Publication: Eurasia Daily Monitor Volume: 1 Issue: 105

Recent developments clearly indicate that China and Russia are stepping up their efforts to claim a larger share of Kazakhstan’s energy sector. The growing appetite of Kazakhstan’s giant neighbors comes at a time when prices for gas and diesel oil in Kazakhstan, the second largest oil producer in the CIS, are constantly rising. Kazakh consumers are entirely dependent on gas supplies from the Omsk region of Russia to the north and Uzbekistan to the south. To reduce expensive imports from Uzbekistan, which charged more than $40 per 1,000 cubic meters last year, Astana switched to gas from the newly developed Amangeldy fields. But experts fear that Amangeldy’s limited reserves will not provide enough gas to supply southern Kazakhstan.

For years the lion’s share of the huge foreign investment in Kazakhstan’s oil sector was used to develop new fields and construct pipelines, while the domestic infrastructure of the gas industry remained neglected. Not surprisingly, rural settlements only a few kilometers away from gas fields do not have any access to gas. At the same time, oil companies burn off the waste gas released in the production process.

Kazakhstan’s underdeveloped gas industry has already lured foreign investors, particularly from China and Russia, who hold a geographic advantage over rival Western companies. Two years ago Kazakhstan’s state-controlled Kazmunaygaz Company and Russia’s Gazprom set up a joint venture, KazRosGaz. But the Russian side seems determined to go further and gain control over Kazakhstan’s gas sector. During talks with Kazakh energy executives in July, Gazprom deputy director Alexander Ryazanov made known his company’s intention to become full owner of Kazakhstan’s gas transport system, which is currently controlled by the state-owned KazTransGaz. So far the Kazakh government has refrained from granting Gazprom full responsibility for gas transportation because it apparently fears becoming dependent on Russia.

Kazakhstan has learned from the unfair deal that let the oil-rich Khvalynskoye and Tsentralnoye fields fall under Russian control. Another consideration is that Russia gets its gas supplies not only from Kazakhstan, but also from Uzbekistan and Turkmenistan. Kazakhstan’s government did not readily accept a Russian offer to set up a joint venture to share the capacity of the Russian Orenburg refinery and to build a similar plant at the Karachaganak oil field in West Kazakhstan. During his recent talks with Kazakhstan’s Prime Minister Daniyal Akhmetov, Russian Prime Minister Mikhail Fradkov pressed this point, saying that an agreement should be reached as soon as possible (Kazakhstanskaya pravda, October 9).

Unlike the more forceful Russians, the soft-spoken Chinese have turned out to be more willing to negotiate with Kazakh government officials. Yielding to demands from the Kazakh side, the Chinese CPPE Company launched construction of a 156-kilometer long gas pipeline from the Zhanazhol oil field, developed by the CNPC-Aktobemunaygaz joint stock company, to rural settlements in Aktobe region (see EDM, October 5). The Chinese company has also promised to build a new plant to process waste gas to bring it to world markets, with an annual capacity of 5.2 billion cubic meters. The construction project’s official launch was timed to coincide with the 55th anniversary of the People’s Republic of China. Using the occasion, the general director of the CNPC-Aktobemunaygaz Company, Jiang Qi, noted that China had become one of the world’s leading powers with an annual 9.4% economic growth and $1,400 billion GDP volume (Kazakhstanskaya pravda, October 6).

Kazakhstan’s huge hydrocarbon potential was highlighted at the annual international KIOGE-2004 exhibition and at a conference involving 412 companies from 30 countries held on October 5 in Almaty. The key speaker at the conference, Kazakhstan’s Energy and Mineral Resources Minister Vladimir Shkolnik, wasted no words in depicting the bright prospects of his country’s energy sector. According to him, oil production this year will reach 56 million tons, while 113.7 billion cubic meters of gas will be pumped through pipelines.

However, some experts do not share the minister’s optimism. The government and British Gas have been unable to reach a final agreement on developing the Kashagan oil field. In addition, talks with Russia’s Rosneft operating at the Kurmangazy oil fields have led nowhere (Turkestan, October 7). But so far, the Chinese and Russian companies seem unworried about the Kazakhstan government’s problems with its investors.