Western Oil Giants Worried Over Russia’s Possible Suspension of CPC

Western energy giants will be forced to cut production and lose billions of dollars if Russia suspends the Caspian Pipeline Consortium (CPC), which carries almost all of Kazakhstan’s oil to world markets. A possible closure would mean more than 1% of global oil supplies to be lost, exacerbating the most severe energy crunch since the Arab oil embargo of the 1970s.

The CPC runs through Russian territory and exports Kazakh oil through Russia’s Black Sea port of Novorossiisk. It is owned by a consortium of Western, Asian, Russian and Kazakh companies.

Last Wednesday, a court in Novorossiisk ordered CPC to suspend operations for 30 days, citing concern about oil spill management. Another Russian court overturned the ruling on Monday and instead fined it 200,000 roubles ($3,300).

The companies are still worried over major disruptions, as Russia has said all stoppages are driven by technical issues.

Storm damage in March has already interrupted flows through the 1.3 million barrels per day (bpd) pipeline.

Major oil companies, including Chevron, Exxon Mobil, Shell and Eni have stakes in the CPC. Western companies also hold stakes in Kazakh oilfields.

Western oil companies operating in Kazakhstan expect a prolonged CPC pipeline suspension.

A suspension would result in a decline of 1 million bpd because Kazakhstan has limited alternative export routes.

Russia’s invasion of Ukraine has prompted many Western companies to exit Russia, and oil giants were among the first to leave. Western sanctions have disrupted Russian exports and pushed up energy prices.

In response, Russia moved towards seizing oil and gas projects Sakhalin 1 and 2, where Shell and Exxon have stakes.

Shortly after Russia’s invasion of Ukraine, international oil prices spiked to their highest levels since the records of 2008. They have since eased to just above $100 a barrel as the anticipated economic weakness is expected to lower demand, although selling has been limited by concerns of tight supplies that would be exacerbated by a cut in CPC output.

Analysts say oil prices could soar to an all time high of $190 per barrel if a combined 3 million bpd from Russia and Kazakhstan was hit by sanctions.

Kazakhstan produces some 1.6 million bpd of oil, and exports about 80% of that volume, mostly through the CPC.

Last week, Kazakh President Tokayev told his government to diversify oil supply routes.

Oil majors have studied the viability of alternative routes in recent months, including to China and trans-Caspian shipments to Azerbaijan and Georgia. All of those options are challenging.

The pipeline to China can take oil from east and central Kazakhstan, but most of the large fields are in the West.

On the Caspian Sea, exporters face tanker shortages and have little capacity to take more oil.

Chevron has the biggest stake among Western companies in Kazakh production at around 380,000 bpd, or more than 12%, of its total output.

If Chevron’s investments in Kazakhstan were impaired or lost, that could lead to a ratings downgrade. A long-term closure would also threaten Chevron’s future growth plans. The U.S. major planned to boost output by 40% at Kazakhstan’s largest field Tengiz to around 1 million bpd.

Exxon is the second largest foreign producer in Kazakhstan with output of 213,000 bpd of oil and 234 million cubic feet of gas. It is followed by Eni with some 145,000 barrels of oil equivalent per day, Shell with around 100,000 boed and TotalEnergies with some 80,000 boed in 2021.

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