Kazakhstan’s state-run oil and gas holding company KazMunayGaz has agreed to grow ties with its cross-Caspian neighbour Azerbaijan as the company and the Kazakh government are desperately searching for long-term investors into export routes and its prospective hydrocarbon projects.
This week’s visit of KazMunayGaz executive board chairman Magzum Mirzagaliyev to the Azeri capital city Baku has been concluded with an updated transit agreement with Azeri state-run oil and gas operator Socar.
Under the agreement, KazMunayGaz and Socar will invest in upgrades at the cross-Caspian oil shipping route from the Kazakh port of Aktau to the two receiving terminals near the Azeri capital of Baku, known as Sangachal and Azertrans.
From these terminals, arriving Kazakh oil is shipped into the Baku–Tbilisi–Ceyhan (BTC) oil pipeline that delivers it to the deepwater Mediterranean Sea port of Ceyhan in Turkey.
According to KazMunayGaz, it has contracted with Socar that the annual volume of Kazakh oil shipped internationally via Azerbaijan will gradually grow to about 16.5 million barrels per year.
In 2023, KazMunayGaz shipped about 8 million barrels of oil, mostly from Eni-led Kashagan development, from Aktau across the Caspian Sea to Baku. The Kazakh state company has an almost 17% shareholding in this offshore project.
Baku – Supsa oil line
KazMunayGaz and Socar are also discussing options to secure Kazakh oil supply commitments to rejuvenate the idle oil pipeline that runs from Baku to the port of Supsa on the Black Sea in Georgia.
According to the Kazakh Energy Ministry, both sides are talking about annual long-term supplies of as much as 23 million barrels of Kazakh oil into this pipeline.
Mirzagaliyev, quoted by Baku-based news agency Trend, said that he expects Socar to come up with the transportation fee structure for the Baku – Supsa line “within one month’s time”.
The Baku–Supsa trunkline, which its operator BP calls the Western Route Export Pipeline, has been operating below its annual capacity of 53 million barrels in recent years as a result of the decline in oil production in Azerbaijan, the availability of the BTC pipeline and political concerns.
In 2017, a minor stretch of the pipeline was seized by pro-Russian separatists from the breakaway region of South Ossetia during their slow advance inside Georgia, with their effort reportedly backed by the Russian military.
Though this pipeline was idle for the most of 2022, BP said that during the first six months of 2023, the Sangachal terminal exported around 1 million barrels through the Western Route Export Pipeline.
Kazakh opportunities for Socar
Ilham Shaban, a partner in Baku-based consultancy Caspian Barrel, believes that besides oil transit services, Socar and its oilfield service units may unlock new opportunities in the Kazakh upstream sector as ties between the company and KazMunayGaz expand.
According to Shaban, onshore oilfield and drilling services that are offered by Socar’s units are significantly cheaper than those provided in Kazakhstan by the country’s affiliates of major international oilfield service contractors.
In 2022, a joint venture between Russia’s Lukoil and KazMunayGaz contracted Socar’s offshore drilling subsidiary, Caspian Drilling, to drill an exploration well in the Kazakh sector of the Caspian Sea.
The Azeri company was preferred as it reportedly offered a strongly discounted rate compared to Lukoil’s traditional Caspian works contractor Eurasia Drilling, Shaban said.
Last year, Socar offshore construction units completed a contract to lay a subsea pipeline in the Turkmen sector of the Caspian Sea for United Arab Emirates’ Dragon Oil, thus demonstrating their ability to work offshore.
According to Mirzagaliyev, during his visit to Baku KazMunayGaz offered Socar to consider joint participation in hydrocarbon exploration and development projects in Kazakhstan.
