Oil & Gas Supplies: Insights from the World Petroleum Congress
Written on
At the recent World Petroleum Congress in Alberta, Canada, discussions centered around the future of oil and gas supplies, particularly amidst speculation from major investment firms like ING about a potential surge in oil prices to $100 per barrel.
One notable headline from Bloomberg titled “Carbon Capture Dreaming” highlighted the industry's focus on carbon capture and storage (CCS) as a means to sustain crude oil production. Kevin Orland, in the Energy Daily newsletter, noted:
“Carbon capture may receive a more welcoming response in Calgary, as it presents an engineering solution to keep crude flowing. The Canadian oil sector's plans to reduce emissions depend significantly on a proposed CCS system, which is expected to be largely funded by a C$12.4 billion ($9.2 billion) government investment.”
However, as I delved deeper into reports from the event, it became evident that the emphasis was less on CCS investments and more on maintaining financial flows into oil and gas production for global markets.
Here are some significant headlines from the congress:
- “Oil companies cautious about drilling as energy transition looms” Reuters
- “ExxonMobil CEO Calls For An ‘And’ Conversation When Talking About Energy Transition” Daily Oil Bulletin
- “Energy transition for Africa is an ‘existential challenge’” Upstream
- “Kuwait Petroleum CEO: No Alternative To Oil, Gas In ‘Foreseeable Future’” Daily Oil Bulletin
Additionally, there were announcements regarding new oil and gas investment projects in Latin America, including Cuba and Uruguay, attracting several major international oil companies.
Indonesia is also aiming to draw substantial investments into its oil and gas exploration and development sector. The country’s energy minister recently announced that contractors could hold equity stakes of over 50% in offshore blocks, a move designed to enhance energy production.
Currently, Indonesia is rapidly becoming a significant player in the LNG market, with plans to position itself as one of the largest LNG exporters and CCS hubs globally.
Beyond the immediate topics discussed, it’s crucial to recognize the major changes in global markets due to geopolitical dynamics, which significantly impact the security and investments in oil and gas supplies. For instance, the evolving relationship between China and Kazakhstan underscores this trend.
For those not closely following energy markets this year, substantial discussions around market volatility and geopolitical shifts have emerged, particularly concerning sanctions on Russia and their implications for global commodities.
Kazakhstan's increasing collaboration with China National Petroleum Corporation (CNPC) has gained momentum, especially since the imposition of sanctions on Russia's energy sector intensified last summer. This dual development indicates that Kazakhstan is keen to maintain its oil and gas trade's economic strength, while China is emerging as a dominant force in the sector.
CNPC, as China’s largest investment entity within Kazakhstan's oil and gas landscape, is poised to make significant financial contributions to the country's oil and gas sector, aligning with China’s geopolitical ambitions.
To gain further insight into these dynamics, consider the developments in Kazakhstan following Russia’s invasion of Ukraine.
How Russia Disrupted the Caspian Pipeline Consortium (CPC) and Global Supplies in 2022
On June 3, 2022, Kazakhstan opted to rebrand its key oil exports as Kazakhstan Export Blend Crude Oil (KEBCO) to mitigate risks associated with U.S. and European sanctions targeting Russian ports.
Amidst the narratives surrounding the Russia-Ukraine conflict, the ramifications of the CPC's oil export challenges in Kazakhstan have been significant. Below is a timeline of critical events regarding the CPC:
The CPC is a 1,500 km pipeline originating from the Tengiz field in Kazakhstan, with substantial stakes held by international companies like Chevron (15%) and ExxonMobil (7%).
Key Events During CPC Crisis
March 23, 2022 — The CPC issued a warning regarding possible disruptions to oil shipments due to severe weather in the Black Sea, necessitating major repairs. Oil tanker loadings were temporarily halted at the Novorossiysk terminal while onshore storage reached capacity.
March 28, 2022 — Oil tanker loadings resumed less than five days after initial disruptions, although repairs by foreign companies remained necessary. The Kazakh Association of Oilfield Services Companies estimated potential losses exceeding $1 billion if repairs were not completed swiftly.
March 29, 2022 — Kazakhstan’s Energy Ministry announced a planned reduction of daily oil output by 320,000 barrels to comply with OPEC regulations.
April 13, 2022 — Rostekhnadzor, Russia's technical compliance agency, initiated unplanned inspections of foreign-operated oil export pipelines in Kazakhstan, during which it was reported that terminal bottlenecks were alleviated, allowing international companies to partially resume production.
April 25, 2022 — The CPC declared a return to full operational capacity at the Novorossiysk terminal.
Interestingly, Kazakhstan sought to offer exploration and production rights for 60 blocks to international investors on March 21, 2022.
It is plausible to suggest that Russia leveraged the situation following the Black Sea storm to reinforce its control over the Novorossiysk terminal, essential for CPC oil exports.
Moreover, intense fighting in Ukraine, particularly around Mariupol, enabled oil tanker operations at the Novorossiysk terminal to obtain a “war risk insurance premium,” highlighting the war's impact on the CPC and Kazakhstan’s crude oil exports.
What Does This Mean For The Future Of The CPC?
Kazakhstan's government recognizes the importance of both Western and Russian oil interests in its ability to enhance crude oil exports and production revenues. Despite rebranding its oil exports to KEBCO, avoiding sanctions related to Russian ports remains a significant challenge.
The ultimate test for U.S. and European sanctions will unfold in Kazakhstan and Central Asia, where countries must balance Russian influence against the necessity of Western oil imports and international investments to reduce dependency on Russia. This issue is unlikely to find resolution in the near future.
For Kazakhstan, the long-term challenge lies in navigating Russia's political and military influence to ensure that its economic interests, particularly concerning crude oil exports from the CPC, remain stable amid potential sanctions from the U.S. and Europe.
The content in Areas & Producers presents a framework for those interested in understanding global trends and the future landscape of the energy sector.