Caspian Sea Pipeline damaged by a storm; oil prices set to rise further

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Joseph P Chacko
Joseph P Chacko
Joseph P. Chacko is the publisher of Frontier India, portal publishing news and current affairs. He holds an M.B.A in International Business from the Maharishi University of Management, Iowa, USA. Twitter: @chackojoseph *views are Personal.

One of the world’s key oil producing routes, the Caspian Pipeline Consortium (CPC), has suspended oil loading at its Black Sea marine terminal near Novorossiysk on Wednesday due to “critical” equipment damage during a storm.

“To date, loading at the oil terminal has been completely stopped,” said Nikolai Gorban, CPC General Director. 

The company on Monday announced that it was temporarily decommissioning the VPU-3 remote mooring device due to the displacement of the power frame of one of the floating hoses to carry out repairs on it.

“VLU-1 has not been surveyed to date because our diving teams, due to weather conditions, cannot yet go to sea and carry out work,” the head of the CPC said.

Based on the results of checking the two remaining berths, the company was forced to suspend the work of TLU-2.

“Refurbishment of facilities can take up to two months. Oil deliveries from the terminal to Italy, France, the USA, Spain and other countries may fall by 3-5 times,” said Nikolai Gorban

Deputy Prime Minister and ex-Minister of Energy Alexander Novak, for his part, said that the Russian side “is monitoring the situation and is doing everything possible to repair the damage as soon as possible.” However, Novak confirmed that the restoration of supplies would take 1.5-2 months.

On Wednesday, the Kazakh Energy Ministry said it was working on alternative routes for exporting oil after a pipeline shutdown to repair two of three storm-damaged berths in the Russian section of the Black Sea.

“And during this period, of course, the volume of oil supplied will decrease, which may affect world oil markets,” said the ministry.

Sanctions will not affect the current Caspian Sea pipeline repairs

“We have to eliminate any risk of oil entering the sea, so of course, this equipment had to be decommissioned for preventive maintenance. At the moment, the company has all the necessary equipment for repair, but the supply of spare parts may arise in the future, given the current circumstances,” explained Nikolai Gorban.

He said it would take at least three weeks to repair the damaged floating hoses. Moreover, the timing will also depend on the weather.

Europe has sanctioned the oil and gas industry supplies. 

 CPC may face interruptions in the supply of foreign equipment necessary for the operation of the sea terminal; many suppliers are already refusing to work, said Nikolai Gorban.

“These are all imported components. Today we have them in stock, further deliveries, I don’t undertake to predict yet, but most likely there will be problems because today many suppliers refuse to supply and work,” he told the journalists.

 He said the company is currently working on the issue of replacing foreign equipment, but so far, there are no concrete results.

Some parts of Europe and the U.S. will be affected

The temporary failure of one of the largest pipelines in the world will affect many, but especially consumers in southern Europe – Italy, Spain and southern France traditionally receive oil from the remote mooring facility of the affected CPC.

Apart from southern Europe, the incident at the CPC could become an unpleasant event for the United States. About 10-15% of the volumes went from this terminal to the U.S. market. 

The U.S. has just abandoned Russian oil, and they need to look for an alternative supplier. The price of fuel in the U.S. domestic market could rise.

CPC is the largest international oil transportation project involving Russia, Kazakhstan and a consortium of leading oil companies.

The pipeline system mainly collects oil from the giant oil fields of Western Kazakhstan and Russia.

The pipeline’s total capacity is over a million barrels of oil per day, accounting for 2.3% of the world’s offshore crude oil trade.

On Wednesday, oil prices rose in volatile trading amid news of supply disruptions, with Brent and WTI benchmarks up more than 5% to trade above $121 and $115 a barrel, respectively.

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