Another Big Player for a Neighbor

Kazakhstan has a long common border with China to the east and has been exporting Caspian oil to China’s north-western province Xinjiang by rail since the 1990s. In 2005, Kazakhstan exported about 30,000 barrels per day to China via the Alashankoy rail crossing – a far cry from the 200,000 Russia exported to China in the same year.

However, in August 2005, state-owned oil company China National Petroleum Corp (CNPC) agreed to buy PetroKazakhstan, a Canadian firm based in Calgary and listed on the Toronto Stock Exchange, for $4.18 billion as part of China’s strategy to reduce its dependence on foreign-owned firms and boost its energy supplies. The purchase went through in October, after a Canadian court turned down an attempt by the Russian oil firm LUKoil to block the sale.

The acquisition was a logical extension of China’s operations in Kazakhstan, which is looking to increase its oil exports by expanding its infrastructure. CNPC, China’s biggest oil producer, and the Kazakhstan National Petroleum and Natural Gas Company (KMG), are financing and building a pipeline from Kazakhstan to China. The first section was completed in 2003 and runs across Western Kazakhstan from the Aktobe oil fields to the oil hub at Atyrau. Construction began on the second segment of the Kazakhstan-China pipeline in late September 2004 and was completed in November 2005. It has a capacity of some 140 million barrels of crude per year. The Chinese side is responsible for filling the pipeline from its own oil fields in Kazakhstan, although Russia’s state-owned Rosneft oil company, which already exports oil to China by rail, wants to ship 8.8 million barrels of oil via the pipeline this year.

However, the crude exported through the Kazakhstan-China pipeline will account for less than 5 percent of China’s total needs. A Kazakh official admitted in June 2005 that, in spite of the Kazakhstan-China and Baku-Tbilisi-Ceyhan pipelines, Kazakhstan would still need additional export capacity of some 300,000 to 400,000 barrels per day by 2011. But a further expansion eastwards seems to have been ruled out, since President Nursultan Nazarbayev said in June 2004 that he would prefer an export pipeline running through Iran to the Persian Gulf to one running through China or Russia or connecting to the Baku-Tbilisi-Ceyhan pipeline.

Kazakhstan and China also cooperate on hydro-electric power, which supplies nearly 20 percent of Kazakhstan’s electricity consumption. The River Irtysh, which generates Kazakhstan’s electricity, rises in China’s Altai Mountains, and the two countries have held negotiations on the management of the river since 1999.

Special to Russia Profile, an online and monthly print magazine dedicated to Russia and published jointly by RIA-Novosti and Independent Media, Moscow.

Ian Pryde is CEO of Eurasia Strategy & Communications, Moscow.

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