By Dmitry Zhdannikov and Gleb Gorodyankin
LONDON/MOSCOW, Oct 11 (Reuters) - Rivals to trading houseVitol led by Glencore are challenging its decade-long leadershipin crude exports from Kazakhstan to Europe as new Caspian SeaKazakh production comes onstream.
The second-largest oil producer in the former Soviet Unionafter Russia, Kazakhstan's output is set to increase by at leasta quarter to over 2 million barrels per day (bpd) in the nextdecade as output swells from its Tengiz, Karachaganak andKashagan fields.
The increase has prompted oil majors working in Kazakhstanto look at various export routes from the landlocked country,including to China and to Europe via the private Caspianpipeline CPC as well as Russian state pipelines.
The latter route can pump more than 300,000 bpd and for overa decade those volumes have been exported from Russian BalticSea ports by Vitol.
Vitol, which produces none of the oil itself, helps toaggregate small parcels from all Kazakh producers into fulltanker-size portions. That practice suits small producers as itfrees them from extra costs and facilitates their exports. Somelarger producer companies, though, would prefer to export crudeon their own behalf.
Until now, Vitol's trading house rivals and the large oilfirms that operate in the country had failed to get a share ofthe export business.
Vitol says its success in securing such a long and enduringexport operation is based on a compelling business case.
"Vitol is proud of its long history of partnership with theKazakh oil industry. It is an important business for the companyand we look forward to building on these relationships in theyears to come," a Vitol spokeswoman said.
"We have committed to the market over the long term and havea compelling commercial offering," she added.
Now the Vitol scheme has been successfully challenged forthe first time. The Western consortium KPO, including oil majorsChevron, Eni and BG Group that isdeveloping the Karachaganak field, produced enough to fill onefull-size cargo and offered it at a tender.
"People have been working on this plan for a year, thinkinghow to store oil in Russian pipelines and sell a full cargo," asource familiar with the tender results said.
The tender attracted a flurry of bids from Vitol's rivalsGlencore, Trafigura, Eni, Royal Dutch Shell,Petraco and Chevron, according to traders.
World No.2 crude trader Glencore, Vitol's biggestcompetitor, won the tender and will ship the cargo from theRussian port of Ust-Luga on Oct. 21-22, traders said.
Glencore declined to comment.
Trading sources said the deal could be repeated.
"It is not a one-off deal. Depending on how much KPOproduces, it will continue offering crude at such tenders. AndGlencore will be invited to bid for them," the source said.
LONG PARTNERSHIP
Aggregating small volumes of oil into full-size tankers hasbecome an important business for Vitol in recent years.
In September, Vitol marketed nine cargoes of Kazakh crudefrom the Russian Baltic ports of Primorsk and Ust-Luga totaling6.6 million barrels, worth around $700 million or equal to anannual turnover of $8 billion. In October, it will market eight.
Traders said they were confident Vitol would maintain itsleading position in Kazakh oil exports because only a limitednumber of producers and projects in Kazakhstan would be able toramp up output sufficiently to fill full-size tankers.
Apart from KPO, only state oil firm KazMunaiGas andMangistaumunaigas, a venture by China's CNPC, can produce enoughoil, an industry source said. "All others supply definitelybelow 100,000 tonnes a month," the source said.
Kazakhstan's oil minister said the way Kazakh oil exportsreach markets was changing as the Kashagan consortium launchesproduction.
"Under the Kashagan agreement, every participant of theconsortium is free to sell oil himself and therefore decide onthe route, where to sell and for how much," Uzakbai Karabalinsaid this week.
The consortium including Exxon Mobil, Shell, Total and Eni launched the field last month following adecade of delays and after spending more than $50 billion.
It is forecast to be ultimately pumping 400,000 bpd andcompanies such as Eni and Total are expected to use the Russianroute as they have no stake in the CPC pipeline.