Kazakhstan nervous of tougher Russia/Ukraine oil sanctions

Reuters

By Raushan Nurshayeva and Alla Afanasyeva

ASTANA/MOSCOW (Reuters) - Kazakhstan, which has backed close ally Russia's actions in Ukraine, is seeking alternative routes for its oil exports which may fall if the West decides to toughen sanctions against Russia, a major transit route of Kazakh crude to world markets.

A vast steppe nation of 17 million, Kazakhstan is Central Asia's largest economy and the second-largest post-Soviet oil producer after Russia, with which it participates in a customs union and plans to form the Eurasian Economic Union this year.

Russia's annexation of Crimea in neighboring Ukraine has so far only elicited targeted sanctions against certain Russian and Ukrainian individuals and many believe major crude producer Russia's key position in world energy markets makes heavier sanctions very unlikely.

But even the outside possibility of tighter sanctions as Russian troops remain concentrated on Ukraine's eastern border has shaken Kazakhstan's oil establishment, already on edge about delayed output from the mammoth Kashagan oilfield.

"We don't know what sort of sanctions there can be. If our exports are curbed in any way, this can be done mainly along Russia-bound routes," Kazakh Oil & Gas Minister Uzakbai Karabalin told parliament this week.

"In this case our oil exports will decrease, and we should think better about other options."

Kazakhstan, which holds 3 percent of global recoverable oil reserves, produced 81.7 million tones of oil in 2013. Last year it exported some 22 million tones of crude - around 30 percent of all exports of its own oil - via Russia's pipeline or port infrastructure which may fall under possible Western sanctions.

In 2013 Kazakhstan exported 15.4 million tones via the Atyrau-Samara pipeline, owned by Russian pipeline monopoly Transneft, in which it is blended with Russian oil of lower quality, and another 6.3 million tones by rail from the Tengiz oilfield to the Russian Black Sea port of Taman.

Another 28.7 million tones of Kazakh crude from Tengiz were exported via the Caspian Pipeline Consortium led by Chevron. The route, running to the Russian Black Sea port of Novorossiysk, has the status of an international pipeline but traders have said it could also face problems if sanctions were imposed because some Russian oil is blended into the pipeline.

CHINA, CASPIAN REGION OFFER ALTERNATIVES

Should tougher sanctions against Russia emerge, one of the options would be to expand existing exports to the country's giant and energy-hungry neighbor China.

Oil firms working in Kazakhstan are likely to set their sights on the East Siberia-Pacific Ocean pipeline which runs from Russia to feed Asian markets, said a source close to Kazakhstan's state oil and gas company KazMunaiGas.

"For the time being we lack capacity of the (Atasu-Alashankou) pipeline to China, so we are studying a possibility to redirect some exports to China via the East Siberia-Pacific Ocean pipeline, if oil transits via Russia fall," he said.

The annual export capacity of the Russian pipeline is 50 million tones of crude. China-bound exports of Russian crude totaled around 40 million tones last year.

There are also plans to boost the capacity of the Atasu-Alashankou pipeline from Kazakhstan to China from today's 12 million tones to 20 million tones in the next two years, Karabalin said.

Kazakhstan is a land-locked country, but its access to the Caspian Sea which it shares with oil-rich littoral states could provide another opportunity to diversify exports.

"In theory, they (Kazakhstan) could sell oil to Iran - there is a port, and Iran may sell it further," Andrey Polischuk, analyst with Raiffeisenbank in Moscow, said.

After its independence in 1991, Kazakhstan used oil swap operations with Iran, sending crude from its port of Aktau to oil terminals in the northern Iranian city of Neka.

"We are watching attentively how (the West's) attitude is warming towards Iran," Karabalin said. "If sanctions against Iran are lifted, we have a well-established route from Aktau to the port of Neka."

Aktau, which can handle annually 12 million tones of crude, currently uses just one half of its capacity.

Kazakhstan's government is also considering plans to ship oil from Aktau to Azerbaijan and further to Georgia, where KazMunaiGas owns an oil terminal in Batumi on the Black Sea.

Energy analysts say that another option could be sending oil by sea to Azerbaijan and pumping it into the Baku-Tbilisi-Ceyhan pipeline running to Turkey's Mediterranean coast.

Meanwhile, oil producer TCO slashed oil exports in March via Russia's Taman by 43 percent compared to February, already redirecting some of its exports to Aktau.

(Additional reporting by Vladimir Soldatkin in Moscow; Writing by Dmitry Solovyov; editing by Keiron Henderson)

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