Kazakhstan and Azerbaijan are in the final stages of an agreement under which part of the Kazakh oil produced will be redirected to the Azerbaijani oil pipeline system. The development of this transport route will make it possible to supply oil bypassing Russia. This was reported by Reuters, citing sources familiar with the negotiations.
The need to find alternative routes arose after a series of incidents around the Caspian Pipeline Consortium (CPC), through which about 80% of Kazakh oil exports pass. Sources note that the reason for the search for alternatives was Russian restrictions, which led to restrictions on supplies by stopping the work of the CPC.
At the moment, negotiations are underway on small volumes of deliveries. From the Kazakh side, they are conducted by the state company Kazmunaigas (KMG), from the Azerbaijani side, by the trading division of the state company SOCAR. The discussed volume of oil is only 1.5 million tons per year, which will be delivered to Baku by tankers across the Caspian Sea, after which they will enter the Baku-Tbilisi-Ceyhan (BTC) pipeline system. The daily volume of supplies will be about 30,000 barrels, which looks negligible compared to 1.3-1.4 million barrels per day for CPC. The agreement is expected to be concluded at the end of August, and deliveries will begin at the end of September.
However, the talks do not end there: the parties are also discussing a future increase in volumes with the help of another pipeline, the final point of which is the Georgian port of Supsa. We are talking about another 3.5 million tons of oil per year, in which case the total volume of supplies will slightly exceed 100,000 barrels per day, or about 8% of CPC's capacity. True, the increased volumes, in the event of a deal, will begin to flow into the Azerbaijani pipeline system only from 2023.
Additional complexities of the transaction are related to the need to use a limited tanker fleet by Kazakhstan, as well as the qualitative difference between the Kazakh oil grade and the Azerbaijani one. Azerbaijani oil is higher quality with lower sulfur content, it is easier to process, unlike Kazakh oil, which is traded at a discount even to the Azerbaijani benchmark.
President of Kazakhstan Kassym-Jomart Tokayev expressed concern about the dependence of the export capacities of Kazakh oil on the CPC back in July, at the same time the head of state instructed to find alternative supply routes and assess the possibility of expanding the export of Kazakh oil through the Trans-Caspian route – a transport system passing through China, Kazakhstan, the Caspian seas, Azerbaijan, Georgia and further to Turkey and Europe.