China has launched its first pipeline for oil imports after investing billions of dollars in neighboring Kazakhstan. But the opening drew little attention in China’s official press, and experts question whether Beijing’s spending in Central Asia will continue at its current pace.
On December 15, with the push of a button, Kazakstan’s President Nursultan Nazarbayev officially launched the 988-kilometer line from central Kazakhstan to China’s western province of Xinjiang.
The project is China’s first import pipeline, making it a key asset for a country that now imports over 2.5 million barrels of oil per day.
Kazakhstan simply doesn’t have that much oil to send east,
Jason Feer, Singapore bureau chief for the industry weekly Petroleum Argus, said however that the pipeline won’t begin to deliver crude, unrefined oil to China “until the middle of next year.”
“And even then,” said Feer, “the refineries on the Chinese side of the border are going to take another year after that to be fully expanded and upgraded.”
It will not be until the middle of 2007, Feer said, that the pipeline will begin to deliver 100,000-200,000 barrels of crude oil per day. The lengthy system may need to deliver as many as 1 million barrels of oil per day to run profitably, experts have pointed out.
Robert Ebel, chairman of the energy program at the Washington-based Center for Strategic and International Studies, cautioned that the line will not carry that much, even after it is completed.
“Kazakhstan simply doesn’t have that much oil to send east,” Ebel said.
China has been overpaying for the access that they have secured,
In fact, the oil company PetroKazakhstan, which has been bought by the China National Petroleum Corporation (CNPC) and will supply crude for the pipeline, is expected to produce only about 150,000 barrels of oil per day. And only a fraction of that may be available to China, because Kazakhstan has demanded supplies for its local refinery.
Between its work on the pipeline, its building of refineries, and its acquisition of PetroKazakhstan, CNPC has now spent about $8 billion on the project for apparently modest returns.
Feer noted that CNPC may be reaching the limit of how much it will spend. “I’d be surprised to see them put a significant amount of new investment into Kazakhstan,” Feer said.
Analysts have raised concerns that CNPC has been paying premium prices for its foreign investments, outbidding even the largest international oil companies as it tries to acquire new oil supplies.
Robert Ebel observed that Chinese oil companies may soon discover that they have gone too far.
“China has been overpaying for the access that they have secured,” Ebel said.
Original reporting by Michael Lelyveld. Edited for the Web by Richard Finney.