Buyers shun Black Sea loadings of Kazakh CPC crude due to Russia-Ukraine conflict

Exports of Kazakhstan's CPC Blend crude were being impacted by the conflict in Ukraine with some buyers canceling loadings of the key grade at the Russian port of Novorossiisk as the Black Sea route incurred a war risk premium.

Loadings on at least three tankers due to take place in the week beginning March 7 -- the Wonder Vega, Free Spirit and the Stealth Haralambos -- have been canceled as buyers look to avoid the grade, which is produced in Kazakhstan but sent by pipeline across southern Russia to the Black Sea port of Novorossiisk, trading and shipping sources said March 3.

The Chevron-led consortium at Kazakhstan's highest-producing oil field, Tengiz, said it was "monitoring developments" following the cancellations, however, "production continues uninterrupted" and exports along the pipeline "continue as normal," the consortium said.

Sources said Vitol had chartered two of the three vessels. A Vitol representative was unavailable for comment.

Some buyers were shunning the Kazakh grade because of its connection with Russia, sources added, with many more tankers scheduled to load CPC expected to be canceled in the coming days.

"We are speaking about millions and millions of dollars lost," a CPC trader said, suggesting that sellers had been unable to clear CPC cargoes in an unprecedented market.

"Vessel owners and western firms most certainly care which load port they're going to," a second CPC Blend trader said.

However, Kazakhstan's energy ministry confirmed transportation of crude via the CPC pipeline continued as normal.

"All shareholders and shippers of CPC are committed to ensuring stable operation of the pipeline and loading of crude in accordance with planned volumes," it said in a statement.

CPC crude has plunged in value in recent days. The grade hit an almost two-year low of Dated Brent minus $7.44/b on March 2, on a CIF Augusta basis, according to the Platts assessment from S&P Global Commodity Insights.

Alternative routes

Novorossiisk is also a loading point for Russia's Urals crude, which is facing similar difficulties due to Black Sea shipping risk.

However, Kazakhstan, seen as one of the few growth producers in the OPEC+ group, has limited alternative export options for the CPC blend, a light, relatively low-sulfur crude, meaning it could suffer from a prolonged Ukraine conflict, to which it is not a party.

CPC loadings from Novorossiisk totaled over 1.5 million b/d in February, of which 91% derived from Kazakhstan and the remainder from Russian fields in the Caspian Sea, according to the Moscow-based pipeline operator.

Shipment by pipeline into Russia's Transneft system or to western China is an alternative but usually seen as less profitable.

Some Kazakh crude is shipped across the Caspian Sea to Azerbaijan and on to the Mediterranean via the BTC pipeline, but this is logistically far more burdensome.

A spokesperson for Azerbaijan's Socar said the company was "currently not" seeing evidence of CPC crude being diverted via BTC in this way. BP, which operates the BTC route, said the pipeline "has been receiving and transporting some Kazakh crude volumes for some years now and these volumes can potentially increase, clearly subject to certain conditions" and suppliers making their own arrangements for the journey across the Caspian Sea.

Unlike in Russia, international energy companies have been central to the development of Kazakhstan's biggest oil producing fields, with Chevron and ExxonMobil the largest stakeholders at Tengiz, and Shell and Italy's Eni among other holders of stakes in Kazakh production.

Soaring freight

Freight rates out of the Black Sea for crude tankers have skyrocketed in recent days due to sanctions on Russia and the war risk premium in the region.

Aframaxes carrying 80,000 mt on a Black Sea-to-Mediterranean voyage were fixed at w480, or $45.55/mt a day this week, which is a rise of more than w400 in a week, according to Platts assessments.

Ukrainian and Russian waters in the Black Sea and the Sea of Azov have been deemed high risk by insurers, deterring a number of shipowners and charterers from loading Russian cargoes, and leaving those prepared to take the risk with the ability to charge high risk premiums, traders said.

CPC Blend is a naphtha-rich crude valued as a petrochemical feedstock, and toward the end of 2021 achieved price premiums to Dated Brent of nearly $4/b on a CIF basis.