Bypass Route for Kazakhstan's Oil A Pipe Dream?

In late November, reports surfaced that Kazakhstan plans to increase oil exports via the Baku-Tbilisi-Ceyhan (BTC) pipeline by more than 13 times, Orda.kz reports.

This is an alternative to deliveries through Russia, but bolstering supplies via BTC seems to have encountered issues.

The volume of deliveries via BTC is planned to increase from one and a half million tons per year to 20 million tons.

The main goal is export diversification, as 80% of Kazakhstan's oil currently passes through Russia.

However, the Azerbaijani state corporation SOCAR, which controls a large share of BTC, has not confirmed that it is ready for such volumes.

SOCAR also stated that it does not want to transport Kazakhstan's oil through its pipelines not to reduce the quality of its Light brand. The reason is that Kazakhstan's product contains more sulfur. 

We can currently accept no more than 2.2 million tons from Kazakhstan via BTC so as not to reduce quality. Buyers appreciate the low sulfur content of Azeri Light supplied via BTC, said Elshad Nasirov, SOCAR's vice president.

Meanwhile, Oil industry expert Nurlan Zhumagulov points out that Azerbaijani oil is two to three dollars more expensive than Brent per barrel, while Kazakhstan's oil is one to two dollars cheaper. The price gap can reach five dollars per barrel.

Cost is indeed a potential obstruction.

Logistics via BTC costs an average of $120 per ton of Atyrau oil versus $38 for CPC. In any case, the Azerbaijani side will demand a long-term contract (at least 10 years) on a 'Ship or Pay' basis when the pipeline is filled to the projected 20 million tons per year. And who would want to take such a risk?
 asks Nurlan Zhumagulov.

As reported by KazTransOil, from January to November 2024, one million and 342 thousand tons were shipped via the BTC route. This is less than Kazakhstan supplies to Germany via the Transneft pipeline system and to Russia's Makhachkala via the Caspian Sea.

Original Author: Nikita Drobny