Globalization and environment

Kazakhstan and China for oil – examine Kazakhstan external relations to China in relation to oil

Lau Yin Yu Nina

52226060

Outline• Kazakhstan

• China

• Bilateral Oil Cooperation

• Kazakhstan-China Oil Pipeline

• Restraints

• Conclusion

Kazakhstan• The largest energy producer and exporter in the Central

Asian and Caspian region, has generally pursued economic policies based on oil-led economic development.

• In the 1990s, Kazakhstan’s political and economic elite pushed more vigorously than others in Central Asia for privatization and other pro-market economic reforms – and some economists have argued that the imperative of achieving greater economic independence from Russia pushed them further in that direction.

• Oil remains its most important industry and most valuable export

• “Resource Nationalism”

Kazakhstan

• The country's main oil reserves are located in the western part of the country,

where the five largest onshore oil fields (Tengiz, Karachaganak, Aktobe,

Mangistau, and Uzen) are located

CHINA• New Resource Warriors

• The majority of China’s imported energy comes from the Middle East and Africa, accounting for 45% and 28.7%

• China’s demand for oil is expected to more than double by 2030.

• “pipelines through China from Central Asia and Russia would help to diversify Northeast Asian energy supply - reducing the region’s dependence on supplies from the Middle East” (Christoffersen)

• Aspirations to become a global energy player

Bilateral oil cooperation

Bilateral oil cooperation

• September 1997: Framework Agreement on Projects for Fields Development and Construction of West Kazakhstan-China Oil Pipeline between CNPC and Ministry of Energy and Natural Resources of Kazakhstan

–  Pipeline to go from Atyrau to Alashankou –  CNPC will secure minimal guaranteed transportation volume of 20 mty and financing for the project

• 1999: Agreement on Cooperation in the Oil and Gas Sector between the Governments of Kazakhstan and China

• 2003: Agreement on Joint Study of the Two-Stage Construction of the Kazakhstan-China Pipeline between KMG and CNPC

– Agreed to prepare Feasibility Study for two-stage construction of the pipeline

Bilateral oil cooperation

• 2004: China and Kazakhstan announced the building of the oil pipeline from western Kazakhstan to Xinjiang; Agreement on the Main Principles for Construction of the Atasu-Alashankou Pipeline between KMG and CNPC

• 2005: Agreement on Joining KazTransOil’s and Atasu-Alashankou Pipeline Systems

• 2006: Agreement on Operation and Maintenance of the Atasu-Alashankou Pipeline between Kazakhstan-China Pipeline company and KazTransOil

• October 2009: China and Kazakhstan completed an extension of the oil pipeline all the way to western Kazakhstan.

Agreement on collaboration in oil and gas sector

• 1997

• Both states will undertake all necessary measures and actions to support and encourage the establishment of direct connections between corresponding agencies, enterprises and companies; and will research further approaches to develop the oil and gas sector and the extension of its scope.

• Supported the construction of a pipeline which would connect the Western part of Kazakhstan with the Western region of China.

• China approved the Chinese National Petroleum Corporation (CNPC) as the company responsible for the construction of a pipeline, the financing arrangements and the preparation of the Technical- Economical Justification of the project.

• Kazakhstan agreed to provide land lots and construction sites for the construction of a pipeline, guaranteed to provide pipeline security, and also stabilized the export duties for oil and import taxes for the necessary construction equipment.

Kazakhstan-china oil pipeline

Kazakhstan-china oil pipeline

• Partnership:

• KazStroyService: the leading engineering-construction company in Kazakhstan

• KazMunayGas: the state-owned oil and gas company of Kazakhstan

• China National Petroleum Company (CNPC): one the world’s largest oil and gas suppliers, providers and engineering-construction firms

Kazakhstan-china oil pipeline

• China’s first transnational pipeline and Kazakhstan’s first transnational pipeline to its neighbour to the east.

• The project was undertaken by the Sino-Kazakh pipeline company, a “50:50 venture

• Currently capacity is at 14 million tons per year

• Expected nominal capacity of 20 million tons per year in 2014. 

• The total cost of the project has been estimated at US$3-3.5 billion; phase two of the project, initially supposed to cost around US$700 million, cost an estimated US$850 million.

Kazakhstan-china oil pipeline

• Three sections:

Length Completed

From Keniyak to Atyrau 279 miles

2003

From Atasu to Alashankou 613 miles

2005

Kenkiyak to Kumkol -- 2009

Kazakhstan-china oil pipeline

• Rules for pipeline access

– All potential shippers are guaranteed equal access to the pipeline when capacity is available

– CNPC and KMG have priority rights of accessing the pipeline capacity

– Pipeline capacity, first of all, will be used to fulfill the obligations under long-term oil transportation agreements

– If one of the parties does not use its pipeline capacity in full, the other party has the right to use such unused capacity

– In case transportation volumes under contracts exceed the pipeline capacity, the rights for transportation will be executed according to the shares of KMG and CNPC in the Project Company

In reality…

• The pipeline current capacity is approximately 200,000 bpd

• 2008: China imported an average of only 115,000 bpd of crude oil from Kazakhstan by pipeline and rail.

• In December 2007, the pipeline carried an average of 102,600 bpd

• Only about half of its total capacity

• Reason: Current Kazakh production does not yet completely fill the line

Constraints• The transport of construction vehicles, equipment, personnel

and pipes in this huge and remote region are a logistic nightmare.

• Heavy pipes must be healed over huge distances over soft sands,

• Wear and tear construction vehicles in this environment is so severe that they require monthly service and replacement

• Construction workers need to be conveyed to and from working camps and pumping stations daily

• Insufficient diameter

• The pipeline could only be an economic success if the pipeline could deliver 20 million tons of oil annually.

• The 311 mile (approximately 500 kilometres) pipeline that existed for most of the way between Kenkiyak and Atasu had to be rebuilt.

Constraints

conclusion• China wins

- It gains what it sees as “secure oil supplies

• Kazakhstan wins too- It gains a crude export route independent of Russia and a new market for its oil.

• Meet Kazakhstan's national security interests, and provide an outlet to meet China’s growing demand for oil.

• Downside: PRC can potentially control the price paid for the oil

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