By Robert M Cutler
MONTREAL - Three recent developments testify to the latent dynamism of the energy sector in Kazakhstan. These concern an extension of industrial cooperation with Ukraine and with India, and new plans for increasing the capacity of the pipeline of the Caspian Pipeline Corporation.
Kazakhstan is negotiating with Ukraine on terms for construction of an oil refinery, which would enable Kazakhstan to export not only crude oil but also refined products, which are often much more highly profitable. This comes soon after Kazakhstan has expressed definite interest in sending oil from the offshore Kashagan deposit across (or eventually under) the Caspian sea to Azerbaijan and Georgia, then under the Black Sea to Ukraine.
That route would provide the oil to help Ukraine reverse the flow of the Odessa-Brody Pipeline (OBP) back to the originally intended southeast-to-northwest direction, with further construction to extend the pipeline to Plock, Poland, ending finally in Gdansk, which would give access to world markets through sea transport.
There two countries are also discussing the possibility of Kazakhstan's natural gas transiting Ukraine for European consumption, although this would be dependent upon Russian gas monopoly Gazprom's agreement to convey the gas across Russia.
This is not Kazakhstan's only export option, for the associated gas underlying Kashagan's salt dome could also be piped under the Caspian Sea to Azerbaijan or be taken overland to Aqtau for shipment as either compressed or liquefied natural gas. The Kazakhstan-Caspian Transportation System (KCTS) upon which the latter alternative depends seems, however, to have gone dormant, since French firms had been exploring participation in its construction but it did not figure in the industrial agreements reached between Presidents Nursultan Nazarbaev and Nicolas Sarkozy when the former visited France earlier this year. (See Kazakhstan deepens relations with Europe, Asia Times Online, October 29, 2010).
Kazakhstan is looking to the south as well as to the west for partners in energy-industrial cooperation. Reports in the Indian press suggest that Delhi and Astana will sign a commercial accord in two to three months that will make it possible for India's state-run ONGC (actually its foreign arm, OVL) to acquire a 25% stake in Kazakhstan's offshore Satpaev exploration bloc, which is not far from Kashagan and other significant oil deposits. This deal has been in the works for over three years, delayed by administrative complications arising from various industrial reorganizations and the resulting need for legal and economic clarifications.
Originally, in 2007, there was some talk about Kazakhstan joining the Turkmenistan-Afghanistan-Pakistan-India (TAPI) gas pipeline, for which the first quadripartite intergovernmental agreement was signed just this month. However, that was before the Gaffney Cline audit of Turkmenistan's natural gas reserves was conducted, revealing the extent of the country's potential riches.
Nevertheless, India's geo-economic penetration into Central Asia is finally beginning: the Indian press reports that Turkmenistan's President Gurbanguly Berdimuhamedow has offered India a lead role in the pipeline construction consortium. (Cabinet approval in New Delhi will be required for India to accept the offer.) It is not clear that gas exports from Kazakhstan to India would be justifiable on a commercial basis. At any rate, they would likely come only at a subsequent stage of the TAPI, if at all.
The third development mentioned above is potentially the major one of the three. On November 25, all shareholders in the Caspian Pipeline Consortium (CPC), which operates the pipeline from the Tengiz deposit in northwest Kazakhstan across southern Russia to the Black Sea port of Novorossissk, approved measures to enlarge the CPC. This enlargement was part of the original agreement to build the CPC, but plans have been stymied for some years, although not by Astana. The main roadblock here is thought to be Transneft, the state firm managing the country's oil pipelines.
If the enlargement does indeed go ahead, then the extra oil (and throughput would be nearly doubled) would require somewhere to route by which it could reach world markets. This would not be through the Turkish Straits, which are already overloaded with commercial traffic including energy, and where ecological security is a real issue on the ground. (Also the Montreux Convention governing passage through the Straits places restrictions on tanker traffic, and there is no reason to suppose that the Turkish government will not continue to invoke it.)
However, that oil also cannot find its way to world markets via the once-planned Burgas-Alexandropoulos pipeline that was intended to link the Black Sea with the Mediterranean Sea through Bulgaria and Greece. Not long ago, Russia admitted that this was a non-starter, and it is no longer even on the drawing boards. An alternative is the Samsun-Ceyhan pipeline project (also called the Trans-Anatolian Pipeline, TAP).
With Burgas-Alexandropoulos sidelined, Russian Prime Minister Vladimir Putin publicly raised last year the possibility that Kazakhstan may supply oil for the Samsun-Ceyhan pipeline. The head of the Italian energy firm Eni, one of the principals in the project (the other is the Turkish group Calik), once suggested that oil from the offshore Kashagan and the onshore Karachaganak deposits in Kazakhstan could be used for this purpose....