Kazakhstan's Oil Output Surges to Record High Amidst Pipeline Disruptions

Kazakhstan's oil output has surged to a record high of 2.12 million barrels per day (bpd) in February, according to a source familiar with the matter. This significant increase comes despite damage to the Caspian Pipeline Consortium (CPC), the country's main export route via Russia. The surge in production follows a rise in output at the giant Tengiz oilfield, operated by Tengizchevroil, led by Chevron Corp. (NYSE:CVX), which has embarked on a $48 billion expansion of Tengiz.



The expansion project, known as the Future Growth Project (FGP), has increased crude oil output by 260,000 bpd and is expected to ramp up output to 1 million barrels of oil equivalent per day (boepd). This expansion has significantly contributed to Kazakhstan's record-high oil production. However, it remains unclear how Kazakhstan has managed to ramp up output despite having constrained export capacity, given the damage to the CPC pipeline.



Kazakhstan relies on the CPC for more than 80% of its exports. The surge in output follows a rise in production at the giant Tengiz oilfield, operated by Tengizchevroil, led by Chevron Corp. (NYSE:CVX), which has embarked on a $48 billion expansion of Tengiz. Last month, Reuters reported that Kazakhstan could sharply increase its crude oil exports out of Turkey's port of Ceyhan, and dramatically reduce the more than 80% share of flows it currently sends via Russia. According to Kazakhstan Energy Minister Almasadam Satkaliyev, exports via the Baku-Tbilisi-Ceyhan (BTC) pipeline could increase to 20 million metric tons a year from the current 1.5 million as the country increases oil production.

However, Kazakhstan could later cut oil production to compensate for past overproduction. Last year, Kazakhstan, Russia, and Iraq submitted their compensation plans to the OPEC Secretariat for overproduced crude volumes for the first six months of 2024. According to OPEC, the entire over-produced volumes were to be fully compensated over the next 15 months through September 2025, with Kazakhstan 'paying back' a cumulative 620 kb/d, Russia 480 kb/d, and Iraq 1,184 kb/d.

Many traders are worried that the balance of oil demand growth and non-OPEC+ supply growth might not offset the scale of restored OPEC+ output, leaving oil markets oversupplied when OPEC+ starts scaling back oil production cuts in April. However, commodity analysts at Standard Chartered have pointed out that this view ignores repeated assurances from OPEC+ that the tapering would be fully dependent on market conditions.

In conclusion, Kazakhstan's oil output has surged to a record high amidst pipeline disruptions, driven by the expansion of the Tengiz oilfield and increased production at other oilfields. The long-term sustainability of this growth depends on factors such as export capacity, OPEC+ commitments, and infrastructure investment. The country is exploring alternative export routes, such as the Baku-Tbilisi-Ceyhan (BTC) pipeline, to manage its constrained export capacity. The global oil market will be closely watching Kazakhstan's production trends and export strategies in the coming months.