Kazakh oil tolling operations economically inexpedient

Oil&Gas Materials 14 March 2012 20:40 (UTC +04:00)

Kazakhstan, Astana, March 14 / Trend D. Mukhtarov /

The tolling operations (processing of crude oil and its return to the republic in the form of oil products) of the Kazakh oil in Azerbaijan, Russia, China and Turkmenistan under the current regulated prices on lubricants are economically inexpedient, Kazakh senior oil industry worker said in an exclusive interview with Trend on condition of anonymity.

"Tolling operations of Kazakh oil in Azerbaijan, Russia, China, and even Turkmenistan is economically inexpedient without preliminary calculations and under the current ceiling price on lubricants, established by the Kazakh government," the interlocutor said.

Earlier this month Kazakh Oil and Gas Minister Sauat Mynbayev said that he does not exclude the possibility of tolling operations of Kazakh oil in 2012 not only in Russia but also in China, Azerbaijan, Turkmenistan and Rompetrol owned by "KazMunayGas" National Company in Europe.

Minister said that the decision was made to reduce Kazakh market's dependence on Russia to supply high-octane gasoline as three Kazakh refineries produce it insufficiently. The deficit ranges from 800,000 to 1 million tons.
Mynbayev said that the Kazakh side negotiates about tolling of our oil at the Chinese refineries. The matter rests in supplying 1- 1.5 million tons of oil to China for tolling.

The interlocutor said that this scheme might not work for the simple reason that transport costs will still affect the final price on lubricants, which may be higher than the ceiling, set by the government.

The Kazakh Oil and Gas Ministry has set the maximum retail prices at the filling station at the following level: Ai-92/93 petrol - not more than 106 tenge per liter ($ 1 - 147.7 tenge), AI-80 petrol - 86.0 tenge per liter, diesel fuel - 90 tenge per liter.

"It is necessary to transport oil by sea, recycle, give away some oil and then transport again by sea in the form of petroleum products by losing some volume to conduct tolling operation with our oil in Azerbaijan taking into account the current load of Aktau sea port," the source said. "I am sure that this option will not work with China as it is necessary to take into account all the complexities of supply by railway."

In late 2011 Mynbayev said that Russia limits the supply of crude oil and oil products to Kazakhstan.

"Regarding the tolling operations with Russia, this scheme will not work, as there is the following regime: buy oil products from Russian oil," the interlocutor said. "Few people will let our oil be recycled there."

The interlocutor said that the problem may be resolved by modernizing Kazakhstan's three oil refineries and increasing their design capacity and depth of processing.

Earlier Kazakhstan adopted a state program to modernize local refineries worth $ 4.2 billion till 2015.

Russia annually supplied up to 7 million tons of its oil without customs duty to Kazakhstan. So, the loss of the Russian budget amounted to over $2 billion a year. Kazakhstan and Russia agreed in late February 2012 that duty-free supplies of Russian oil to Kazakhstan will remain until 2014. Afterwards, the countries will move to the substitution operations.