Kazakh oil has resumed transportation through the Baku-Tbilisi-Ceyhan route, after a six year halt during which it failed to reach an agreement on conditions of shipment with the BTC consortium. Sector pundits alleged a monopolistic position on the Azeri side, but presume that new authority in Georgia led to the recent breakthrough that admits a non-Azeri market player to the BTC route and signals higher profits for the Georgian state.
On 18 October, it was reported that Tengizchevroil, a joint venture including 50% owned by Chevron and 20% by the Kazakh national company KazMunayGas , is resuming oil transportation via BTC with 400 thousand tons per month, while Kazmortransflot JSC will provide Tengizchevroil with tankers for oil shipment from the port of Actau to Baku.
The deal seems beneficial to both the Kazakh and Georgian sides: it secures around 20% of the BTC productive capacity to Kazakhstan by 2018-2020 when the much touted Kashagan oil field will enter its second phase, and signals more transit payment to Georgia, since the transit fee based on volumes of transported oil in the BTC falls by about half behind the projected productive capacity. Commensurately, the expected oil transit-based cash to the state budget of Georgia is also halved.
According to the projected BTC capacity, the volume of transported oil was scheduled to increase from 50 to 60 million tons per year by today, and will have gone to 80 million tons of ultimate projected capacity by 2018-2020. However, the pipeline is supplied by oil from Azerbaijan’s Azeri-Chirag-Guneshli oil field at the moment, and its productive capacity has shrunk during the last four years from 37 million tons in 2010 to around 32 million and 29 million tons in 2011 and 2012, respectively.
Kazakh oil might increase the BTC production, since they had an agreement with BTC on the transportation of 20 million tons per year. However, they found transit fees required by BTC non-profitable and stopped pumping oil via BTC in 2008. Shortly afterwards, KazTransOil, a part of KazMunaiGaz, acquired the Batumi Black Sea port and shifted oil transportation, making around 4-4.5 million tons per year move from the BTC pipe to railway carrying cargo from Baku to Batumi.
On the other hand, according to Temur Gochitashvili, an energy analyst, it is very unlikely that the Kazakhs will have reached the contracted 20 million tons until their Kashagan field reaches its second phase of exploitation, by 2018-2020, that will double Kazakh’s current export from an average of 75 million tons per year to around 150 million tons. The point is that the Kazakhs manage to transport their current production capacity of 81,3 million tons (2012) completely without BTC, through the Samara pipeline, a pipeline running to China, and the CPC (Caspian Pipeline Consortium including Russian and Kazakh companies as stakeholders), as well as shipping oil to the Russian Black Sea port Novorossysk via the Makhachkala and Taman terminals.
The existing infrastructure is improved at the moment and will be able to transport the first phase of Kashagan oil production successfully. Besides, as a member of a single customs union with Russia, Kazakhstan has a customs-free transit corridor through Russia that makes oil transportation much cheaper on this route, compared to BTC. It seems unlikely that Kazakhs will stop oil shipment through their Batumi Port and divert cargo from the Georgian-Azeri railway to BTC.
Therefore it is very likely that the Kazakhs will increase their oil inflow in BTC to the contracted 20 million tons (or around 20% of BTC projected capacity of 80 million tons by that time) only after 2018-2020, when they will face the urgent necessity to export the around 150 million tons of oil export that the traditional routes will not be able to handle without the BTC. Thus, by resuming the transport of small oil volumes with BTC today, the Kazakhs secure guaranteed shipment of higher volumes in the long-run.
The bigger the transited oil volumes, the higher the transit-based income to Georgia. But since the Azeri side has been inhibiting Kazakh oil transportation via BTC by high tariffs in order to keep dominance of its own oil on the route, it affected the interests of Georgia – there has been less and less profit as transited volumes dwindled. The researcher and analyst Liana Jervalidze believes it is high time for Azerbaijan to care more for the interests of its transit partner, and put up with the new market player and more liberal tariff rates on BTC.