Germany’s turn to pipelined Kazakh oil seems like a pipe dream

(Bloomberg Opinion) — Germany is days away from halting pipeline oil imports from Russia, raising pressure to find alternatives.

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The nation’s economy ministry in Berlin confirmed on Tuesday that Germany will not buy Russian oil at all in 2023, reaffirming its commitment to halt it by the end of this year. The step is to punish the Kremlin for the war in Ukraine.

An emerging idea is to use Russia’s pipeline system to import from Kazakhstan. There is even talk of a test shipment early next year. Germany, along with most of the European Union, already has a ban on sea shipments from Russia.

But piping supplies of Kazakh crude thousands of miles to refineries in eastern Germany would present enormous challenges on multiple fronts. The first is that the pipelines through which the oil would have to flow are Russian: the gigantic Druzhba network.

As such, any decision to facilitate such shipments can only be made by Moscow. So far, Russia’s pipeline operator Transneft PJSC has not received any requests from Kazakhstan to deliver to Germany, according to company spokesman Igor Dyomin.

Some Kazakh barrels are already pumped north to Almetyevsk in Russia and blended with oil from Russian fields in a common export grade, officially known as Russian Export Blend Crude Oil, or REBCO, which is more often known as Urals.

It is unlikely that it would be feasible to physically ship Kazakh crude to Germany without Russian oil. It would require the volumes to be shipped in batches to avoid mixing it with molecules of Russian origin. That would be very disruptive to Russia’s pipeline network and it’s hard to see Transneft backing the idea.

Even if it did, such an approach would see German refiners receive an untested grade of crude with characteristics that may be very different from their normal Ural diet, which has strict parameters for density and sulfur content.

However, in practice, if the shipments do go through, they may not end up being actual supplies of Kazakh origin.

Kazakhstan’s KMG Trading, a subsidiary of state oil company KazMunayGas JSC, puts 13 million tons a year into the Russian pipeline system and is allocated an equivalent amount from Urals that it can then sell internationally.

Ural Cargoes

Ural cargoes belonging to KMG have been specifically excluded from EU sanctions on maritime imports from Russia and relabeled as Kazakh Export Blend Crude Oil, or KEBCO, to distinguish them from REBCO.

Those cargoes are lifted from the Black Sea ports of Novorossiysk and Ust-Luga on the Baltic. They are completely separate from Kazakhstan’s CPC Blend exports which are loaded onto tankers at a dedicated terminal near Novorossiysk.

But even if Russia agrees to some kind of trade, the question is: where would Kazakhstan find the extra crude to put into the Russian pipeline system to steer Germany further east?

This is because KazMunayGas must first supply Kazakhstan’s refineries to meet its obligations to supply fuel to the domestic market.

When it comes to exports, the first priority, through KMG Trading, is to meet the needs of the company’s refinery in Romania.

The remaining volumes are sold under long-term contracts, according to KazMunayGas. Kazakhstan cannot reroute the KEBCO it exports through the Ust-Luga port without breaking those contracts for 2023 supplies, leaving almost nothing to spare for Germany.

So once the domestic market is supplied and Romania is supplied, it is not clear where Kazakhstan could find additional volumes for Germany. And that’s assuming Russia plays ball.

convoluted solution

One solution could come from Kazakhstan’s growing crude production. The nation plans to increase output to 92.6 million tons next year from an expected 85.7 million tons this year, according to a presentation by Economy Minister Alibek Kuantyrov.

Another very complicated idea could be for Russia to supply crude to Kazakhstan’s oil refining system, freeing Kazakhstan to put its own barrels in Druzhba. Kazakhstan could then sell KEBCO, the renamed Urals, to Germany. The Pavlodar refinery in eastern Kazakhstan previously processed Russian crude and could presumably do so again, provided there is enough capacity on the pipeline through eastern Kazakhstan to supply the plant and continue to meet Russia’s exports to China along the way. along that same route.

Germany has two refineries in the east of the country that rely on crude from the Urals via the Druzbha link: TotalEnergies’ Leuna plant and PCK Schwedt, which was run by the German unit of Russian oil company Rosneft PJSC until the government took over. control in September. .

The PCK Schwedt refinery processes 11.6 million tons of crude a year, and Rosneft has a stake of 6.3 million tons. Behind closed doors, government officials have been negotiating for months with other partners in Poland, which could send cargo through its Gdansk port, and Kazakhstan.

Although Schwedt has already received some shipments from alternative suppliers via Gdansk and via a pipeline from the German port of Rostock, the volume has not been sufficient to secure long-term operations.

Maybe there is some channeled flow from KEBCO to Germany. But it’s hard to see it as the main solution to the nation’s crude supply challenges.

–With the assistance of Petra Sorge and Nariman Gizitdinov.

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