multi-faceted challenges
The German Ministry of Economy confirmed on December 20 that it would not buy any Russian oil from 2023. The new idea is to use a Russian pipeline system to import oil from Kazakhstan. There was even a discussion about a trial shipment early next year.
But bringing Kazakhstan's crude oil via a pipeline of thousands of kilometers to refineries in eastern Germany will pose major challenges in many aspects. First, the pipelines that oil will have to flow through belong to Russia - the huge Druzhba network.
Therefore, any decision to facilitate such shipments could only be made by Russia. So far, Russian oil pipeline operator Transneft PJSC has not received any requests from Kazakhstan to deliver goods to Germany, according to the company's spokesman Igor Dyomin.
A part of Kazakhstan's oil is pumped north to Almetyevsk in Russia and blended with oil from Russian mines to form a common export oil, officially REBCO, commonly known as Urals.
In fact, transporting Kazakhstan's crude oil to Germany without any of its Russian oil is not feasible. It will be necessary to send the oil in batches to avoid mixing with Russian oil. This would seriously disrupt Russia's pipeline network and it is unlikely that Transneft would support the idea.
Even if it can be done in the above scenario, such an approach leads German refineries to receive untained crude oil with properties that may be very different from the properties of Urals - which have strict parameters in density and sulfur content.
In addition, even if Germany receives goods from Kazakhstan, the oil may not actually originate from Kazakhstan. KMG Trading - a subsidiary of Kazakhstan's state-owned petroleum company KazMunayGas JSC - puts 13 million tons of oil per year in the Russian pipeline system and is allocated an equivalent amount of Urals to then sell to international markets.
Urals change brand
The urals shipments in the KMG are exempted from EU sanctions on seaborne imports from Russia and have been re-labeled as Kazakhstan's KEBCO oil.
These oil plots were unloaded from the ports of Novorossiysk in the Black Sea and Ust-Luga in the Baltic Sea. They are completely separate from Kazakhstan's CPC Blend exports, which were loaded onto oil tankers at a specialized terminal near Novoryskossi.
But even if Russia agrees to some exchanges, the question remains: Where will Kazakhstan find additional crude oil to put into the Russian pipeline system to transport to eastern Germany.
That is because KazMunayGas must first supply fuel to refineries in Kazakhstan to fulfill its obligation to supply fuel to the domestic market. For exports, the top priority - through KMG Trading - is to meet the needs of the company's refinery in Romania.
According to KazMunayGas, the remaining goods were sold under long-term contracts. Kazakhstan will break its supply contracts for 2023 if it redirects KEBCO oil exports to the port of Ust-Luga, leaving Germany with little to offer.
Therefore, once domestic market demand is met and oil is supplied to Romania, it is unclear where Kazakhstan can find additional supply to Germany.
Other complex solutions
One solution could come from Kazakhstan's growing crude oil production. The Central Asian country plans to increase production from 85.7 million tons expected this year to 92.6 million tons in 2023, according to a presentation by Economic Minister Alibek Kuantyrov.
Another very complicated idea is Russia supplying crude oil to Kazakhstan's refining system, giving Kazakhstan the freedom to put the country's oil in the Druzhba pipeline. Kazakhstan could then sell KEBCO - the branded Urals - to Germany.
The Pavlodar refinery in eastern Kazakhstan has processed Russian crude oil and will probably do this task again as long as it has enough oil through the eastern Kazakhstan pipeline to supply the plant, as well as meet the export of Russian oil to China.
Germany has two refineries in the eastern part of the country that depend on Urals crude oil through the Druzbha pipeline network - TotalEnergies' Leuna plant and PCK Schwedt - Russia's Rosneft plant until Germany took control in September.
PCK Schwedt refinery processes 11.6 million tons of crude oil per year, of which Rosneft accounts for 6.3 million tons. German government officials have been negotiating for months with other partners in Poland - which can transport goods through the ports of Gdansk and Kazakhstan.
