Kazakhstan's "Friendship" - Druzhba Pipeline's Prospects

While the European Union is trying to find an alternative to Russian energy resources, Kazakhstan's oil can fill these energy gaps according to The Diplomat. Orda also looked into the situation.
Visits..Visits..Visits
According to The Diplomat, with the outbreak of the war in Ukraine and the tightening of anti–Russian sanctions, EU politicians have faced quite a predicament - the need to find alternative sources of energy resources. This is easier said than done. Indeed, the EU had once been dependent on Russian oil and gas. The figures speak for themselves. Russia answered for more than 40% of Europe's natural gas and about 30% of its oil before the war.
The EU's energy crisis makes matters worse. The Union's energy market has been experiencing issues with energy since 2021. The following year, Europeans' gaze fell on energy-rich Central Asia. The autumn of 2022 was marked with European officials' visits to Central Asia. In October 2022, Annalena Berbock, Minister of Foreign Affairs of Germany, visited Kazakhstan and Uzbekistan with a delegation of power engineers. In the same month, the President of the European Council, Charles Michel, met with all Central Asian leaders.

The main topic of all these visits concerned the supply of energy to Europe, The Diplomat writes. But what can the Union achieve is a question that remains unanswered.
Not Enough Gas For Everyone
According to The Diplomat, during the visits, the transportation of natural gas through the Caspian Sea from Central Asia was discussed. Gas Turkmenistan to Azerbaijan via the Trans-Anatolian gas pipeline to Europe was of particular importance.
Uncertainty remains, however, whether there will be enough Azerbaijani gas for the growing demand in Europe. The European Union perceives Turkmen gas as a chance to patch up its "fuel gaps".
The Central Asian republics' already existing contracts for the supply of gas to China cast doubt on such an option. Turkmenistan, for instance, sends the lion's share of its gas to China. The countries of the region, therefore, lack enough free volumes of natural gas to fulfil supplies for the West.
Paradoxically, despite the rich deposits of natural gas, Central Asia itself suffers from an internal shortage. Orda.kz has written that in 2023 and subsequent years there may be a shortage of gas in Kazakhstan.
Although it is unlikely that Europe will be able to get gas from the region, it still has a chance to snatch up Kazakhstani oil.
Restrictions in Kazakhstan's Oil Sector.
At the beginning of 2023, the Minister of Energy of Kazakhstan, Bolat Akchulakov, said that the first batch of Kazakhstan's oil to Germany was expected in January. The delivery for the first quarter was supposed to amount to 300 thousand tons.
The Minister also said that the total annual volume of oil supplies along this route could reach up to 1.5 million tons with a maximum capacity of 6-7 million tons of oil per year.
The Diplomat reports that these forecasts are unlikely to live up to expectations in 2023.

Orda.kz has reported that deliveries began only at the end of February, not at the beginning of January.
Kazakhstan was able to transport a much smaller volume of oil than originally expected. Because of this, it is unlikely that Kazakhstan will be able to deliver 300 thousand tons by the end of the quarter or approach 1.5 million tons by the end of 2023, let alone 6-7 million. The government of Kazakhstan is also reportedly struggling to find free volumes of oil to be transported through the Druzhba pipeline.
The Diplomat brings forward another valid point. The capacity of the oil refinery Schwedt in Germany is about 11.6 million tons of oil per year. Until 2022, Russia supplied at least 110 million tons of oil to Europe. In 2020 alone – 138 million tons of oil. Russia supplied about 1-2 million tons of oil per month only through the Druzhba pipeline. Until 2022 - about 20 million tons of oil per year.
More than two-thirds of Kazakhstan's oil is exported through Russia, primarily through the CPC pipeline. Unlike Russia, Kazakhstan's oil sector is heavily dependent on foreign companies and investors. This reduces the government's ability to release and redirect oil flows, The Diplomat reports.
According to a Kazakhstani expert and ex-adviser to the Minister of Energy, Olzhas Baydildinov, Kazakhstan has almost no spare volumes of oil for supplies to Europe.
KazMunayGas currently directs almost half of its production from all its fields to local refineries in Kazakhstan. The company is also obliged to send 5 million tons of oil to two refineries in Romania that belong to the Central Asian Republic.
How Kazakhstan's Oil Can Get to Europe
If oil exports to Germany have become one of the priorities of the Kazakh authorities, then, according to The Diplomat, the only real chances of increasing oil exports through the Druzhba pipeline are achievable in two ways.
Strengthening of oil exports is possible either by redirecting oil from traditional oil routes (including the Russian oil port of Ust-Luga), or through swaps. In the latter case, Russian oil can be purchased to load Kazakhstan's refineries, and oil from Kazakhstan in the meantime will be redirected to the refinery in Schwedt through Druzhba.
However, The Diplomat writes that in any case, these hypothetically (and maximum for Kazakhstan) 6 million tons of oil to Germany will cover only 6% of Berlin's needs.
Speaking of Kazakhstan, this concerns redirecting existing volumes of oil, not expanding them. A significant increase in oil exports could be achieved if Russian oil was mixed with Kazakhstan's oil in a ratio of 49% to 51%. This would technically make the oil "Kazakhstani" according to The Diplomat.
We Can Still Be Friends, Can't We?
The Diplomat writes that despite many shortcomings, all interested parties will be able to benefit from Kazakshan's oil making its way through Druzhba.

