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Kazakhstan Set To Increase Energy Cooperation With Iran

KazMunaiGaz will consider building a new refinery in Iran
KazMunaiGaz will consider building a new refinery in Iran
KazMunaiGaz, Kazakhstan's state-owned oil and gas company, is charting a new course under the leadership of its new president, Kayrgeldy Kabyldin, who took over in August. Kabyldin is guiding the company toward closer cooperation with Iran, and he has made it clear that international sanctions against the Islamic Republic will not stand in his way.

Kabyldin -- the third chief of KMG already this year -- addressed the Kazakhstan International Oil and Gas Exhibition (KIOGE) in Almaty last week, where he said that "there are proposals from Iran regarding the shelf of the Persian Gulf."

That suggestion of potential cooperation may have been a surprise for some, but it was only one of the recent statements Kabyldin has made about Kazakhstan and Iran increasing their oil industry ties.

On state television last month, Kabyldin said "the Iranian route is a potential direction for transporting oil to the south" that "would allow us to reach the Persian Gulf and get access to the Asian market."

The Russian newspaper "Nezavisimaya gazeta" on September 25 quoted Iranian Interior Ministry official Morteza Safari Natanzi as saying talks between the two countries were already being held to construct an oil pipeline from Kazakhstan to Iran via Turkmenistan. Natanzi reportedly said the oil could be pumped into existing Iranian pipelines to Iran's Kharg Island for export to Asian markets.

Bolat Auelbekov, an expert with Kazakhstan's presidential Economic Research Institute (ERI), told RFE/RL's Kazakh Service that a similar plan is already under negotiation.

Kazakhstan is "already in talks with Turkmenistan about the North-South project," Auelbekov said. "Turkmenistan itself proposed the initiative that includes Iran, Kazakhstan, and Russia to join in a transportation route. But so far this plan centers primarily on railways."

KMG officials have not confirmed any plans for building an oil pipeline south to Iran. But Kazakh Deputy Energy and Mineral Resources Minister Lyazzat Kiinov, speaking at the KIOGE conference, said there is an Iranian proposal for exchanging "oil and gas assets."

Oil Swap

Kazakhstan and Iran already have been exchanging oil assets for a decade in a deal that even the U.S. government approves of, because it mostly benefits Kazakhstan. Kazakhstan ships oil via tanker across the Caspian Sea to the northern Iranian port city of Neka. In exchange, Iran delivers Kazakhstan's foreign customers crude oil of comparable quality, sending it to those clients from a Persian Gulf oil terminal.

Kazakhstan's business newspaper "Ekspress-K" on September 24 reported that KMG chief Kabyldin has acknowledged that current international sanctions complicate deals with Tehran. But he was quoted as saying "there are a number of Kazakh companies, not bound by these obligations, that are shipping their oil through Iran."

The ERI's Auelbekov agreed that an increase in the volume of oil involved in the swap seemed the most likely way of boosting Kazakh oil exports through Iran. "If we are talking about transporting our oil to the Persian Gulf, then that would be complicated. I think that Iran would insist, again, on the swap system," Auelbekov said. "Oil could be processed at a refinery that would be built in northern Iran and mixed with Iranian oil [in the Persian Gulf] for export."

Joint construction of a new refinery in northern Iran seems almost certain. The same "Nezavisimaya gazeta" article that cited the Iranian Interior Ministry official also reported that Kazakhstan and Iran were discussing building a new refinery.

Kabyldin was quoted in the September 16 edition of the Kazakh newspaper "Panorama" as saying there a proposal to build a refinery in Iran is being considered. He said KMG would look at a feasibility study that Iran is to prepare by the end of the year.

"Why not, if this is business and moreover, good business?" Kabyldin was quoted as saying. "If we can take part in this project we will have access to the Asian market and, currently, about 80 percent of Southeast Asia gets its oil from the Persian Gulf."

'Not Enough Oil'

Some in Kazakhstan are against the idea of increasing cooperation with Iran for oil exports, such as Kanat Berentaev, a senior researcher at the Kazakh Civic Research Institute. "Kazakhstan already has two markets: the West via Russia and the Chinese market. We don't have enough oil to be exporting to another market," Berentaev said.

Maybe not enough oil yet, but estimates show Kazakhstan's oil exports could be 84 million tons by 2010 and 150 million tons by 2015. That would greatly exceed the capacity of the Russian and Chinese pipelines and the tankers that currently are landlocked Kazakhstan's means of exporting its oil to world markets. Even with the first Kazakh oil expected to be pumped into the Baku-Tbilisi-Ceyhan pipeline in the coming days, KMG needs new ways of getting oil out of Kazakhstan to foreign customers.

But Auelbekov cautioned that there are two drawbacks to the Iranian route that should be considered -- the foremost being security. "Iran is also not the safest route. Iran is a sufficiently stable state but Iran has borders with two unstable countries -- Afghanistan and Iraq," Auelbekov said.

The second drawback is the political entanglements Kazakhstan could wind up in if it goes ahead with such plans for Iran. "I think that naturally the United States and the West in general will, of course, be unhappy," he said. "Why? Because the Baku-Tbilisi-Ceyhan pipeline was built with enormous investment and great hope was placed in it as a guarantee of energy security. If this is put in jeopardy there will naturally be some [negative] reaction, political reaction."

As one further sign of the growing ties between Kazakhstan and Iran since Kabyldin took over at KMG, the first Kazakhstan-Iran investment forum was held in the Kazakh Caspian port city of Aktau at the start of October.

RFE/RL Kazakh Service Director Edige Magauin and Makpal Mukan of the Kazakh Service contributed to this report

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