It is High Time We Had a Fleet in the Caspian Sea
By Sergey Smirnov
Kazakhstan has not had its own fleet in the Caspian Sea for a long time, although it has an ice-free port there. The government issued a resolution in December 1998 to set up the Kazmortransflot national shipping company, owned by the Transport and Communications Ministry and the KazMunayGas national company on a parity basis. On this company Kazakhstan pins its hopes to create a fully-fledged trade fleet. That is why the entire revenue raised by Kazmortransflot from shipping freight is currently being fully spent on developing sea transport.
This sector’s share does not exceed even 1% of the total freight transported in Kazakhstan, and this is understandable. Firstly, Kazakhstan is an inland country; secondly, the Kazakh part of the Caspian Sea has a weak transport infrastructure with morally and physically obsolete assets. Moreover, historically the country lacked experience in shipping and sailing, consequently, shipbuilding.
The need to buy sea vessels from foreign producers, a shortage of qualified personnel and a weak training base are hindering the development of the domestic market in sea transport services. However, the rapid development of the Caspian Sea shelf demands the swift expansion of a national tanker, dry-cargo and auxiliary fleet, as well as the construction of sea infrastructure facilities to carry out offshore operations. The steadily growing oil output also demands that the number of tankers be increased. For example, Kazakhstan needs about nine tankers to transport 5 million tonnes of oil a year.
To this effect, in 2006 the government adopted the Programme to Develop Sea Transport in 2006-2012, which envisages developing a trade fleet, port and service infrastructure, improving the legislative base and creating a system to control the movement of vessels and rescue operations in the sea. The programme is expected to be carried out in two stages: from 2006 to 2008 and from 2009 and 2012. It will demand funds worth 107.6 billion tenge, of which 99.4 billion tenge will come from loans and 8.2 billion tenge from the central budget. In line with this programme, the country’s fleet will be made up of 20 tankers and five dry-cargo vessels, as well as 150 vessels to support offshore operations.
However, in order to create our own system to transport oil by sea, it is not sufficient to build several tankers – the relevant infrastructure should also be built to serve them. Kazakh oil contains a great amount of sulphur, which erodes weld joints, so vessels have to be put out of operation every three to four months to clean tankers’ reservoirs from sulphur. This means that there should be a suitable base to operate, maintain and repair tankers.
It should also be noted that developing the infrastructure in the Caspian Sea depends on new oil projects. For example, the Agip KCO consortium’s postponement of the extraction of the first commercial batch of oil from 2008 until 2010 will have a negative effect not only on the Kazakh budget, but also on the plans to build offshore infrastructure facilities.
Need for Different Ports
As was discussed earlier, at present Kazakhstan only has one ice-free sea trade port. The Aktau port is currently ensuring export-import links with the Caucasus and Middle Eastern countries and via a system of rivers and canals with European countries. The growing volume of freight shipped through this port proves the need to create a dry-cargo fleet. Along with the growing exports from Kazakhstan, the imports of equipment and spare parts for the extractive and processing sectors are also growing. The maximum use of transport corridors cutting through Kazakhstan by neighbouring countries is also increasing the flow of dry cargoes and containers.
The bulk of freight transported via Aktau is oil, metals, grain and containers, most of which is shipped to Baku. According to forecasts, 2.3 million tonnes of oil and 320,000 tonnes of dry cargo are expected to be shipped only along the Aktau-Baku route in 2007.
As for oil, the Aktau international sea trade port shipped 11.5 million tonnes of oil in 2006, up by 10.6% from a year earlier. This has mainly been possible thanks to the government’s decision to return oil terminals, which had been operated by Kazmortransflot earlier, to the ownership of the Aktau port.
Because of the project to develop the TRACECA international transport corridor, the volume of transit freight shipped via the port’s railway ferry facility also increased: this figure stood at 310,000 tonnes in 2006.
