China Turns Back to Kazakh Oil Pipeline

Stymied in their search for new sources of oil to fuel booming economic growth, China's policymakers have once more turned to Kazakhstan as a potential energy supplier for the coming decades, RFA reports.

On March 2, Kazakh Prime Minister Daniyal Akhmetov ordered the country's state oil and gas company to draw up documents related to a 1,300 km pipeline to northwest China, which was first proposed in 1997 and later shelved.

"China is turning back to this issue again and trying to satisfy some of its most pressing, immediate needs for energy supplies," Fiona Hill, foreign policy and energy expert at the Brookings Institution in Washington, told RFA in a recent interview. "The oil or gas in Kazakhstan then comes back into play again, as a partner that has already been courted with preliminary agreements and some decisions made, but left on the shelf for a while."

The original pipeline plans were announced in 1997 by China National Petroleum Corporation (CNPC), which said it would invest $9.5 billion. While only a small portion of that investment ever materialized, Kazakhstan has now outlined steps to begin construction of the pipeline, that could begin pumping oil to western China by 2006. Work on the line from Atasu in central Kazakhstan is scheduled to begin in June.

China's demand for imported oil rose by more than 31% last year, compared with 2002. Beijing favored plans for a pipeline from Siberia have been stalled by a rival bid from equally hungry Japan.

Hill said Kazakhstan had strong strategic reasons for making the China pipeline deal work. "There's definitely a strategic dimension to this. The Kazakhs have always said that they don't want to be prey to any one hegemonic power. After the collapse of the Soviet Union...they very much want to have as much independence and room for maneuver as possible," she added.

Kazakhstan has long sought to expand its role as a global oil producer. The country's oil output rose by 8.5% last year, to more than 51 million tons, or more than 1 million barrels per day. Exports rose by 13% to around 44 million tons year-on-year in 2003.

Kang Wu, a China oil expert and fellow at the East-West Center of the University of Hawaii, said the motivation for the project was much stronger than it has been in the past. "The Russia-China negotiation about the pipeline to northeast China is not going well, [so] China's interest in another option from Kazakhstan is much higher now than at any point in the past several years," Wu said.

But he said China still faced the same problems as when the idea was first conceived. "[It's] same dilemma as they were facing in the past, that is the volume of the pipeline, the cost of the pipeline, and how to deal with the oil when it comes to Xinjiang, which is remote in the west of China and has a surplus of oil by itself," he told RFA correspondent Michael Lelyveld.

But getting oil to Xinjiang is only half the journey. China's biggest energy consumers, like Shanghai, lie a further 4,000 kms away on the east coast, sending costs skyrocketing still further.

"It is billions of dollars we're talking about," Wu estimated. "I would say...for the west China to east maybe will cost something like $3 billion roughly to build it, or more. If you include the Kazakhstan portion, the whole thing can easily go over $5 billion."