Due to breakdowns, CPC again sharply reduced the pumping of oil through Novorossiysk

The Caspian Pipeline Consortium (CPC) temporarily decommissioned two of the three remote mooring units (TLUs) at the offshore terminal due to damage. The company announced this on August 22.

The CPC release clarifies that in August 2022, during scheduled maintenance of the VPU-1 and VPU-2 equipment complex, diving teams “found cracks in the attachment points of underwater sleeves to buoyancy tanks” (a hollow, air-filled structure designed for maintaining underwater hose sleeves in a given configuration – “Vedomosti”).

CPC also reported that it had contacted the manufacturer of the TLU (Imodco) and the ABS classification society, which supervises the safe operation of the devices, which “strongly recommended that the operation of the TLU be suspended until the buoyancy tanks are replaced.” At the same time, ABS links the detected damages to difficult weather conditions in the winter period of 2021-2022. CPC, in turn, recalls that “it was anomalous storms” that led to damage to the sections of floating hoses in March 2022.

“The shareholders of the company were notified of the current situation on August 5 and 17, 2022 regarding defects on buoyancy tanks 1 and 2, respectively. Loading operations at the CPC Marine Terminal are temporarily carried out only through TLU-3. The use of one TLU, at present, will allow fulfilling the orders of consignors in reduced volumes,” CPC sums up.

CPC is one of the largest investment projects in the energy sector with the participation of foreign capital in the CIS. The main shareholders of CPC are: the state company “Transneft” (manages 24% of the shares, KTK Company – 7%), Kazakhstan (Kazmunaigas with a share of 19% and Kazakhstan Pipeline Ventures – 1.75%); the American Chevron (through the Chevron Caspian Pipeline Consortium) owns 15%, the Lukoil structure Lukarco BV – 12.5%. Minority shares also belong to the American Mobil Caspian Pipeline, Rosneft-Shell Caspian Ventures (JV of Rosneft and Anglo-Dutch Shell), BG Overseas Holding Limited, Eni International NANV, Oryx Caspian Pipeline LLC.

The Tengiz-Novorossiysk pipeline, 1,511 km long, transports more than two-thirds of Kazakhstan’s total export oil, as well as raw materials from Russian fields, including those in the Caspian. The pipeline capacity is 67 million tons of oil per year. According to CPC, at the end of 2021, 60.7 million tons of oil were shipped at the sea terminal, which is 2.9% more than in 2020.

As Vedomosti wrote, on March 21, two out of three TLUs were damaged near the CPC marine terminal due to a severe storm, which forced the suspension of oil shipments. They were repaired only by the end of May. And on June 11, a mine from the Second World War was discovered near one of the TLUs, due to which the shipment of oil was suspended for the duration of mine clearance. Later, the Russian Rostransnadzor complained about the work of the CPC. In early July, the Primorsky District Court of Novorossiysk, at the suit of the department, ruled to suspend the activities of the CPC marine terminal for 30 days. The consortium then explained that it intends to appeal this decision. As a result, on July 11, the Krasnodar Regional Court overturned the decision of the lower court and replaced the suspension of CPC activities with a fine of 200,000 rubles.

Against the backdrop of interruptions in shipments from the CPC, the authorities of Kazakhstan stepped up their attempts to find workarounds for oil supplies abroad, bypassing the territory of Russia. In particular, Reuters reported on negotiations between the Kazakh state oil company Kazmunaigas (KMG) and the trading division of the Azerbaijani state company SOCAR on permission to sell 1.5 million tons of Kazakh oil per year through the Azerbaijani pipeline, which delivers oil to the Turkish Mediterranean port of Ceyhan. Deliveries, according to the agency, may begin as early as September (Vedomosti wrote about this on August 12).

Experts have previously told Vedomosti that pumping through the Baku-Tbilisi-Ceyhan (BTC) pipeline will not allow a significant increase in exports, and other options (including supplies through the Kazakhstan-China pipeline and through the port of Aktau) will require significant investments and time.

On August 22, the Ministry of Energy of Kazakhstan announced the introduction of state regulation of retail prices for petroleum products. Diesel fuel for foreigners from Monday is almost twice as expensive as for the citizens of Kazakhstan. The limit is set from 100 to 300 liters per person at a price of 230-260 tenge (28-31 rubles at the current exchange rate) per liter. Above the limit, fuel will cost 450 tenge / liter (54 rubles), this price is also set for foreigners.

“Prices for gasoline of the following grades remain at the same level: AI-80 – 89 tenge / liter, in Kostanay and North Kazakhstan regions, prices for AI-92 and AI-93 gasoline are 187 tenge / liter, in other regions of Kazakhstan – 182 tenge /litre,” reads a release on the ministry’s website.

Stock market expertBCS The World of Investments” Pavel Gavrilov does not believe that failures in the CPC operation can seriously affect the operation of the project. “Everyone, Kazakhstan, Russia, and foreign investors are interested in the work of the CPC,” he clarifies.

Gavrilov admits that the current situation may “strengthen Kazakhstan’s desire to diversify oil supplies.” The expert doubts that the temporary suspension of two out of three working TLUs can seriously affect the global oil market and world oil quotes.

Sergey Grishunin, managing director of the NRA rating service, on the contrary, believes that the current situation may cause some foreign shareholders to withdraw from the project, since “the pipeline is also experiencing political difficulties in addition to technical ones.”

Grishunin also doubts the possibility of redirecting export flows of Kazakh oil around Russia. “Shipments through the Baku-Tbilisi-Ceyhan oil pipeline will, at best, allow delivering 1-1.5 million tons of oil per year, since almost all of its capacity is occupied by the supply of Azerbaijani oil,” he said.

According to the NRA, another forced downtime of CPC may have a “local positive impact” on Russian producers, which may somewhat reduce the discount with which the Russian grade Urals is sold abroad.

After the start of a special military operation (SVO) in Ukraine, the EU, the United States and a number of countries that joined the anti-Russian sanctions decided to refuse to import oil from the Russian Federation, which created the risk of a shortage in the market. As noted by the International Energy Agency, attempts to “punish Moscow” with a ban on oil imports only exacerbated the supply crisis and led to higher prices. As a result, from February to June 2022, Brent rose by 31% to $121/bbl, and WTI by 22% to $118. As of 13:00 Moscow time, Brent is trading at $96.5/bbl, WTI at $90.2/bbl.