Oil-hungry China Breaks Ground on Kazakh Pipeline


2004.10.08
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WASHINGTON—China and Kazakhstan have joined forces on a project that would pipe oil from Central Asia to the growing Chinese market for the first time. But experts have raised concerns that the 1,000-km (620-mile) route will depend on Russian oil supplies until longer lines can be built.

"I think that Russia's still playing games with China."

The move underlines acute concern in Beijing over future energy security.

China's imports have averaged 2.4 million barrels per day so far in 2004, with demand growing by almost 40 percent compared with the same period last year.

Attempts to bridge the supply gap with Russian imports have become embroiled in the Yukos affair, causing huge frustration in Beijing.

Arm's length strategy

"I think that Russia's still playing games with China, trying to keep all their options open to the extent possible before a final decision is made," Robert Ebel, director of the energy and national security program at the Center for Strategic and International Studies in Washington, told RFA.

At a ceremony Sept. 28 in the village of Atasu in central Kazakhstan, officials broke ground for the pipeline to supply oil to Xinjiang in northwest China.

If completed, the project will become the country's first import pipeline at a time when demand for foreign oil is climbing at a rate of 40 percent per year.

Russia has repeatedly put off building a pipeline to northeast China in spite of agreements made with President Hu Jintao last year and with former President Jiang Zemin in 2001. The Kremlin has leaned toward building a far longer and more costly pipeline toward Japan instead.

"It may not have a conflict with other alternatives and pipeline options in this area. So that's probably why this three-country deal could happen."

Uncertain supplies

During Premier Wen Jiabao's visit to Moscow last month, Russian leaders also refused to guarantee rail shipments of crude oil by Russian oil giant Yukos oil, which is facing criminal charges and bankruptcy in a highly politicized atmosphere.

Yukos suspended its contracted rail shipments of crude to the China National Petroleum Corp. (CNPC) on Sept. 28, saying it was no longer able to pay Russian freight costs.

"Yes, they want access to the Chinese market. Who wouldn't? A growing market the size of China," Ebel said.

"But I think Russia would want Russian oil passing through Russian territory to the extent possible. I don't think they would be too happy to send volumes of Russian oil south into Kazakhstan where they would enter into a pipeline that really bypasses Russia."

Western corridor

China National Petroleum Corporation (CNPC) first tried to build a pipeline from western Kazakhstan in 1997 after investing in oilfields near the Caspian Sea.

But the distances were too great, the $3 billion cost was too high, and the CNPC fields didn’t produce enough oil for the 3,000-km project to proceed.

Now CNPC and Kazakhstan's state-owned KazMunaiGaz have formed a partnership for a smaller, shorter pipeline to the Chinese border crossing at Alashankou in Xinjiang's Alataw Pass.

The U.S.$700 million line is expected to start pumping oil by 2006 at the rate of 10 million tons per year, or 200,000 barrels per day.

But questions have surfaced again about whether Kazakhstan will have enough oil. Kazakhstan produces only small amounts in the central part of the country, where the new pipeline will start. An extension to the oil-rich areas of western Kazakhstan would still be several years away.

Three-way deal

Some analysts see potential for Russian oil supplies to China through Kazakhstan, using an existing Russia-Kakakhstan pipeline.

"In the west, if Kazakhstan and China's cooperation in this area in the pipeline will involve Russia, at least Russia [won't] want to be left behind in this area, so it may not change the strategic balance," Kang Wu, head of China energy projects at the East-West Center at the University of Hawaii, told RFA.

"It may not have a conflict with other alternatives and pipeline options in this area. So that's probably why this three-country deal could happen."

But Sam Dale, Singapore bureau chief for Petroleum Intelligence Weekly , said Russia was likely to be cool to the idea of shipping oil to China through Kazakhstan.

"I think the Kremlin is probably more interested in Russian oil and gas going to China through a mostly Russian pipeline rather than aiding and abetting Kazakhstan," he told RFA.

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