The oil-rich Central Asian nation of Kazakhstan urgently needs more export capacity if it hopes to meet its ambitious plans for increasing oil production in the coming years, a senior Chevron Corp. (CVX) executive said Tuesday.
A rare bright spot in the global energy industry, Kazakhstan is expected to nearly double oil output by 2020, becoming one of the world's top 10 crude producers. But the landlocked country has few viable export outlets, with the bulk of its oil passing through Russia.
"Kazakhstan needs to add 1 million barrels a day of pipeline export capacity if it is to succeed in meeting its oil production growth targets," Ian MacDonald, Chevron's vice president of business development and transportation, told an oil conference in London.
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Currently, Kazakhstan is using a combination of pipelines, tankers and railcars to transport its oil. But these may prove inadequate when the supergiant Kashagan field comes onstream in late 2012. Kashagan, the biggest oil discovery of the last 30 years, is the only large oil project of its kind without a dedicated export pipeline. Two other big fields, the Chevron-led Tengiz and Karachaganak, are also set to substantially expand production in the coming years.
Concerns about Kazakhstan's lack of export capacity have been compounded by the global economic crisis, which could have an impact on the country's ability to finance new infrastructure projects. Kazakhstan's banks are running out of cash, and economic growth is slowing as prices plummet for its main exports, which are oil and metals. Earlier this month, Standard & Poor's warned it could face a sovereign rating downgrade.
Regional experts agree with Chevron's assessment. "If you can't get the oil out of the country, you can't get it out of the ground," said Julian Lee, a Caspian analyst at the Centre for Global Energy Studies in London.
Kazakhstan currently has two main pipelines - the Chevron-led Caspian Pipeline Consortium, or CPC, which runs across southern Russia to the Black Sea port of Novorossiisk, and the Atyrau-Samara line, which also flows into Russia. There are plans to double CPC's capacity by 2013, and Atyrau-Samara will also be expanded. A new line to China will come on line later this year.
But even when that happens, Kazakhstan will have just over 1 million barrels a day of pipeline capacity, which means that around 400,000 barrels a day of its oil will have to be moved by rail or tanker. Oil companies generally eschew such options because of their high cost.
"With Kazakhstan expected to add a minimum of over 1.5 million barrels a day of production over the coming 15 years, it needs new dedicated and reliable export capacity, and it needs it urgently," MacDonald said.
Authorities are currently working on an ambitious new export route, known as the Kazakhstan Caspian Transportation System, or KCTS, designed to bring oil from Kashagan and Tengiz to world markets without having to go through Russia. This would involve a new 500,000 barrel-a-day pipeline running from western Kazakhstan to the port of Kuryk. A dedicated fleet of tankers would ship the crude across the Caspian Sea to Azerbaijan, where it will be fed into the Baku-Tbilisi-Ceyhan pipeline and sent to the Turkish Mediterranean coast.
But the cost of the KCTS is expected to be exorbitant. As well as the pipeline, new oil terminals need to be built at Kuryk and Baku, and a fleet of huge 60,000 ton tankers commissioned. Some doubt whether there are any shipyards in the Caspian capable of building such large vessels.
"The real difficulty is political," says Lee. "It's bringing together four countries and nine companies with very different outlooks on how you work, who contributes what and who owns what. It's not going to be easy."