Firstly, the search for substitutes for Russian oil supplied via the Schwedt refinery remains a serious problem for Germany. The Druzhba oil pipeline is connected to it, which serves as the foundation for commercial success and profitability.
Secondly, the refinery had worked with Urals brand oil. Kazakhstan's oil reportedly has similar characteristics to Urals. This will allow it to be mixed with Russian Urals oil in the general pipeline system of Transneft, further reducing the cost of petroleum products for Germany.
Thirdly, alternative routes of oil delivery to this refinery are unlikely to present great opportunities. The capacity of the German port of Rostock is small due to the shallow depth. This means that oil from supertankers has to be reloaded to smaller vessels, which requires additional costs.
Fourthly, obtaining Kazakhstani oil, despite the difficulties, will give a chance to keep the refinery running and provide jobs for thousands of people.
Germany is thereby ready and willing to pay extra for Kazakhstan's oil via this route, while Kazakhstan will undoubtedly benefit from utilizing the pipleline.
Argus Media Group notes that Kazakhstani oil supplied via the Druzhba oil pipeline is bought at a premium of $1 compared to the more expensive Brent oil brand. The same Kazakhstani oil coming through the CPC pipeline is bought at a discount of $3-4 compared to Brent.
The cost of logistics through Druzhba is cheaper than through CPC, increasing Kazakhstan's profit. This explains why the Republic of Kazakhstan seeks to redirect its oil from other export routes and supply it through Druzhba.
Russia and Belarus will also be able to benefit from transit duties by allowing Kazakhstan's oil to be sent through their territories.
Yet the volumes of oil that Kazakhstan can offer are nowhere near the Russian supplies to the EU before the war in Ukraine.
Another European Country Wants Kazakhstan's Oil
Meanwhile, Oleg Chervinsky's Telegram channel "Oil and Gas of Kazakhstan" reports that the supply of Russian oil and petroleum products to the EU countries will fall by almost three times in 2023:
"In 2023, Russia will redirect 140 million tons of oil and petroleum products exports to Asia, which previously were for Europe. Deliveries to the EU this year will amount to about 80-90 million tons against 220 million tons in 2022. This was announced by Russian Deputy Prime Minister Alexander Novak on the sidelines of a meeting of the Board of Trustees of the Moscow Energy Institute.
Europe expects to replace the falling volumes, including with Kazakhstani oil, which by its properties is suitable for processing at European refineries. In the first quarter of 2023, KazTransOil JSC transported 39,897 tons of Kazakhstan's oil in the direction of the Adamova Zastava oil delivery point for further delivery to Germany. In December 2022, KazTransOil sent an annual request to Transneft PJSC for the transportation of 1.2 million tons of Kazakhstani oil to Germany in 2023."
According to the channel, in addition to Germany, the Czech Republic is interested in the supply of Kazakhstan's hydrocarbons. Prime Minister of the country Petr Fiala said during his April visit to Astana that Prague is ready to participate in the modernization of the energy sector of Kazakhstan. The Czech Republic hopes for a stable supply of energy resources from Kazakhstan in return.
Original Author: Tamerlan Salyq
DISCLAIMER: This is a translated piece. The text has been modified, the content is the same. Please refer to the original piece in Russian for accuracy.
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