As a result, the port has already reached its design capacity. That is why measures to expand the port in the northern direction are vital. This large-scale project includes building a harbour to house four oil terminals and four dry-cargo moorings. When these facilities are commissioned in 2010, the port’s capacity will reach 20 million tonnes of oil and 3 million tonnes of dry cargo a year. In general, the new terminals will double the port’s current capacity. Both public (loans under government guarantees) and private (investments by the general contractor, Mobilex Oil Terminal) funds, exceeding 32 billion tenge, will be attracted to this project.
The Aktau port also has great prospects in terms of serving transit flows. For example, under the Programme to Develop Cluster Initiatives, a transport and logistical centre is to be built at the port and this will further increase freight transport (up to 30% a year) to 1.5-2 million tonnes a year.
An increase in hydrocarbon output demands the construction of new terminals in the Kazakh part of the Caspian Sea. In particular, expanding the Bautino port and building terminals to ship equipment and construction materials will increase this port’s capacity from 1 million to 4 million tonnes a year. The construction of a $12m plant to repair and serve small vessels is to be completed at Bautino by the end of 2007. The programme to develop the Caspian Sea shelf also envisages developing the Kuryk port and the area around it. The new port is to include a base to support offshore oil operations, an oil terminal, a liquefied gas terminal and a number of other facilities. Kazmortransflot has already launched the construction of a vessel-repairing plant at the port. The port is expected to attract investment worth $100m.
Own Tanker Fleet…
Regardless of the Caspian Sea region being linked to the world oil market by a network of oil pipelines, transporting oil by tankers, as an alternative to building expensive trans-Caspian pipelines, is still worth considering.
Moreover, the oil transport market in the Caspian Sea has been booming in recent years, while the fight for its future output has intensified. The main players are beefing up their production capacities, investing considerable funds in modernising tanker fleets and developing port infrastructure. This can be seen in building new vessels specifically to meet Kazakh oil output. For example, Azerbaijan’s state shipping company, Caspar, owned 38 tankers with deadweight ranging from 6,000 to 13,000 tonnes in early 2006, whereas it intends to commission two more tankers with a deadweight of 13,800 tonnes by the end of 2007. Moreover, Caspar is modernising its old tankers that were built 25-30 years ago, which will also increase its fleet’s total capacity and enable it to transport the entire volume of oil along the Aktau-Baku route.
In contrast to Azerbaijan, which inherited almost the entire Caspian Sea Soviet oil transport fleet, Kazakhstan had to build its fleet from scratch. Until 2005, Kazmortransflot leased tankers from Azerbaijani, Russian and Iranian shipping companies. At the same time, in 2004 the company placed an order with the Vyborg-based Vympel shipyard (Russia) to build a whole range of Astana-class tankers with a deadweight of 12,000 tonnes. Each of them is capable of transporting up to 1 million tonnes of oil a year along the Aktau-Baku and Aktau-Makhachkala routes.
The Kazakh sea trade fleet has three tankers now. The first one called Astana has been operated in the Caspian Sea since May 2005. The second tanker, Almaty, was commissioned in June 2005, and the third, Aktau, arrived at the Aktau port in August 2006. Tankers with a large deadweight are expected to be built for the Kazakh fleet in the future.
Tankers flying Kazakh flag are currently transporting oil to the ports of Baku, Makhachkala and Neka (Iran). Using its own and leased tankers, Kazmortransflot transported 4.8 million tonnes of oil in 2006 (up by 3% on 2005), including 2.5 million tonnes (an 18% rise) to Makhachkala and 2.2 million tonnes (up by 5%) to Neka.
For Our Own Oil
Kazakh oil output and exports cannot be increased by several times in the near future without expanding existing transport capacities significantly and building new ones, including in the Caspian Sea. A memorandum of mutual understanding of the main principles for cooperation on a Kazakh Caspian Transport System was signed in January 2007. The KazMunayGas national company and companies involved in the North Caspian Project (ENI, Total, ExxonMobil, Royal Dutch/Shell, ConocoPhillips, Inpex and KazMunayGas) and in the Tengiz project (Chevron, ExxonMobil, KazMunayGas and others) signed the document.
