Kazakhstan's Tengiz crude oil being diverted to CPC, BTC lines: traders

Feb. 24

London (Platts)--24Feb2014/817 am EST/1317 GMT

Fewer cargoes of Kazakhstan's Tengiz crude are expected to load out of the Ukrainian ports of Odessa and Feodosiya and the Georgian port of Batumi in March, traders said, as an increasing volume of crude oil is redirected to the CPC and BTC pipelines.

"Economically, it's more convenient," a crude trader said. "In March, one cargo was dropped and provisionally scheduled for the end of the month or dropped in to April. The same thing happened in February -- a late-February cargo moved in to March." 

Tengiz crude, which is sourced from the Tengiz oil and gas field along the northeast segment of the Caspian Sea in northern Kazakhstan, is exported from Kazakhstan by rail for loading out of a variety of different ports in the Ukraine and Georgia. The grade, which is lighter and sweeter than Kazakhstan's CPC Blend, is popular with refiners in the Mediterranean for its greater yield of heavier naphthas and kerosene.

By contrast, CPC Blend -- exported out of the terminal north of Novorossiisk in Russia -- is a mix of crudes. The CPC pipeline originates at the Tengiz field and crude from the field makes up nearly half of the total CPC Blend, but other grades are added in to the line along the route.

Traders said that the recent pipeline expansion along the CPC Blend route, tied to the development of the massive Kashagan field in the Caspian Sea, has opened up additional capacity along the CPC pipeline.

"It is a longer-term thing," another crude trader said. "The CPC expansion is still happening in order to coincide with the increased from Kashagan, but that got massively delayed and that pipeline work is still going on. That spare capacity opened up, and the pipeline is just so much cheaper to move those barrels than by railway. It's just logical." 

The final January CPC loading program, at 3,092,670 mt was the biggest total export volume for CPC Blend in at least two years, while February's average daily loading rate of 807,996 b/d was the highest per diem rate since Platts began keeping monthly records in April 2012.

Sources said that there has so far been little impact on the quality of the CPC Blend crude quality due to the increase in Tengiz flows, in part because Tengiz already made up such a large portion of the overall blend.

Exports of CPC Blend have been increasing despite the production problems at Kashagan. Production at Kashagan launched in September 11, 2013 after more than a decade of delays and spiraling costs, but was halted two weeks later following a gas leak. A similar leak in October prompted production to halt entirely and no date has yet been set for the field to return, and predictions have ranged from mid-2014 to some time in 2015.

The persistent delays in the start-up of Kashagan has opened up a significant amount of spare capacity along the CPC pipeline, leading to more cost-effective exports from Tengiz and cutting down on the number of cargoes transported by rail.

A crude trader said that only three cargoes of Tengiz are available in March, and those are tied up in term contracts.

"We'll see more of it over the next few months and over the next few years," a crude trader said. "The expansion of the CPC pipeline will see a wider CPC program and less and less Tengiz." 

TENGIZ SHARE OF AZERI LIGHT INCREASES THROUGH BTC PIPELINE EXPORTS

Market sources said that Tengizchevroil, which is developing the field, has also stepped up flows of Tengiz through the BTC pipeline, a more logistically complicated outlet, requiring the flow of cargoes across the Caspian Sea. The BTC pipeline network, which flows across Turkey to Ceyhan on the Mediterranean coast, is the transport route for Azerbaijan's Azeri Light.

According to the Azeri Light loading programs out of Ceyhan -- TCO as an entity separate from Chevron -- has been issued Azeri Light equity since December 2013. Chevron has a 50% stake in TCO, ExxonMobil 25%, KazMunaiGaz 20% and LukArco 5%.

Over the first quarter of 2014, TCO has been issued three cargoes of 600,000 barrels each a month.

"Tengiz has been going in to CPC, which has now been maximized and in to BTC which isn't," a Mediterranean refiner said. "BTC has a capacity of a million barrels per day and Azeri is filling up half of that. There's simply room for more material." "They set some kind of limits [on how much Tengiz can be added to Azeri]," the refiner added. "But it has still affected the quality." 

Tengiz in the BTC line is not unheard of, but traders said that the increase in flow has been more significant in recent months and has started to affect the blend quality of Azeri Light, prized by refiners for its high distillate yield; Tengiz, like CPC, is more naphtha-rich.

"[Azeri] has gotten slightly lighter, and as [the pipeline goes] along, there is the introduction of Turkmen barrels," a crude trader said. "All of those grades make Azeri lighter, it's not massive, but it is there." 

Source: http://www.platts.com/latest-news/oil/london/kazakhstans-tengiz-crude-oil-being-diverted-to-26738032

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