Exports increased by 15%
In January of next year, one million barrels of Kazakh oil will be supplied for processing at a plant owned by the Chinese company Yanchang Petroleum.
The plant is capable of processing 348,000 barrels of oil daily. Previously, it received raw materials from Russia, but due to U.S. sanctions against Rosneft, it is forced to seek new suppliers.
Thus, Yanchang Petroleum has joined the ranks of Chinese state companies, such as Sinopec, which suspended purchases of Russian oil in October after Western countries imposed sanctions against major Russian producers.
According to experts in the oil industry, this creates opportunities for Kazakhstan to strengthen its position in the Chinese market, as Kazakh oil is comparable in quality to Russian oil. However, Kazakhstan is unlikely to fully meet the needs of Chinese oil refiners, as noted by Meruert Makmutova, head of the Public Policy Research Center (Almaty).
She stated that the purchase of one million barrels by Yanchang Petroleum may turn out to be a one-time deal until China finds more reliable suppliers.
The Minister of Energy of Kazakhstan, Erlan Akkenzhenov, noted that "this year exports have already increased by 15%," adding that while exports from Kazakhstan are conservative in nature, it would be unrealistic to talk about a complete replacement of Russian oil in the Chinese market.
Kazakhstan exports oil to China through a pipeline with a capacity of about 20 million tons per year. Before the sanctions were imposed, approximately half of this volume was accounted for by Lukoil and Rosneft.
Analysts predict that Kazakhstan could supply about 9 million tons of oil to China annually in the medium term; however, high transportation tariffs limit the full loading of the pipeline with Kazakh raw materials.
Advantages and disadvantages of sanctions
Sanctions against the largest Russian oil companies, Rosneft and Lukoil, were imposed by the U.S. Treasury on October 22. On October 27, Lukoil announced the sale of its foreign assets under the OFAC license to cease operations.
These sanctions open new opportunities for foreign partners working with Kazakhstan.
In Kazakhstan, Lukoil owns stakes in several major oil production projects, including 5% of Tengizchevroil, 13.5% in Karachaganak Petroleum Operating, and 50% in the Kalamkas-sea - Kharaz project.
Economist Rasul Rysmambetov reported that Kazakhstani KazMunayGas, together with Eni and Chevron, is expected to buy Lukoil's stake in Karachaganak, which will increase its influence in the market.
“This is the first case of such large-scale sanctions being imposed, and it is still unclear who they will affect in the future. But in any case, the opportunity to buy back assets on their territory is a positive aspect. We must also consider the interests of other investors,” Rysmambetov noted.
The Ministry of Energy of Kazakhstan emphasized that the state does not intend to interfere in the process of asset redistribution of Lukoil. Deputy Minister of Energy Sanjar Zharqueshev pointed out that this is a matter for business structures.
As Reuters notes, foreign companies are interested in acquiring Lukoil's assets at reduced prices, including KazMunayGas.
However, sanctions also have their drawbacks. Due to restrictions on Rosneft, the Kazakh fuel market may face problems, as the Pavlodar Oil Refinery was one of the main buyers of Russian raw materials, believes oil expert Nurlan Zhumagulov.
“Sanctions against Rosneft may threaten the pumping of Russian oil to China through Kazakhstan. It is known that Rosneft has long-term commitments with China for the supply of 10 million tons of oil per year through Kazakhstan, which brings income not only to Kazakhstan but also ensures the loading of the Pavlodar Oil Refinery,” says Zhumagulov.
Rysmambetov does not rule out that Russian companies may create a new enterprise in Kazakhstan, which would allow them to preserve their assets. This may be acceptable to U.S. authorities, as the goal of the sanctions is to reduce Russia's income, and taxes in this case would go to the Kazakh budget.
In the coming days, the impact of sanctions against Lukoil and Rosneft may intensify as they come into effect.
According to Vortexa, Russian oil product exports by sea fell to 1.7 million barrels per day in the first 15 days of November, setting a new record during the conflict. This figure is nearly half of what it was in February 2022, and Urals oil prices have dropped to $36.6 per barrel, the lowest level in the past two and a half years, according to Bloomberg.
