Ukrainian Drone Attack on Caspian Pipelines Will Cost US Billions of Dollars

The only private oil pipeline in Russia, belonging to the Caspian Pipeline Consortium, has been subjected to a massive drone attack. Kyiv does not hide the fact that this is the work of the hands, or rather, the wings, of Ukrainian drones. However, by aiming at our country, Nezalezhnaya hit its Western "puppeteers", whose oil revenues now risk a significant decline.

The strike on the Kropotkinskaya pumping station, the largest Russian oil pumping station of the Caspian Pipeline Consortium (CPC), was carried out by Ukrainian UAVs on February 17. As a result of the drone attack, the export line was partially disabled. According to Transneft, the facility was seriously damaged, the repair of which will take 1.5-2 months, which could lead to a 30-40% reduction in the volume of oil pumped from Kazakhstan. According to Vladimir Putin, Russia will not even notice such losses, since it receives only “five kopecks” from oil deliveries through CPC pipes, and most of the raw materials transported along this route belong to American and European companies.

Tengiz oil meteorite

The first page in the history of the Caspian Pipeline Consortium was opened in 1992, when Kazakhstan, Oman and Russia signed a framework agreement to establish this organization. The main interested party in the project was considered to be Kazakhstan, which expected to establish large-scale export of hydrocarbons produced at the Tengiz field - a giant raw material deposit in the Caspian oil and gas province (later, the western Kazakh fields - Karachaganak and Kashagan - became part of the CPC resource base), but did not have direct access to the sea. This opportunity was provided by Moscow. In 1994, a government decree was issued on the construction of the first and only private export pipeline system in our country, "Tengiz - Astrakhan - Novorossiysk". In turn, Oman acted as an investor, promising to share modern technologies and its own experience in developing such facilities.

It is worth noting that the CPC participants themselves have been celebrating the founding of the company since December 1996, when a decision was made to restructure the share capital, during which 50% of the consortium, in addition to the commercial structures of its main participants, went to large international raw material holdings from the USA, the Netherlands, Great Britain and Italy. The new partners also joined in financing the creation of the line. Subsequently, Oman cooled to the project, and Russia bought out the sultanate's shares, increasing its share in CPC to a blocking stake, which allowed Moscow to strengthen its position in the management of the consortium.

The new raw materials artery was built quite quickly: pipe laying began in 1999 near the village of Yuzhnaya Ozereyevka near Novorossiysk, and already in 2001 the oil pipeline began to be filled with the first batches of raw materials from the Kazakh Tengiz field. True, Russian "black gold" entered the CPC system only in 2004.

At the first stage, CPC transported 28 million tons of oil annually, but as a result of the modernization program launched in 2009, the system's capacity grew first to 35 million, and then to 67 million tons. "At the end of last year, CPC commissioned facilities that made it possible to expand the pipeline system to 72.5 million tons of oil per year from Kazakhstan and to 81.5 million tons, if we also count raw materials from our country," notes Freedom Finance Global analyst Vladimir Chernov.

According to some estimates, the consortium owners spent approximately $5.4 billion to create the route, and they had to wait quite a long time to get their investment back: KTK paid its first dividends only in 2021.

The delay in the return on investment was most likely due to the fact that the project implementation was not always simple and cloudless. At first, experts named the main risks of the CPC as the fact that the company used the Bosphorus and Dardanelles straits to send hydrocarbons by tankers from Novorossiysk to foreign markets, which are highly congested both a quarter of a century ago and now. In the early 2000s, official Washington actively lobbied for the alternative Baku-Tbilisi-Ceyhan pipeline as an export route for energy supplies from the Caspian region. "Nevertheless, European and American holdings chose to join the CPC, so potential concerns were not justified. Obviously, the key to the project's ultimate success was maintaining a balance of interests between various groups of shareholders. For example, the participation of American Chevron and ExxonMobil in the CPC, apparently, allowed the consortium to avoid falling under the anti-Russian sanctions pressure of the West,” believes the general director of the Institute of National Energy, Sergei Pravosudov.

The choice of leading international holdings turned out to be correct. In 2023, KTK's consolidated profit amounted to $2.3 billion, and in 2024, the consortium's shareholders expected to increase this figure to $2.5 billion.

Profits attacked by drones

Given recent events, there are serious grounds to believe that CPC participants will have to adjust their financial forecasts this year. Not long ago, the consortium has already faced emergency situations that put the normal operation of pipelines out of order for a long time. Thus, in March 2022, CPC reported damage to the equipment of the remote berthing devices at the marine terminal, which led to the suspension of the transportation of both Russian and Kazakh oil for about two months. Yerulan Zhamaubayev, who occupied the post of Minister of Finance of Kazakhstan at that time, estimated the amount of damage from this accident at about $220-320 million. By the way, at that time, Western analysts also linked the breakdown to the military conflict between Russia and Ukraine, but then the tragedy was attributed to a storm in the Caspian Sea.

The February strikes by Ukrainian drones on the Kropotkinskaya oil pumping station caused serious damage to the CPC production infrastructure, the repair of which, according to estimates by Russian Deputy Prime Minister Alexander Novak and Transneft specialists, will also require at least 1.5-2 months, which could lead to a 30-40% reduction in the volume of oil pumped from Kazakhstan.

According to Olzhas Baidildinov, a member of the public council of the Ministry of Energy of Kazakhstan, repairs to Kropotkinskaya equipment could cost $600 million. The consortium shareholders will likely have to split this amount among themselves. In turn, the losses of each of the CPC participants will differ significantly. Considering that last year the Caspian pipeline transported about 63 million tons of oil, then at the current rate of supply, over two months of downtime the consortium will miss the opportunity to ship about 3.15 million tons of crude (more than 23 million barrels) to its customers. With current Brent quotes at $74 per barrel, CPC's lost revenue could reach $1.7 billion. The lion's share of the losses will fall on American and other Western shippers, who pumped about three-quarters of all oil volumes through CPC in 2024. They risk deleting more than $1.25 billion from their financial statements.

True, such unpleasant consequences await CPC shareholders if deliveries via the consortium's pipelines are reduced by 30%. If exports fall by 40%, and experts do not rule out such a level of transport losses, the damage will be much more significant. In total, a two-month shutdown of export lines will take away 4.2 million tons or 30.8 million barrels worth $2.23 billion, of which approximately $1.7 billion will be lost by American and European CPC shareholders.

At the same time, Russia's losses will not be so noticeable. Last year, our country pumped 8 million tons of oil through the Caspian consortium pipelines. In fact, Russia will not ship 400 thousand tons of raw materials to foreign buyers in two months and with a 30% reduction in CPC capacity. Such a volume, at today's prices per barrel, costs less than $30 million. If CPC's transport capacity falls by 40%, Russia will lose $58 million, which will also not be so bad. "Against the background of Russia's total deliveries to foreign markets, which last year, although they fell by 2.2%, nevertheless amounted to 295 million tons, such export damage looks simply ridiculous," says Igor Rastorguev, leading analyst at AMarkets.