Russia & Kazakhstan Ink New Deal On Caspian, Continue Energy Exploration

While alternative energy resources are all the rage these days, Caspian region’s fossil-rich Russia and Kazakhstan remain strong partners when it comes to cooperation and security in energy.

Last week’s Interregional Cooperation Forum, which took place in the Russian city of Chelyabinsk, resulted in the two neighboring countries signing a package of agreements, including those related to the oil and gas industry, the main pillar of the both countries’ budget revenues.

Following the deal signed on Thursday, November 9, Russia’s largest oil pipeline manufacturer, Transneft, agreed to provide KazTransOil, Kazakhstan’s major oil transporter, with pumps and equipment used for oil drilling and production.

In addition, Moscow and Astana teamed up to reach an agreement on the delineation of the Caspian Sea, a long-standing issue between the sea’s five littoral states, in order to exercise sovereign rights to subsoil use in Kurmangazy, the oil and gas field located in the Kazakhstani part of the sea between. Signed by Vladimir Putin and Nursultan Nazarbayev, the agreement provides for an increase in the contract territory of the field, and serves as a complement to the document inked back in 1998.

An agreement reaching in Moscow in 2002 put the Kurmangazy field under Kazakhstan's jurisdiction, but Russia reserved the right to explore it. Starting in 2006, Russia and Kazakhstan have been exploring Kurmangazy jointly through the Kurmangazy Petroleum Company, which was established by RN-Exploration and KazMunayTeniz and based on 50/50 shareholding terms. Affiliates of state-run Rosneft and KazMunayGaz respectively, these companies have already drilled two exploratory wells, as well as launched seismic surveys and high-precision gravimetric and magneto-metric studies.

Though hydrocarbon reserves have not yet been discovered in the Kurmangazy, the agreement reached last week increases the chances of success, as it expands the geography of searches. According to preliminary estimations, the reserves hidden in Kurmangazy are about 6.2 billion tons, which is comparable to the Samotlor, Russia’s largest oil field. If the forecast proves to be true, both Russia and Kazakhstan will net a profit to the tune of about $50 billion.

Both Russia and Kazakhstan are flush in natural resources like oil and gas, and the two post-Soviet countries have maintained strong partnerships in the energy sector through already existing close economic, technological and transportation initiatives.

Most of Kazakhstan’s hydrocarbon reserves, which are concentrated in its western region, include giant fields like Kashagan and Tengiz, which are being developed by global giants such as KazMunayGas, Eni, ExxonMobil, Royal Dutch Shell, Total S.A., China National Petroleum Corporation and Inpex.

Russia is closely engaged in transportation of Kazakhstani oil to third countries, via the 1,511 km (939 mi) long Tengiz-Novorossiysk pipeline also known as the Caspian Pipeline Consortium (CPC). Connecting Western Kazakhstan’s oil fields with terminals located along the coast of the Black Sea, the CPC shipped nearly 4,330 tankers loaded with over 460 million tons of oil in 2016, while this figure amounted to 23 million in 2006.

At the same time, pipeline operators are planning to increase mechanical throughput to deliver 67 million tons per year. The pipeline’s expansion will allow exporting Kazakhstani oil extracted at the country’s Karachaganak field along with oil mined in Tengiz.

Another route to transport Kazakhstani resources to outside the country is the Uzen-Atyrau-Samara pipeline, launched in 2002 following an agreement signed by Moscow and Astana. In 2016, nearly 15 million tons of oil was transported via that pipeline, which is operated by KazTransOil.

Together with world giants like Chevron and ExxonMobile, Russia’s Lukoil is engaged in joint exploration of Kazakhstan’s oil and gas fields, including Tengiz.

Kazakhstan is also partnering with Russia and multinational oil and gas companies to create strategic reserves of hydrocarbons in the Pre-Caspian basin. In 2014, Putin and Nazarbayev launched a large-scale project dubbed “Eurasia,” which calls for joint drilling of an oil well at a depth of 15 km (9.3 mi) and in which the two sides will explore the sub-sea terrain, land deposits, and collaborate scientifically.