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ANALYSIS-Rising Kashagan output weighs on Kazakhstan's CPC oil price

* Investors in delayed Kashagan project keen lift output

* Extra CPC flows pile pressure on heavily discounted grade

* Limits on Mediterranean demand pushes CPC to Asia

MOSCOW, June 8 (Reuters) - One of the world's fastest growing crude streams, Kazakhstan's CPC, is battling to find new buyers in a market saturated with light grades and with core European customers reluctant to buy more of the pungent oil blend even as its value has plunged.

It is a familiar picture for oil producers which have struggled with oversupply in the past three years, sending oil prices from above $100 a barrel to less than $50 a now.

But it is proving a particular challenge for Kazakhstan, which has joined the Organization of the Petroleum Exporting Countries and other non-OPEC nations in a pact to reduce output.

Under the deal, Astana pledged to keep overall production at 1.7 million barrels per day (bpd). At the same time, it needs to reward investors in its giant Kashagan oil project that produces CPC but which started up last year five years behind schedule.

So Astana is letting oil firms hike output from Kashagan in the Caspian Sea, which means it must cut from elsewhere. But the extra flows are piling pressure on CPC's already falling value.

In 2013, light CPC crude traded at an average annual premium of $0.15 a barrel to dated Brent, then during 2014-2016 it slid to a discount of $0.11-$0.18. In the first five months of 2017, the discount had widened further to as much as $1.23.

"Now it is more expensive to delay Kashagan again rather than sell discounted CPC Blend. Shareholders need the project to work now," said one trader.

Kashagan oil field has been developed by a consortium of China National Petroleum Corp, Exxon Mobil, Eni, Royal Dutch Shell, Total, Inpex and KazMunaiGas. Phase one cost $55 billion.

Rising output from Kashagan has pushed up oil flows through the Caspian Pipeline Consortium (CPC) pipeline to the Black Sea port of Novorossiisk.

The pipeline, which also transports oil from other parts of Kazakhstan and Russia, pumped an average of 700,000 bpd in the past decade. But after Kashagan production began at the end of 2016, volumes rose to 900,000 bpd last year.

That figure could rise this year to 1.2 million-1.3 million bpd, according to Caspian pipeline consortium which manages the pipeline.

"The CPC Blend market is tough," said one trader in the Mediterranean, traditionally the biggest market for the crude. "What's frightening is that we will have about 10 million tonnes extra of the grade to handle soon."

MEDITERRANEAN RESTRICTIONS

Selling any light crude has been made tough due to cuts by OPEC, whose members have tended to reduce output of heavier oil preferred by some refiners, leaving the market awash with lighter grades. But CPC has characteristics that add to the challenge.

Unlike Russia's main Urals export blend, CPC is a more difficult fit for refiners because it has a high level of mercaptans, a group of pungent gases.

"In some Mediterranean refineries, CPC Blend processing is simply restricted due to the smell and harmful emissions, while it is also corrosive, so you can only process it if you have anti-corrosive coat on refinery units," another trader said.

In addition, more larger Suezmax crude carriers are being used to ship CPC as exports from Novorossiisk increase while the number of loading time slots remains limited. Some European ports will only take smaller Aframax vessels, traders said.

This is pushing the blend to markets further afield.

"Mediterranean refiners are not very keen on CPC, so the grade is now flowing worldwide, from Poland to Japan," a source with a big European refiner said.

Reuters Eikon data shows CPC Blend supplies to Asia increased sharply since the start of 2017, heading to markets where bigger Suezmax vessels help reduce transport costs.

South Korea, India and Japan bought 800,000 tonnes, 700,000 tonnes and 600,000 tonnes of CPC respectively in January-May 2017. In the whole of 2016, those three countries bought 400,000 tonnes, 500,000 tonnes and 600,000 tonnes respectively.

Elsewhere in Europe, Poland's PKN Orlen bought 700,000 tonnes of CPC this year for its Polish and Lithuanian refineries for the first time.

But rising CPC shipments beyond its core Mediterranean market have not been enough to support its value. The grade that formerly balanced between premium and discount to BFOE has been traded far below dated Brent crude for six months, the longest period in its history, Reuters Eikon data showed. <BFO-CPC>

"I don't think CPC Blend differentials will bounce back to a premium to Brent anytime soon. Not in the current market," one trader in the Mediterranean market said. (Editing by Dmitry Zhdannikov and Edmund Blair)