CHINA SECURES NEW ACCESS TO KAZAKH OIL

Publication: Eurasia Daily Monitor Volume: 4 Issue: 237

On December 11 Kazakh Prime Minister Karim Massimov and Ma Fu Tsai, deputy chairman of the Chinese State Council Committee on Energy, arrived at Kenkiyak, a small settlement in Aktobe region, to announce the start date for construction of the 750-kilometer long Kenkiyak-Kumkol oil pipeline.

Construction of the $1 billion pipeline is due to start in March 2008 and should be completed in October 2009. If everything runs as planned, the new pipeline will initially pump up to 10 million tons of oil from the Kenkiyak and Zhanazhol fields in the Kazakh sector of the Caspian Sea to China each year. The Kenkiyak-Kumkol pipeline is conceived as the second phase of the multistage Kazakh-Chinese pipeline projects. The first phase, the 962-kilometer Atasu-Alashankou pipeline was successfully completed in June 2005. The second pipeline is to link sections between Kenkiyak and Atyrau with a stretch between Kumkol and Atasu to deliver raw hydrocarbons from oilfields in Aktobe and western Kazakhstan to China’s insatiable energy markets through the Atasu-Alashankou pipeline. At the launch ceremony, Massimov said Kazakhstan had created solid technical and financial foundations for the Kenkiyak-Kumkol project, while the Chinese official delivered a congratulatory message from Chinese Deputy Prime Minister Wu Yi, who hopes that “the implementation of the project will play an important role in developing mutually beneficial economic cooperation between Kazakhstan and China” (Kazinform, December 11).

The Kenkiyak-Kumkol pipeline significantly facilitates oil deliveries to China, which cannot rely on maritime routes to get access to oilfields operated by the China National Petroleum Corporation (CNPC)-Aktobemunaygaz. Kenkiyak oil is mostly delivered to China by rail, and the Chinese side was desperately lobbying to speed up this project, which would extend the Atasu-Alashankou pipeline to Kenkiyak; China even offered to share the financial burden of the project on a parity basis. The costly pipeline project put an enormous financial strain on KazTransOil, the Kazakh national oil shipment company. According to Zhanat Satybaldin, deputy director of KazTransOil, the company had to issue Eurobonds to pour $700 million into the Kenkiyak-Kumkol project (Expert Kazakhstan, March 5).

But whatever the cost, joint pipeline projects with China, with no political strings attached, have tangible pluses for Kazakhstan. With the breathtaking rate of economic development in neighboring Xinjiang province, Kazakhstan gains a new energy market with practically unlimited capacity. Therefore, Astana would bear any financial sacrifice in order to realize the pipeline agreements reached with Chinese President Hu Jintao during Kazakh President Nursultan Nazarbayev’s visit to Beijing on December 20, 2006.

Kazakhstan’s dilapidated oil infrastructure cannot keep pace with growing Chinese demands for oil and gas. The Kenkiyak-Kumkol project is just a preview of the impending financial burdens. Additional financial injections are needed to reconstruct the pipeline section from Kenkiyak to Atyrau and the Kumkol-Atasu pipeline, as these segments need to be extensively repaired or completely built anew, depending on which feasibility study is cited.

Chinese buyers have effectively used Kazakhstan’s drive to diversify its hydrocarbon shipment routes to their own advantage and made equally successful forays into Kazakhstan’s gas resources. Joint gas pipeline projects are to be implemented in two separate stages. China and Kazakhstan plan to complete construction of a 1,338-kilometer gas pipeline from the Kazakh-Uzbek border to Khorgos in China by the end of 2009. The pipeline, which will pass through Shymkent in South Kazakhstan, will have an annual capacity of 40 billion cubic meters. The second phase of the project, a 1,480-kilometer branch from the Khorgos pipeline to Beineu terminal is under consideration, but it can be discounted as economically inefficient (Turkistan, December 7).

According to Chinese sources, CNPC annually produces 13 million tons of oil in Kazakhstan. But this is only a small portion of what the Chinese intend to squeeze from Kazakh oilfields. Recently KazMunayGaz, Kazakhstan’s leading national oil company, announced plans to sign a production-sharing agreement with CNPC regarding the Darkhan oilfield, in the eastern Caspian section of Kazakhstan. Darkhan is estimated to hold more than 11 billion barrels of oil (http://www.eia.doe.gov/cabs/Kazakhstan/kazaproj.html). A joint memorandum on development of Darkhan was signed between KazMunayGaz and CNPC as far back as August 2005.

With the construction of Kenkiyak-Kumkol pipeline China will have access to more oilfields in Kazakhstan. Furthermore, this project facilitates the task of integrating the pipeline systems of Kazakhstan, Russia, and China. Addressing Kazakhstan’s citizens on Independence Day, Nazarbayev stressed the importance of a balanced energy policy, saying that Kazakhstan will export its hydrocarbons “in all four directions” (Khabar TV, December 15).

China clearly outweighs Russia and the West in Kazakhstan’s current energy policy. What other players in Central Asia fail to reach by political pressure, Beijing relatively easily reaches by diplomatic finesse, using Kazakhstan’s long-established ties with Uzbekistan and Turkmenistan to ensure the success of its gas pipeline scheme. Astana would equally benefit as a transit nation for a Turkmen gas pipeline to China. By the same token, the East Siberia-Pacific Ocean project under construction, a symbolic “energy bridge” between China and Russia, displays Beijing’s well-considered approach to the Caspian oil rush.