Kazakh transport plans unaffected by Russia-Georgia conflict

Although Kazakhstan has said it plans to arrange delivery of its oil to the BTC pipeline via Azerbaijan and on to Georgia's Black Sea port of Batumi, traders expressed fears after the Georgia-Russia conflict.

Eric Watkins
Oil Diplomacy Editor

LOS ANGELES, Oct. 9 -- Although Kazakhstan has said it plans to arrange delivery of its oil to the Baku-Tbilisi-Ceyhan (BTC) oil pipeline via Azerbaijan and on to Georgia's Black Sea port of Batumi, traders expressed fears after the Georgia-Russia conflict about the efficiency of the trans-Caucasus routes and about possible future pressures from Russia.

Kairgeldy Kabyldin, chief executive officer of Kazakhstan's state-owned KazMunaiGaz, recently sought to ease these concerns, speaking with journalists about the strategy of developing oil export routes from his country as well as its participation in several international oil projects.

He said the supplies will be transported via the Kazakh Caspian Transportation System (KCTS).

"KazMunaiGaz is a business structure," he said, "so we do not make political assessments of these kinds of events. I would not say today that risks of [transporting oil via] the trans-Caucasian corridor via the BTC pipeline have increased due to the Russian-Georgian conflict."

Although the pipeline was built 5 years ago and planned even earlier—some 10 years ago—he said Russia has never spoken against its direction. "It has only said it can offer a better route," he insisted. "All this is nothing but a coincidence of events. We will not change our plans for using this corridor."

On the contrary, he said, the transit of Kazakh oil in this direction would lend "an element of stability" in the region. "This is because you know that any country signing international transit agreements guarantees the stability of oil supplies and the freedom of transit. The rest is an issue for politicians."

Kabyldin said business and trade economic relations regulate political and interethnic problems in the long run. "But let us here separate the issue of the conflict from the issue of the transit and transport of oil along the Baku-Batumi corridor and the BTC pipeline."

Cheney's Georgia visit
When US Vice-President Dick Cheney recently called on Georgia and other republics of the former Soviet Union to build new export pipelines bypassing Russia, the question arose as to whether that visit generated the need for Kazakhstan to begin talks with the European Union and the US in this regard.

Kabyldin said Kazakhstan President Nursultan Nazarbayev had announced the need to create a multivector oil and gas transport system back when Kazakhstan had just gained its state independence.

"Today we are implementing projects for delivering our oil via the Caspian Pipeline Consortium (CPC) to Batumi and China," he said, but "we are not giving up those projects that were defined earlier. We are planning to use the BTC pipeline, which currently carries 37-40 million tonnes of oil/year and whose annual throughput capacity is 50 million tonnes of oil."

He said his country also is eyeing the Baku-Supsa pipeline, which can transport 10 million tonnes/year of oil and which has already been idle for 2 years. "It might not be in the interests of Georgia and Azerbaijan not to use this asset that can bring significant benefits to the two countries," he maintained.

He said Cheney's proposal, "which definitely contains a political tint" in bypassing Russia, is nothing new for Kazakhstan.

"It is logically right always to have an alternative. However, we believe that, in the conditions of having unused capacities of the existing pipelines, building new ones would be economically unjustified. But expanding or building additional capacities for the existing pipelines is another matter. Currently we are ready to pay for transit."

Selling Oman's CPC share
Asked how the issue of selling Oman's CPC share is being handled—taking into account the mutual interest of Kazakhstan and Russia to buy it—Kabyldin said that the CPC consists of two parts: one part is private companies and the other part is state companies.

"Oman's share belongs to government shareholders," he said. "Two other government shareholders—Russia and Kazakhstan—have the priority right to buy Oman's share." He said both have expressed a desire to buy Oman's share to maintain the balance of interests.

"If the share is bought by a private company, then the initial balance of interests in the CPC might be disrupted. In other words, government shareholders might lose their influence," he added.

"That is why Kazakhstan has agreed with the Russian side to preserve the balance. It is not ruled out that Oman's share will be bought by one of the countries or by both of them," he explained, adding that, in either case, the balance of interests would be preserved. "Everything depends on commercial talks."

Planned refineries
Kazakhstan still has plans to build refineries in Turkey and possibly Iran, Kabyldin said. "We are planning to build an oil refinery in Ceyhan…. Currently Kazakhstan and Azerbaijan are considering the Turkish side's proposal to build a modern superplant which, apart from producing oil products of European quality, could produce petrochemical products. "We have even suggested to our Russian colleagues to take part in the project," he added.

"Today we are conducting talks and considering plans for our country's possible participation in such an oil refinery from 2013 and further," he said. Kabyldin said the Turkish side must first prepare a feasibility study and "resolve the issue of allocating land. This issue is very topical. After that we will make a decision."

He said Iran also wants Kazakhstan to take part in building an oil refinery in the north of the Caspian, which Kabyldin says is "a good idea. They offer to initiate cooperation as part of swap operations and suggest that we have a share in the refinery." The only caveat, he said, is that there are certain investment restrictions resulting from Kazakhstan's position in international politics.

"As of today, we have agreed with our Iranian colleagues that by the end of this year they will prepare a feasibility study for the oil refinery project and give it to us for studying," Kabyldin revealed.

"And why not, if this is business and, moreover, good business? If we take part in this project, we will have access to the Asian market," he said. "Currently, about 80% of Southeast Asia gets oil from the Persian Gulf."

Contact Eric Watkins at hippalus@yahoo.com.

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