Kazakh oil processing in Belarus is not feasible before 2015

Cooperation between Belarus and Kazakhstan in the oil sphere has been discussed before. The parties expect to resolve the issue of access to the pipe after creating the CES in 2015. However, even if the issue of oil transit via Russia is resolved chances for long-term cooperation are slim.

On August 23^rd, Ambassador Extraordinary and Plenipotentiary of Kazakhstan to Belarus Yergali Bulegenov held a press conference in Minsk.

The main reason for Kazakhstan’s accession to the Customs Union was to get access to transit pipelines through Russia to export its energy resources. Belarus does not hide the fact that one of the main reasons behind its joining the Customs Union was to have access to the Russian energy resources at Russian domestic prices. Therefore Belarus is equally interested in processing Kazakhstani oil.

Belarus and Kazakhstan already have similar experience. In 2010, during the conflict with Russia about Russian oil supply, in parallel with the oil supply from Venezuela, Kazakh gas and fuel deliveries were organized for further procession at Belarusian refineries. Annual transit of Kazakh oil through Belarus to consumers in the EU is about 4-6 million tons.

The main obstacles for further cooperation are the lack of guarantees for a steady supply of the necessary amount of Kazakh oil and incomplete contractual basis for further cooperation between the two countries.

Oil supplies to Belarus are adjusted annually. The bulk of oil supply is carried out via Transneft company. In 2012 the supply volume was pre-decided, as well as the share of tolling processing at Belarusian refineries for Russian companies. Belarusian refinery capacity has reached 100% already and there is no possibility for additional processing. Potential processing of Kazakh oil on commission conditions raise the issue of Russian oil deliveries for domestic needs. Kazakhstan is unlikely to agree on terms similar to the Russian ones. It is interested in guaranteed transit and not willing to lose money on providing preferential prices for Belarus.

Cooperation between Belarus and Kazakhstan on Kazakh oil processing lasted only as long as lasted the oil supply conflict between Belarus and Russia. And it would have lasted, if the economy of oil processing was more profitable than similar scheme with Russia. Curtailment of Kazakh supply means this cooperation was unprofitable for Belarus.

The issue of duties payment has not been resolved either. Belarus and Russia have unified duties on oil and oil products export. In Kazakhstan different duties are applied. Until this issue is resolved, there could be confusions regarding duty payments to the budget. Regulatory framework is not likely to be ready before 2015.

Therefore the Kazakh oil procession project is rather a PR campaign meant for Russian companies, than a real cooperation opportunity. Belarus needs secure oil supplies for processing. Today such guarantees can be provided by Russia only.