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Central Asia: China's Mounting Influence, Part 2 -- The Battle For Oil

By Michael Lelyveld

China is reaching out to Central Asia to feed its growing appetite for energy resources. Although some projects have languished for years, a new pipeline project from Kazakhstan may turn into China's first major Central Asian energy route. Radio Free Asia reports in the second part of a series on China's mounting influence in Central Asia.

Washington, 18 November 2004 -- China is making inroads into Central Asia as its need for energy imports keeps climbing.

Spurred by an economy that grew by nearly 10 percent in the first half of the year, China has been seeking new oil sources in the region and around the world. China's oil imports have already soared by 34 percent this year.

China has been an oil importer since 1996, but its recent economic boom has pushed it past Japan to make it the world's second-biggest oil consumer, behind the United States. High demand has driven the country's state-owned oil companies into foreign markets that seemed too distant only a few years ago.

Under the Chinese government's "go West" policy, state companies have revived projects in Kazakhstan that have languished since 1997, when China National Petroleum Corporation promised to invest $9.5 billion in pipelines and oil fields thousands of kilometers from home.

Robert Ebel, who directs the energy and national security program at the Center for Strategic and International Studies in Washington, said the reason for China's involvement in Central Asia is prompted both by higher demand and its need to reduce the risk of relying on the Middle East.

"I think [China] sees that its requirements are going to be met in the future only through imports, and so they're just reaching out to wherever they can -- whether it's Azerbaijan, or Syria, or Russia or Central Asia, or Venezuela -- to diversify these sources of imports, not only to diversify their sources of supply but how the oil gets to China," Ebel said.

Ebel said that Central Asia offers China land routes that reduce the vulnerability of depending solely on ocean transport. But so far, the returns from Central Asia have been small.

For now, Kazakhstan is the only Central Asian country that exports oil to China. Kazakh oil shipments to China, which are sent by rail, account for less than 1 percent of China's imports. But that could soon change thanks to an agreement in May to build a 1,000-kilometer oil pipeline from Kazakhstan's central Karaganda region to western China.
China's recent economic boom has pushed it past Japan to make it the world's second-biggest oil consumer.

The Karaganda pipeline will eventually be connected to the Kenqiyaq oil field farther West and to the Caspian Sea. Since 1997, China has been modernizing the Kenqiyaq oil field in the Aqtobe region, in a joint project with the Kazakh state oil-and-gas company.

Beijing has invested some $1.3 billion so far. More than 6,000 Kazakh workers are employed at the site, with another 6,000 working on other Chinese-run projects in the vicinity.

Nurmukhambet Abdibekov, deputy governor of the Aqtobe region, is enthusiastic about the Chinese investment. He said it is already raising the standard of living for thousands of families.

"This project is expanding. New jobs are being created," Abdibekov said. "We are sure that it is very positive that the local citizens have got these opportunities, that they can get these new well-paid jobs to support their families."

Talgat Zhumagaliev, a worker at the Kenqiyaq oil field, proudly shows off the site to our correspondent as oil wells pump around him.

RFE/RL: "Well, Mr. Talgat Zhumagaliev, how long have you been working here?"
ZHUMAGALIEV: "For about eight years."
RFE/RL: "Which means you have been working here before the foreign investors came."
RFE/RL: "Is there any difference between then and now?"
ZHUMAGALIEV: "Well, everything is OK now. We have jobs. That is the most important thing."
RFE/RL: "You probably heard that your colleagues in Atyrau are on strike. Is the situation different here?"
ZHUMAGALIEV: "No, we are like everyone else here. Nothing more. The most important thing is to have no trouble. And we do not have troubles."

Veteran oil expert Otesin Zhumanov is amazed at the latest developments. He told RFE/RL that no one could have foreseen the extent of China's involvement.

"I never thought that the Chinese would ever come here to run our business," Zhumanov said. "I did everything to make my two sons become oil managers and oil experts. We had no idea about foreign investors then, even to forecast such developments."

In Washington, energy consultant Edward Chow said that China's renewed interest in the Kazakhstan project follows disappointment with Russian President Vladimir Putin over his 2001 pledge to build an oil pipeline from eastern Siberia to China's petroleum capital of Daqing.

Instead, Putin has been lured by Japanese Prime Minister Junichiro Koizumi's promises to finance a much longer, costlier line for the oil to the Pacific coast.

"I see the activities in Central Asia on the oil transportation side into China having been accelerated much faster after the Chinese-Russian discussions on the pipeline to Daqing having been stalled -- interfered with, I think, from a Beijing point of view -- by the Japanese and Prime Minister Koizumi's active policies in that regard," Chow said.

But Chow said that such long and costly projects may not stand the test of time if oil prices fall from their current highs.

"The question to me is whether these projects that are being looked at -- at a very high oil price and very tight supply situation -- really make sense in the very long term, because these are projects that are going to cost tens of billion of dollars, require 10 to 15 years to mature, build, and pay out," Chow said. "And whether that high-price environment will be sustained during that time is a very risky business proposition."

Chow said a more sensible approach would be to combine the energy potential of Central Asia and eastern Siberia in a coordinated strategy that could meet the needs of consuming countries including China, South Korea, and Japan.

(RFE/RL's Central Asian services and News & Current Affairs Department contributed to this report.)