if Russia, as is feared, suspends a pipeline that’s nearly the one export route for oil from land-locked Kazakhstan, firm sources, merchants and analysts say.

The closure of the CPC pipeline that carries oil from Kazakhstan to the Black Sea Russian export terminal within the port of Novorossiisk would shut in additional than 1% of world oil provide, exacerbating what’s already probably the most extreme vitality crunch because the Arab oil embargo within the Nineteen Seventies.

The pipeline, which runs via Russian territory and is owned by a consortium of Western, Asian, Russian and Kazakh firms, has been within the highlight since Russia on Feb. 24 invaded Ukraine in what Moscow calls a “particular army operation”.

Last Wednesday, a courtroom in Novorossiisk ordered CPC to droop operations for 30 days, citing concern about oil spill administration.

A Russian courtroom on Monday overturned the ruling towards CPC and as an alternative fined it 200,000 roubles ($3,300).Read full story

The sources, nevertheless, mentioned they nonetheless thought main disruption possible. Pipeline co-owner Russia has mentioned all stoppages are pushed by technical points.

Storm injury in March has already interrupted flows via the 1.3 million barrels per day (bpd) oil artery, operated by the Caspian Pipeline Consortium. Read full story

Major oil firms, together with Chevron, Exxon Mobil, Shell and Italy’s Eni, along with a number of Russian and Kazakh corporations have stakes within the CPC. Western firms additionally maintain stakes in Kazakh oilfields.

The CPC pipeline is the route for practically all Kazakh oil exports.

Three sources at Western oil firms working in Kazakhstan, asking to not be named due to the sensitivity of the difficulty, mentioned they anticipated a chronic CPC pipeline suspension.

One dealer at a Western main mentioned such an outage would end in a decline of fifty million tonnes of oil per yr (1 million bpd) as a result of land-locked Kazakhstan has restricted different export routes.

Many Western firms have exited operations in Russia, with oil majors among the many first to go away within the days after the battle started. Western sanctions have disrupted Russian exports and pushed up vitality worths.

In response, Russia made steps in direction of seizing oil and fuel tasks Sakhalin 1 and a couple of, the place Shell and Exxon have stakes.

A Western government acquainted with CPC operations mentioned Sakhalin was “a particular signal of issues to return for CPC”.

Shortly after Russia’s invasion of Ukraine, worldwide oil worths LCOc1 spiked to their highest ranges because the data of 2008.

They have since eased to only above $100 a barrel because the market anticipates financial weak spot will decrease demand, though promoting has been restricted by issues of tight provides that will be exacerbated by a reduce in CPC output.

“Losing a million barrels per day in an already tight setting can result in an unsolvable downside for the oil market,” Amrita Sen from Energy Aspects in London mentioned.

JP Morgan analysts predicted final week oil worths might bounce to an all-time excessive of $190 per barrel if a mixed 3 million bpd of output from Russia and Kazakhstan was hit by sanctions and associated points.


Kazakhstan produces some 1.6 million bpd of oil, and exports about 80% of that quantity, largely via the CPC.

Of the rest, 15% leaves the nation additionally by way of Russia, and round 5% goes to China and varied locations by way of rail and the Caspian Sea, Kazakhstan’s Energy Ministry information reveals.

Last week, Kazakh President Kassym-Jomart Tokayev informed his authorities to diversify oil provide routes.

But that will take time, Camille Chautard, analyst at Moody’s rankings, mentioned.

Oil majors have studied the viability of other routes in current months, the three sources mentioned, together with to China and trans-Caspian shipments to Azerbaijan and Georgia. All of these choices are difficult.

The pipeline to China can take oil from east and central Kazakhstan, however many of the massive fields are within the West.

On the Caspian Sea, exporters face tanker shortages and have little capability to take extra oil.

“To be sincere, I do not suppose we are able to re-route something,” one Western dealer acquainted with CPC operations mentioned.


Chevron could be significantly uncovered to any pipeline closure as a result of it has the most important Western stake in Kazakh manufacturing at round 380,000 bpd, or greater than 12%, of its whole output.

Recent non permanent disruptions mustn’t have a cloth affect on the corporate’s credit score standing, however an eventual “extended disruption could be very materials to Chevron’s manufacturing volumes,” Elena Nadtotchi from Moody’s mentioned.

If Chevron’s investments in Kazakhstan have been impaired or misplaced, that would result in a rankings downgrade, she mentioned.

An extended-term closure would additionally threaten Chevron’s future development plans. The U.S. main deliberate to spice up output by 40% at Kazakhstan’s largest area Tengiz to round 1 million bpd.

Credit Suisse analysts estimate that Chevron, which controls 50% of Tengiz, would have seen free money stream rising to $3.0-$3.5 billion by 2024 following the growth and to $4.0-$4.5 billion by 2026 on the premise of oil worths of $60 per barrel.

In May, Chevron flagged the danger of sanctions to its output however mentioned measures had not but had a cloth affect.

The Chevron-led Tengiz consortium TCO, which additionally contains Exxon, declined to touch upon particular particulars if the CPC pipeline was shut.

“As world oil markets proceed to come across challenges arising from geopolitics, TCO’s major focus is on sustaining secure operations, and we’re exploring potential crude oil exporting choices,” it mentioned in a press release to Reuters.

Exxon is the second largest overseas producer in Kazakhstan with output of 213,000 bpd of oil and 234 million cubic ft of fuel. It is adopted by Eni with some 145,000 barrels of oil equal per day, Shell with round 100,000 boed and TotalEnergies with some 80,000 boed in 2021.

Shell, Eni and Total declined to remark, as did Exxon, saying TCO was best-placed to reply.- Reuters

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