Kazakhstan increasing oil exports to Germany via Russia’s Druzhba pipeline

Kazakhstan-Russia-Germany agreement on Druzhba pipeline

Kazakhstan has recently signed an agreement with Russia’s Transneft to export oil via the Druzhba pipeline to Poland, from where it will head to Germany’s PCK Refinery in Schwedt. The deal involves KazMunayGas sending 1.2 million tons of crude oil in 2023, with 300,000 tons expected to arrive in Germany by the end of the first fiscal quarter.

Russia will benefit from transit fees and maintain control over the pipeline, while Germany turns to Kazakhstan as a substitute for Russia due to practical reasons such as convenience and low cost.

Doubts about Kazakhstan’s ability to rescue Germany in an energy crunch

The delay in the first shipment has caused doubts about Kazakhstan’s ability to rescue Germany and the rest of Europe in an energy crunch. Russia has been accused of blocking oil exports from Kazakhstan to Europe via the Caspian Pipeline Consortium (CPC) in 2022, raising doubts about the future of the Kazakhstan-Germany deal.

Despite this, Russia has reasons to back the deal, including receiving transit fees and keeping Germany reliant on oil imports arriving via a Russian-controlled pipeline. Kazakhstan may not have enough oil supplies available for export to Germany, and most of its oil is already under contract, making it difficult to redirect.

Efforts by Kazakhstan to diversify transportation routes

Kazakhstan is taking steps to diversify its transportation routes and reduce dependence on Russia. Successful test shipments of Kazakh oil transited across the Caspian Sea into a pipeline running from Azerbaijan to Turkey and are projected to reach 125,000 tons in April.

However, bottlenecks in Baku-Tbilisi-Ceyhan and the railroad network limit how much crude Kazakhstan can send to Europe on routes circumventing Russia, making it a challenging task to reduce dependence.

Kazakhstan oil producers consider alternative export routes

More than 70% of Kazakh oil exports are currently sent via the Caspian Pipeline to Novorossiysk on Russia’s Black Sea coast. However, top Kazakh government officials called on the country’s oil producers to urgently consider alternative export routes after Russia and its corporations were hit by international sanctions after Russia’s invasion of Ukraine.

Kazakh President Kassym-Jomart Tokayev maintained a neutral stance on the conflict in Ukraine, insisting that Russia remains an important partner and ally. As a result, Kazakhstan has agreed to allow shipments of Russian crude to transit the country en route to Uzbekistan, with the total transit shipments of Russian oil to Uzbekistan anticipated to exceed 1.8 million barrels before the end of this year.

Challenges in reducing dependence on Russia

Although Kazakhstan is making efforts to diversify its transportation routes and reduce dependence on Russia, challenges remain. Swapping or blending operations may be underway, such as KazMunayGas completing swaps with Moscow by purchasing Russian oil for refineries in Kazakhstan or blending its oil with Russian oil.

Whilst there are bottlenecks in Baku-Tbilisi-Ceyhan and the railroad network, most of Kazakhstan’s oil exports continue to rely on transit through Russian territory, leaving it open to Russia’s occasional interruptions.

Kazakhstan needs to increase production volumes and ensure Russia remains a reliable partner and transit country if they aim to play a key role in the European energy market.

Title: Will Kazakhstan play a bigger role in European energy market?

Image Source: Wikimedia Commons