Russia Halting Kazakh Pipeline to Cause Deep Losses to Oil Majors

If Russia, as is feared, suspends the CPC pipeline that is almost the only export route for oil from land-locked Kazakhstan to the Black Sea Russian export terminal in the port of Novorossiisk, Western energy majors will cut output and lose billions of dollars.

Shutting down more than 1% of the global oil supply, the closure of the pipeline would exacerbate the already most severe energy crunch since the 1970s Arab oil embargo, company sources, traders and analysts say.

Citing concern about oil spill management, the court in Novorossiisk ordered CPC last week to suspend operations for 30 days, closing the key oil terminal for the export of Kazakh oil two days after Kazakhstan’s president told EC president Charles Michel that Kazakhstan is ready to send more oil to the EU.

The ruling was, however, overturned on Monday by a Russian court which, instead, fined the company 200,000 roubles ($3,300).

The oil artery that transports 1.3 million barrels per day (bpd) already had flows interrupted by the storm damage in March and major disruption are still likely and would most likely be driven by technical issues, pipeline co-owner Russia has said.

The pipeline’s owner and operator, Caspian Pipeline Consortium (CPC), is consisting of Western, Asian, Russian, and Kazakh companies including Chevron, Exxon Mobil, Shell, and Italy’s Eni, and has been in the spotlight since Russia invaded Ukraine in February.

Oil majors were among the first to leave operations in Russia in the days after the conflict began and western sanctions have disrupted Russian exports, pushing up energy prices, prompting Moscow to seize oil and gas projects Sakhalin 1 and 2, where Shell and Exxon have stakes.

Some Western executives familiar with CPC operations believe the consortium could also have Sakhalin’s destiny and many Western oil companies operating in Kazakhstan expect prolonged CPC pipeline suspension.

They say that considering the limited alternative export routes of land-locked Kazakhstan, an outage would result in a decline of 1 million bpd, which, in an already tight environment, could cause the oil market an unsolvable problem.

If a combined 3 million bpd of output from Russia and Kazakhstan is hit by sanctions and related issues, oil prices could jump to an all-time high of $190 per barrel, JP Morgan analysts predicted last week.

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