The Kazakh Caspian Transport System is designed to transport oil produced, particularly oil from the Kashagan and Tengiz fields, and ship it via the Caspian Sea to the international market along the Yeskene-Kuryk-Baku-Tbilisi-Ceyhan route.
This system envisages building the Yeskene-Kuryk oil pipeline and a trans-Caspian system. The latter will consist of oil-discharging terminals on the Kazakh coast of the Caspian Sea, tankers and oil-loading terminals in Azerbaijan, as well as links-up to the Baku-Tbilisi-Ceyhan pipeline system. The Kazakh Caspian Transport System is expected to be commissioned by 2012.
The Caspian Sea oil transport market is not like the world market, which is liberal and based on market principles. It is more like the river, domestic transport market, which is closed and protected from “outsiders” in many countries. The Caspian freight market is not transparent (transport companies usually do not disclose the cost of their services) and is extremely limited by the number of spot deals. The main freight is usually contracted for a long period – from several months to a year, while the tariff of freight is set for each individual case depending on individual accords, the size of freight and its type. Moreover, the cost of transport by tankers in the Caspian Sea has been constantly growing in parallel with a growth in demand, while the cost of freight has been falling on the international market in recent years.
For example, transporting oil along the Aktau-Baku route costs $8.5-$9 a tonne, which is more expensive than transporting it from Novorossiysk (on the Black Sea) to Italy or from Primorsk (on the Baltic Sea) to Rotterdam ($6-$9.8 a tonne). The cost of transporting oil and petroleum products from Turkmenbashi to Baku, using Caspar’s tankers with a deadweight of 5,000‑7,000 tonnes, costs $7-$8 a tonne, from Aktau to Makhachkala about $8 and from Aktau to Neka $11. The highest tariff is on the Astrakhan-Neka route – over $13 a tonne.
Coastal countries aim to ensure that at least part of the freight market is secured for their own shipping companies and are adopting the best possible tax, customs and tariff policies and a favourable legal climate for them. For example, Caspar received special competitive advantages to transport oil along the Baku-Aktau route by setting higher tariffs for foreign tankers to enter the Azerbaijani ports: Caspar’s Heydar Aliyev tanker pays $5,500 in port collections to enter the Baku port, whereas a similar tanker owned by Kazmortransflot pays several times more. However, Kazakh ports set a common tariff of $12,500 for any tankers (including Kazakh ones).
This shows that the two countries’ policies in the sphere of shipping in the Caspian Sea have not been coordinated, and points to Azerbaijan’s attempt to use its monopolistic position after the Russian North Caspian Shipping Company’s bankruptcy in 2005. This issue should be solved through talks and concluding a bilateral agreement on oil transport and tariffs for calling ports.
… and Personnel Shallows
Building a sea fleet demands that the specialists operating it have levels of professionalism that meet international standards. A shortage of specialists and the weakness of the training base have led to the situation when foreign companies supply crews to operate Kazakh vessels.
However, this situation is changing, though slowly, for the better. For instance, Kazmortransflot has allocated grants for training specialists at the Admiral Ushakov State Marine Academy (Novorossiysk) and its Caspian branch. Each hopeful who passes exams successfully signs an individual labour contract with Kazmortransflot, under which they become reserve staff members of the company from the date of entering the training programme. The Yesenov Aktau State University, the Atyrau Oil and Gas Institute and the Tynyshpayev Kazakh Transport and Communications Academy also train sea transport specialists.
Another option to train top managerial specialists operating vessels is to transfer first, second and third-year students from Kazakh universities to marine academies in the CIS. In addition, the company sends school leavers to specialised universities in CIS countries to train its specialists.
Thus, building the country’s own tanker fleet is a challenge for Kazakhstan – a very serious and real challenge. If shipping companies from neighbouring countries edge out Kazmortransflot, it will battle to recover its investment in building new vessels. This makes it particularly urgent to harmonise the legislative and technical norms of Caspian-littoral countries.
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