Ukraine attacks US owned pipeline

The recent drone attack by Ukraine on a Russian pumping station in the Krasnodar Krai region has the potential to benefit Russia, possibly leading to the lifting of some sanctions. The attack highlights the short-sightedness of Ukraine's military's policies, as it has led to a significant reduction in the pumping of Kazakh oil, not Russian oil, by a third. This has had a negative impact on the international shareholders of the pipeline, including the American company Chevron.The attack was carried out on a pumping station belonging to the Caspian Pipeline Consortium (CPC) in the Krasnodar region. It should be noted that this particular route is primarily used for Kazakh oil, not Russian oil.The CPC has a diverse shareholder base, including Russian and Kazakh entities, as well as international companies such as Chevron and Eni from the US and Europe.Chevron, a key player in the CPC, has acknowledged the attack and is closely monitoring the situation. The CPC plays a vital role in the transportation of Kazakh oil to global markets, and the energy security of numerous countries is closely tied to this route.

According to Russian President Vladimir Putin, the CPC is not a Russian organisation, but an international one, with the oil that flows through the CPC pipeline essentially owned by foreign shareholders under production-sharing agreements. Representatives of these companies are involved in assessing the damage caused by the attack and evaluating the timeframe and possibilities for restoring the facility.

The CPC pipeline system, spanning 1,500 kilometres, connects oil fields in western Kazakhstan to a marine terminal in Novorossiysk, from where oil is transported by tanker to customers, accounting for up to 90% of Kazakhstan's oil exports.Despite the disruption to the Kropotkinskaya pumping station, the CPC has successfully ensured the continued transportation of oil by bypassing the shut station and implementing a reduction in pumped volumes.
Transneft, the largest shareholder of CPC, has stated that repairs to the station damaged by the UAV attack may take one and a half to two months.Deputy Prime Minister Alexander Novak has indicated that the restoration period will be "at least several months."During this time, CPC has noted that oil pumping from Kazakhstan may decrease by 30%. Given that 63 million tons of oil passed through CPC last year, the station shutdown is expected to result in a monthly drop of 1.6 million tons in oil pumping. If the repairs last two months, the market will lose 3.2 million tons, and 4.8 million tons of oil in three months.The repair times are so long because sanctions have created a problem with importing the necessary equipment into Russia. At a recent government meeting, Vladimir Putin proposed that CPC's foreign partners should import the necessary repair equipment themselves to expedite the repairs.

"It is crucial for Russia to demonstrate to the West that the repairs will take a considerable amount of time, given the ban imposed on the supply of energy equipment. It is also advantageous for Russia to draw attention to the fact that Ukraine does not take anyone's interests into account, in order to undermine the desire to help it.
Igor Yushkov, an expert at the Financial University under the Government of the Russian Federation and the National Energy Security Fund (NESF), comments: "Earlier, it hit the Russkaya gas compressor station, which creates pressure in the Turkish Stream, and this is a direct blow to both Europe and Turkey. Ukraine tried to hit the Druzhba oil pipeline in the Bryansk region and BPS-1. Now it has hit the international CPC project with American shareholders."

"This incident highlights Ukraine's policy of disregarding the interests of its supporters and sponsors, whether American or European, in their decision-making process. They would not directly target European or American assets, and if the station is located on Russian territory, it indicates the legitimacy of the strike target. If other parties are affected, Kyiv's indifference is evident," the expert adds.Overall, the Ukrainian drone strike on an international project appears to be a misguided action.

"Those who determine the target for the strike may lack the expertise to recognise that this oil pipeline and station, which traverses Russian territory, transports Kazakh oil, not Russian oil, and that there are international investors, including American ones, present. This strikes me as ill-considered action," says Igor Yushkov.
According to Sergei Vakulenko, an independent energy expert and former head of the strategy and innovation department at Gazprom Neft, the drone attack planner simply chose the most convenient pumping station in the Krasnodar region, closer to Ukrainian territory, for the strike.

"Put yourself in the shoes of a Ukrainian drone attack planner. There was a recent attack on the Druzhba pipeline pumping station and BTS-2, and it seemed to have worked to some extent. Consequently, they are now seeking a pumping station in closer proximity to Ukrainian territory, with the intention of deploying a greater number of drones that are more likely to reach their destination.The search area is evidently confined to Krasnodar Krai, where several pipelines converge, and from which oil is pumped to Novorossiysk, before being transported by tankers.In his Telegram channel, Vakulenko writes, "It is evident that Ukrainian drone attack planners have identified two stations on Google Maps. One station features all equipment housed in buildings, with no clear visibility of the key units. Additionally, there is a military airfield several kilometres away, and the terrain is not conducive to operations. The other station is located in an open field, with all objects in close proximity, making it easy to identify the key units. Consequently, the decision was taken to attack the CPC station, an international project, which proved to be the easier of the two targets.
Igor Yushkov, Senior Director at Expert RA, believes that Russia may benefit from this story, as it could lead to a rise in global market prices, along with other factors. The oil market is currently experiencing significant volatility, and even a small withdrawal of oil could potentially lead to a price increase. This could offset budget losses due to Russian companies' shareholdings in CPC, resulting in a net gain from higher oil prices.

However, Philip Muradyan, Senior Director for Corporate Ratings at Expert RA, cautions that although CPC volumes are notable for the global oil market, it is unlikely that this incident will have a significant impact on prices, given the current weak demand and ample capacity to increase supplies from alternative directions.