Kazakhstan Struggles to Find Enough Crude Oil to Pipe to Europe

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Kazakhstan is struggling to find enough crude oil to meet requests from European countries for deliveries through Russia’s Druzhba pipeline system that would allow them to reduce their dealings with Moscow.

Germany is supposed to take delivery of a total of 40,000 tons of piped Kazakh oil this quarter, according to KazTransOil, the state oil pipeline operator. That’s down by almost 90% from what was originally planned.

Kazakhstan’s producers are struggling to find spare barrels that would help European firms to wean themselves off Russian supply, people with knowledge of the matter said. On top of that, they are also wary of using the Druzhba link because they can earn better returns by using other export routes from the landlocked central Asian nation, they said. 

Kazakhstan’s energy ministry and state-run oil producer KazMunayGas didn’t immediately respond to a request for comment. A spokeswoman for Germany’s economy ministry said she was unable to comment on whether piped imports from Kazakhstan have been reduced from what was originally planned.

Kazakhstan’s oil production has dropped by about 100,000 barrels a day since late February, according to daily data from the government. Output briefly recovered from unplanned maintenance work at the Tengiz field, the country’s largest producer, that crimped flows earlier last month, but has since dropped back again. 

Tengizchevroil, operator of the field, confirmed that another production train has now been taken out of operation for maintenance, cutting flows again.

The Caspian Pipeline Consortium’s CPC link to the Black Sea offers Kazakhstan access to a wide range of international buyers and a quality bank that preserves the value of barrels put into the system. 

The European Union banned almost all seaborne oil imports from Russia in early December, but allowed five countries — Germany, Poland, Hungary, Slovakia and the Czech Republic — to continue receiving supplies through the Druzhba pipeline system from Russia. 

Germany, previously the top buyer through Druzhba, elected to halt piped inflows at the end of 2022, while Poland scaled them back sharply. That’s created a need for alternatives, but the logistics of purchasing cargoes from the international marketplace are not straightforward. 

For buyers of Kazakh barrels, the advantage of using Druzhba is that the volumes it receives from the central Asian country will be chemically similar to the usual flow of Urals crude. Inputs to Russia’s pipeline system are blended to create a uniform export grade, the only difference for the German buyer will be in who it pays for the crude it receives.

The northern branch of the Druzhba system feeds two refineries in eastern Germany as well as plants in Poland. A southern leg goes to Hungary, Slovakia and the Czech Republic.

Kazakhstan has the capacity to raise annual deliveries to 6 million tons, the nation’s Energy Ministry Bolat Akchulakov said earlier this year. But so far it has struggled to find even 20,000 tons to pump to Germany.

Source : Bloomberg