Kazakhstan’s KazMunayGaz (KMG) is seeking to acquire an oil refinery in Bulgaria from Russia’s LUKoil at a bargain price. The purchase of Lukoil Neftohim Burgas, the largest oil refinery in the Balkans, would, according to some media sources, more than double [KMG’s] European refining capacity.” KMG reported a bid of $1 billion for the refinery, which one outlet stated “seems small.”
Pressured Out
The Burgas refinery was built in the early 1960s and “joined the LUKoil Group” in 1999. The European Union decision to impose a ban on Russian oil imports after the Kremlin launched its full-scale war on Ukraine deprived Lukoil Nefthohim Burgas of its major source of crude oil.
According to a Financial Times report from November 2024, the Bulgarian government pressured LUKoil to sell the refinery, hitting the Russian company “with a 60% tax on profits in an effort to force out its owners” and prohibiting the “export of Russian crude-based products from Lukoil Neftohim Burgas.” In turn, LUKoil complained about “discriminatory laws and other unfair, biased political decisions toward the refinery.”
KMG reportedly lost interest in the refinery in late 2024, but BNN Bloomberg reported on January 7 that the Kazakh company was still among the bidders for the Bulgarian refinery.
Advantage KMG
When the EU banned Russian oil imports, Lukoil Nefthohim Burgas compensated by purchasing oil from Kazakhstan and the Middle East.
If KMG buys the Bulgarian refinery, presumably most or all of the crude processed there will come from Kazakhstan.
Kazakhstan exported some 70.5 million tons of oil in 2023, and expects figures will be slightly less in 2024, some 68.8 million tons, due to maintenance at the Tengiz and Kashagan fields.
Some 80% of those oil exports are shipped from Kazakhstan through the Caspian Pipeline Consortium (CPC) pipeline to Russia’s Black Sea port at Novorossiysk.
Prior to Russia’s full-scale invasion of Ukraine, the EU purchased about 50% of the Kazakh oil shipped through the CPC pipeline, but that amount has risen to 80% since the ban on Russian oil imports was imposed.
Kazakhstan is also increasing the amount of oil it exports through Azerbaijan to Georgia’s Black Sea port at Batumi, where KMG subsidiary KazTransOil owns the oil terminal. Kazakhstan has a deal to ship 1.5 million tons of oil annually through Azerbaijan, but Kazakh Energy Minister Abdusalam Satkaliyev said in November 2024 that his country was looking to boost that to 20 million tons.
Kazakhstan currently has two Aframax-class oil tankers (deadweight 80,000 tons each) operating in the Black Sea, but plans to bring this number to 12 during the coming years.
The Lukoil Nefthohim Burgas refinery has a capacity to process some seven tons of oil annually.
KMG International already owns two oil refineries in Romania. The Petromidia refinery, with an annual capacity of some five million tons, is located 20 kilometers from the Black Sea port city of Constanta, and the much smaller and older Vega refinery, north of Bucharest, with an annual capacity of some 350,000 tons.
A Great Deal
KMG’s $1 billion bid for the Lukoil Nefthohim Burgas is attracting attention.
The Bulgarian oil refinery completed $1.5 billion in upgrades in 2015.
BNN Bloomberg quoted senior oil and gas analyst Jonathan Lamb of the Wood & Company Financial Services as saying KMG’s $1 billion bid “looks cheap.”
The need for LUKoil to sell the refinery is obvious, but Azerbaijan’s SOCAR and Turkish oil company Opet also submitted bids for the Bulgarian refinery, and “at least half a dozen groups have expressed interest in buying” Lukoil Nefthohim Burgas.
Kazakhstan is discussing financing for the purchase of the Bulgarian refinery with the Swiss-based company Vitol, which has been called the “king of oil in Kazakhstan” and is connected to Temir Kulibayev, the son-in-law of former Kazakh President Nursultan Nazarbayev.
Kulibayev is not directly connected to LUKoil, but he did serve on the board of directors at Russian gas giant Gazprom from 2011 to 2022 and has been linked to state-owned energy companies in Kazakhstan.
A condition of the refinery’s sale is that the money will not be transferred to Russia, so the sale and payment will be watched closely by the Bulgarian government and the EU.
From the Ground to the Petrol Pumps
Kazakhstan is already working to control its oil exports, from extraction in Kazakhstan’s oil fields to its transportation and processing into a finished product available for sale as filling stations abroad.
If KMG does indeed acquire the oil refinery in Bulgaria, it would give the Kazakh company the ability to process more than 12 million tons of oil at refineries in Europe.
The EU ban on Russian oil imports provides Kazakhstan with an excellent opportunity to increase its share of the oil and gasoline markets in Europe.
