Significant Output To Flow East

BMI View: Kairgeldy Kabyldin, head of KazTransOil , has revealed the country's aim to raise eastward oil exports . We believe this choice to be suitable considering Kazakhstan's potential trading partners. Going forward, it will be critical for the country to build the necessary infrastructure to feed Chinese demand in order to maximise the benefits of its oil production.

Kazakhstan is anticipating a ramp-up in production. With the major Kashagan field due to come online by 201 3-2014 , and potentially produce more than 1mn barrels per day (b/d) by the end of the decade, the country needs to find the best possible trade routes to maximise this liquid potential. Other field s such as Chevron - operated Tengiz and Eni 's Karachaganak are expected to see much higher output in the coming years, thus reinforcing our bullish outlook for the Kazak h oil sector.

While we expec t the country's output to exceed 2mn b/d between 2017 and 2018, we remain cautious about a number of downside risks. Growing concentration of state ownership may result in a lack of high- end expertise on certain fields, such as the Nursultan prospect in the Caspian Sea - complicated climatic conditions in the Caspian Sea raises exploration and production costs, meaning that high oil prices will be required for companies to deem production commercially viable . Finally , regulatory uncertainty, especially with regards to state dominance of midstream infrastructure , could worsen investor sentiment (see our online service, February 1 2013, ' KMG Move Defines Market Future ') .

Promised Oil
Kazakhstan Oil Production, Consumption & Net Exports, 2000-2021 ('000b/d)

Finding The Right Match

Kazakhstan's growing oil exports are leading the country to seek ideal trade routes and trading partners. Kairgeldy Kabyldin, head of KazTransOil , seems to have made a clear choice , as he declared in early March plans to increase oil exports to China by one-fifth in 2013. Kabyldin added that Kazakhstan will attempt to push the capacity of the pipeline from 14mn ton ne s per annum (tpa) - or 281,150b/d - to 20mn tpa - or 401,644b/d - , starting from this year.

Total exports through the Atasu-Alashankou pipeline almost exceeded 200,822b/d in 2012, up from less than 120,493b/d in 2009. This makes China the second largest importer of Kazak h oil, still far below Italy's 341,397b/d . Nonetheless, KazTransOil has already undertaken steps toward feeding more oil e ast ward by reversing a domestic pipeline between the northern Caspian Atyrau port to Kenkiyak, 450 kilometres (km) away.

Trading Partners
Kazakhstan Oil Exports To China, Italy & Rest Of The World, Monthly (mn tonnes)
Increasingitscapacity to export oil to China is advantageousto Kazakhstanfor at least two reasons. The first one is that China remains one of the fastest growing oil demandmarketsworldwide. In contrast, oil demand in Western Europe, among Kazakhstan's largest trading partners, is likely to stay flat in the coming years. This includes in particular Italy, France and the Netherlands. The second reason is that a large portion of Kazakhexportsto Europe passesthrough Russian pipelines, whichrequirehightransitfees, thus making exports to China more profitable.
Cutting Intermediaries
Breakdown Of Kazakh Liquids Exports By Route-To-Market
This article is tagged to:
Sector: Oil & Gas
Geography: Kazakhstan

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