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China: Beijing Keen To Pursue Oil Projects With Neighbors

China has signed an agreement with Kazakhstan to build by 2005 an oil pipeline to help meet its booming economy's soaring demand for fuel.

Prague, 26 May 2004 (RFE/RL) -- Kazakhstan and China have signed an agreement on the construction of a 1,240-kilometer oil pipeline from Atasu in central Kazakhstan to the Alatauw Pass on the Chinese border. The accord provides for Kazakhstan's Kazmunaigaz and China's National Petroleum Corporation, or CNPC -- both state-owned firms -- to invest jointly in the project.

The deal came as Kazakh President Nursultan Nazarbaev and his Chinese counterpart Hu Jintao last week signed a broad agreement for joint exploration and development of oil and gas resources in the Caspian Sea. The signing came during a four-day trip by Nazarbaev to the Chinese capital Beijing.

Energy analyst John Vautrin, of the international energy consulting firm Purvin and Gertz, said the agreement -- which will ultimately pump some 10 billion tons of crude into China annually -- will benefit both sides, as well as Russia.

"It is significant in terms of China's demand," Vautrin said, adding that it will meet "perhaps 10 percent" of China's import needs. But he said that what is even more significant is that "it will help Russia find another outlet or Kazakhstan find another outlet for crude that they are having difficulty transporting to the market."
Chinese oil companies are seeking to explore and develop oil and gas reserves around the world.

The pipeline will not link to Kazakhstan's major oil-producing centers in the country's far west. But Atasu has a pipeline link to the Kumkol fields in central Kazakhstan, as well as connections to Russian oil fields in western Siberia and the southern Kazakh oil region of Shymkent. Crude from these sources should be sufficient to fill the line; Russian crude is already being transported from Omsk to China via rail from Atasu.

The signing represents a breakthrough after nearly a decade of talks. The project is scheduled to be initiated by August, with crude oil inflow and transportation systems to be completed by next year.

However, some analysts question whether the project can in fact move from signature to completion in less than two years. Debate over ownership, funding, and oil prices are potentially serious enough to push the project far off schedule.

Nevertheless, China is keen to proceed. It has reportedly begun building a 400-kilometer section of pipeline from the Kazakh border to CNPC's Dushanzi refinery in Xinjiang and is also mulling an upgrade of the refinery's capacity.

CNPC is also considering the construction of an oil pipeline from Xinjiang to help deliver Dushanzi's output to China's industrialized eastern regions.

Xu Yihe, senior reporter with Dow Jones Newswires in Singapore, said China is pursuing pipeline deals with its neighbors to help meet the booming economy's soaring demand for oil and gas.

"China is growing very fast, with GDP growing at 9.1 percent last year," Xu said. "So the government is very much concerned about domestic-crude supply shortages. China has stepped up its efforts to develop oil and gas resources in the western regions. But [it] has so far failed to make any major discoveries there. That's why China is looking beyond for oil supplies."

Xu said China currently has a deficit of more than 100 million tons of crude a year. The demand growth is forecast to be at about 5-8 percent a year over the next five years.

In order to help fulfill its energy needs, Beijing has signed a framework agreement with Moscow to build a pipeline to deliver Siberian crude to China's major oil center, Daqing. However, Japan offered a rival pipeline that would bypass China and stretch to Russia's Far East port of Nakhodka. Another possible route is a pipeline to Nakhodka with a branch line to China. No decision has yet been made on any of these pipeline options.

Xu noted that Chinese oil companies are also seeking to explore and develop oil and gas reserves around the world.

"Chinese oil companies are almost everywhere in the world. They're dispatching teams of oil experts to negotiate oil projects, especially upstream projects in Asia, Middle East, Africa, and North America," Xu said.

Last year, CNPC took control of the CNPC-Aktobemunaigaz oil field in northwestern Kazakhstan.

China's ShengLi is planning to acquire a stake in Azerbaijan's onshore Qara-Chukur field. Last year, ShengLi purchased a stake in another Azeri onshore field, Pirsat.

China Petrochemical Group has said it has agreed to help Turkmenistan and Kyrgyzstan refurbish old wells and fields in return for oil. It also purchased rights to explore potential new fields in Kyrgyzstan.