EUROPEAN ENERGY CONSUMERS LIKELY TO LOSE KAZAKHSTAN BATTLE TO “ORIENTAL BLOC”

Kazakh President Nursultan Nazarbayev’s November 21-23 Balkan tour, which came on the heels of his trip to the United Arab Emirates and Syria (see EDM, November 15), symbolically demonstrated Kazakhstan’s adherence to its trumpeted multi-vector foreign policy. Astana’s efforts to boost energy cooperation with Slovakia, Hungary, and Romania mirror the emerging Balkan energy transport routes from the shores of the Caspian Sea to EU consumers.

Faced with growing uncertainty about their long-coveted OSCE chairmanship and WTO entry, Kazakh leaders overwhelmingly attach political importance to would-be Balkan energy routes as well as to its participation in the Baku-Tbilisi-Ceyhan (BTC) pipeline. Foreign Ministry spokesman Yerlan Ashikbayev, commenting on Nazarbayev’s visit to Slovakia, Hungary, and Romania, stated, “Taking into consideration the fact that these countries are members of international organizations like OSCE, WTO, NATO, [and the] European Union, we hope that they will support the international initiatives of Kazakhstan (Zhas Alash, November 22).

However, the potential economic gains from Europe-bound expansion for state-controlled Kazakh energy companies cannot be underestimated. This was most recently illustrated when KazMunayGaz acquired a 75% stake in Romania’s Rompetrol Group, in a $3 billion deal sanctioned by the European Commission. Unnamed Kazakh companies are also weighing the possibility of purchasing Slovak assets, including oil-processing plants and pipeline systems (Central Asia Monitor, November 23-29).

But despite this impressive bargaining, the Balkan route and East European markets are not the top priority for KazMunayGaz, the country’s leading oil and gas company. Only weeks before Nazarbayev’s trip to the Balkan states, Razvedka Dobycha KazMunayGaz (RD KazMunayGaz), an oil prospecting and extracting company affiliated with KazMunayGaz, signed a $930 million deal with the Chinese CITIC Group that allows RD KazMunayGaz to purchase 50% of the shares in CITIC Canada Energy Ltd. (CCEL), which is operating at the Karazhanbaz oilfield in Mangistau region, West Kazakhstan. Karazhanbaz’s estimated oil reserves are only 55 million tons, but the location was strategically important for Chinese oil giants to make inroads toward the energy resources of Kazakhstan.

Unlike Western companies, Chinese firms have always shown flexibility in dealing with the Kazakh government and often used subtle, seemingly illogical tactics in their moves. Last December CITIC Group acquired 94.62% of the shares in Indonesia’s national energy company for nearly $2 billion and, as promised, sold half of these shares to KazMunayGaz. The deal was welcomed by the Kazakh government, which had become alarmed by unrestrained Chinese expansion into Kazakhstan’s oil sector since the China National Petroleum Company purchased PetroKazakhstan in October 2005. Although last year, under intense public pressure, Astana bought back 33% of the shares in PetroKazakhstan from the Chinese and regained control over the strategically vital Shymkent oil refinery, China still holds key oilfields in Kazakhstan. At the latest session of the Kazakh-Chinese Cooperation Committee in Astana, Wu Yi, the deputy chairman of the State Council of China, stressed the importance of the construction of a Kazakh-Chinese gas pipeline to deliver Central Asian gas to western China. The 1,333-kilometer pipeline project, with annual capacities of 40 billion cubic meters, involves Kazakhstan and Uzbekistan. The Chinese have also reached an important long-term gas delivery agreement with Turkmenistan, which will supply 30 billion cubic meters annually for the next 30 years (Turkistan, November 22).

Despite the political risks, Kazakhstan cannot resist the temptation to reap economic benefits from oil and gas shipment to Iran and the Persian Gulf. Speaking at the latest meeting of heads of governments of Commonwealth of Independent States member countries in Ashgabat, Prime Minister Karim Masimov said he pinned big hopes on the meeting of the Kazakh-Turkmen transport commission scheduled for late November. The Kazakh government intends to sign an agreement with Turkmenistan on construction of a railway line from Aktau seaport in West Kazakhstan to Iran via Turkmenistan. The new rail line would significantly enhance Kazakhstan’s energy export possibilities to the Gulf states (Khabar TV, November 25).

Russia is apparently losing its competition with China, and Moscow has virtually no alternative other than watching with alarm Beijing’s expanding presence in Central Asian energy domains once monopolized by Kremlin. The Chinese drive significantly reduces Moscow’s chances to realize its ambitions for securing undivided dominance over energy transit routes in the region.

China’s growing influence in Kazakhstan’s energy sector is not limited to the oil and gas sectors. Recently the China National Nuclear Corporation and China Nuclear Guangdong Power Corporation purchased 49% of the shares in the Kazatomprom nuclear company. But Russia is not alone on the losing side. EU countries also face serious challenge from attractive Chinese, Iranian, and, potentially, Middle Eastern markets for Kazakh hydrocarbons. The problem is that EU countries, which are technically and politically superior to their Chinese rivals, are weakened by the lack of unanimity over energy issues within the European Union on the one hand, and constant disputes with Russia on the other. The current geopolitical situation and increasing global demand for energy sources leaves Kazakhstan with plenty of room to choose among many partners, and EU countries must face the grim prospect of losing the oil battle in Central Asia to the Chinese.