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Kazakhstan/China: Oil Deal Marks Beijing's First Foreign Energy Takeover

  • Bruce Pannier

China's largest oil producer, PetroChina, yesterday launched a $4.18 billion bid for PetroKazakhstan, in what could be China's first successful takeover of a foreign-listed energy company. The deal helps China’s need for new and secure sources of energy. And as RFE/RL reports, it also gives Beijing extra influence in Central Asia.

Prague, 23 August 2005 (RFE/RL) -- China and India have been battling for oil fields in central Kazakhstan, and yesterday, it appeared that China won.

A final agreement has yet to be signed, and India is vowing to make a counter-offer. But the Chinese National Petroleum Corporation (CNPC) appears to have secured a $4.18 billion deal to purchase PetroKazakhstan.

PetroKazakhstan, a Canadian-based company, is Kazakhstan’s second-largest foreign producer and the largest supplier of refined products in the Central Asian nation.

Mark McCafferty is a Central Asian analyst for the Wood Mackenzie oil and gas consultancy firm in Edinburgh, Scotland. He says the purchase fills a key gap in China's oil exports from Kazakhstan.

“Certainly from the Chinese side, and specifically the CNPC, it’s a very important acquisition, because it’s given them quite a sizeable amount of production and reserves in Kazakhstan, and specifically central Kazakhstan. And that’s important because they’re in the process of building a pipeline in the eastern part of Kazakhstan to China just now, and previously there were big concerns about where the oil was going to come from to fill CNPC’s pipeline. They’ve now secured production through this acquisition of PetroKazakhstan,” McCafferty said.

China and Kazakhstan concluded a $9 billion deal several years ago to build an oil pipeline from western Kazakhstan eastward to China’s Xinjiang Uyghur Autonomous Region, where there are newly built refineries. The fields belonging to PetroKazakhstan are in the center of Kazakhstan, in the path of the Kazakh-Chinese pipeline route, which is already under construction.

This purchase underscores both China’s need to find new sources of oil to drive its thriving economy and Beijing’s desire to increase its political influence in Central Asia.

Many analysts believe China paid a generous price for PetroKazakhstan, whose fields contain the relatively modest proven reserves of 340 million barrels. Alex Vatanka is the Eurasian editor at the London-based organization Jane’s Country Risk. He said the fact that China was willing to pay such a high price to acquire PetroKazakhstan should be a wake-up call for companies considering doing business in areas where China has set its sights.

“The fact that they paid above top dollar for it is an indication about how strongly the central authorities in Beijing feel about this issue. This is going to be a factor that will probably be one of the biggest concerns for Western energy companies getting involved in bidding for energy fields in this part of the world when facing Chinese competition," Vatanka said. "They know that with the Chinese, essentially, if they get the go-ahead, the political go-ahead, then the price becomes almost academic for them.”

Central Asia, and Kazakhstan in particular, have been a focus of U.S. investment since the early 1990s. The U.S. companies Chevron and Exxon are working in Kazakhstan’s huge oil fields in the western part of the country and in the Kazakh sector of the Caspian Sea.

McCafferty said for China, deals like the PetroKazakhstan purchase represent energy security for Beijing as they supersede U.S.-dominated projects and export routes.

“Kazakhstan in particular is of great strategic importance to them just now, because we’ve seen in the last couple of years how important security of supply is to China. And currently they’re reliant on tankers transporting the oil through the Persian Gulf, and these are both areas which are strongly controlled by the United States. So what you get when you’re purchasing reserves and production in Kazakhstan is a direct link from Kazakhstan to China, and no other powers can perhaps interfere with these supplies,” McCafferty said.

And Vatanka noted that for Astana, dealing with China carries benefits beyond economics -- at least for Kazakh President Nursultan Nazarbayev.

“There might be some pressure on him, and he would assume then that having some competition on his home turf -- i.e., the Chinese -- to face off the American pressure is actually good for his regime,” Vatanka said.

The purchase gives China an extra foothold in Central Asia’s energy market and promises to provide Beijing with added political leverage in future dealings with the governments of the resource-rich region.

A final decision on the sale to China is due to be made in October.

See also:

"China: Dying In The Mines"
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