ALMATY (Reuters) - Kazakhstan, eager to become one of the top 10 global oil producers by 2015, will struggle to provide enough capacity to export its swelling crude output to buyers in Europe and China.
Oil is key to Central Asia’s biggest economy, which aims to raise production to 100 million tonnes over seven years and reinvent its ancient Silk Road role as a crucial trading hub.
But transporting oil out of landlocked Kazakhstan, which is roughly the size of western Europe, has become a headache for producers, despite a growing range of routes.
Kazakhstan exports almost all of its crude. The government sees exports increasing slightly to 62.8 million tonnes this year with production edging up to 70 million tonnes.
At present the country pumps most of its oil through Russia and has irritated Moscow in past years by announcing plans to build more pipelines and diversify export routes toward western Europe.
“It is impossible to transport crude out of Kazakhstan without some difficulties,” Senior Associate Klara Nurgaziyeva from law firm Dewey & LeBoeuf told an oil and gas conference last week in the Kazakh financial capital Almaty.
Three major pipeline export routes, the Atyrau-Samara and Caspian Pipeline Consortium (CPC) links to Russia, and the Atasu-Alashankou pipeline to China, carry Kazakh crude.
Tankers are also sent across the Caspian Sea to Russia, Azerbaijan and more recently, Iran. There are rail links to both Russia and China as well.
“Kazakhstan has done a great job of approaching a multi-vector approach in talking to China and Russia,” said Jennifer Coolidge, Director at CMX Caspian and Gulf Consultants.
But the export routes are still not enough.
“If we take each of these export routes in turn, we can see that in each one there’s potential for expansion and yet not quite to the level that’s going to match the production possible for Kazakhstan,” said Katherine Hardin, Director of Caspian Energy at Cambridge Energy Research Associates (CERA).
The U.S.-based consultancy believes Kazakh oil production will almost triple by 2020 to 3.5 million barrels per day (174 million tonnes), and exports could potentially triple by 2030, ten years later.
Over the summer, partners in the Chevron-led CPC pipeline, which takes Kazakh crude to Russia’s Black Sea port Novorossiisk, agreed after a long debate to almost double the link’s capacity to 1.2 million bpd, though there has been no increase yet.
Stakeholders BP and Gulf state Oman are looking to pull out.
Plans to raise capacity to 25 million tonnes a year from 15 million through the Atyrau-Samara pipeline, which pumps oil from western Kazakhstan to Russia’s south, are moving slowly.
The Russians say Samara is bottlenecked.
Last year, 5 million tonnes went through the pipeline to China, which was more than expected at such an early stage, although the pipeline will be upgraded to take 20 million.
But until more piping links it to Kazakhstan’s western region, where key projects such as Chevron-led Tengiz and the enormous Eni-led Kashagan field lie, there is only so much it can pump.
“Existing pipelines are full. We are thinking of moving to rail now that we’ve achieved full capacity,” Jay Johnson, head of Chevron’s Eurasia unit, said of the Tengiz field, which is producing at 620,000 bpd.
While rail seems viable — the U.S. company has built a rail track extending out of the field into the Kazakh steppe — it is three times more costly than pipeline.
Railway shipments of crude from Azerbaijan to Georgia will increase in coming years and this will ease pressure on Kazakhstan in taking oil to market, said Cross Caspian Logistics, a joint venture company with Azeri state energy firm Socar.
Once across the sea, the oil can enter the BP-led Baku-Tbilisi-Ceyhan pipeline (BTC), which takes Caspian crude to the Turkish Mediterranean.
But Hardin at CERA warned that BTC “is not necessarily the silver bullet for exports out of Kazakhstan.”
BTC, which regularly pumps an amount equal to 1 percent of world supply, could expand to 1.2 million bpd from 850,000 bpd, she said, but added this is not likely in the short term.
Kazakhstan is now discussing a new, $1.5 billion, 750 km (466 mile) pipeline, to be built along its western coast on the Caspian, that would feed into BTC. The timing and plans have not been finalized.
Deputy Energy Minister Lyazzat Kiinov rebuffed suggestions the government would build a trans-Caspian pipeline. He told the conference environmental issues would block any such project.
The emergence of Iran as a buyer of Caspian oil has aroused some hopes Kazakhstan will be able to export oil to the maximum.
Nearly four million tonnes went to the Iranian port of Neka in 2007. “Although this is an important route in terms of diversification, it’s still a small part for the Kazakhs in terms of actual volumes,” said Hardin at CERA.
Her consultancy predicts that even if assumptions for all route expansions are taken in, total export capacity for Kazakhstan will reach 180 million tonnes in 2029 — still not enough to cope with increasing production.
Reporting by Amie Ferris-Rotman, editing by Anthony Barker