China tightens grip on Kazakh gas
By Farkhad Sharip
Chinese President Hu Jintao and his Kazakh counterpart, Nursultan Nazarbayev,
were liberal with their profuse eulogies such as a "milestone in Sino-Kazakh
relations" and "an epoch-making event" after their talks in Astana on December
Hu had every reason to describe his official visit to Kazakhstan as a success.
The two leaders signed three important documents relating to cooperation in the
development of renewable energy resources, a joint memorandum on financing the
second section of a gas pipeline from Kazakhstan to China and a credit
agreement for the reconstruction of Atyrau oil refinery in West Kazakhstan.
Hu and Nazarbayev attended the launching ceremony of the first 1,304 kilometers
section of the gas pipeline stretching from the
Kazakh-Uzbek border to Khorgos on the border with China through Zhambyl, in
southern Kazakhstan and Almaty regions. It took the Kazakh-Chinese joint
venture set up by state-controlled KazTransGaz and Trans-Asia Gas Pipeline Ltd,
affiliated with the China National Petroleum Company (CNPC) 14 months to
implement the $6.7 billion project, with an estimated capacity of 4.5 billion
cubic meters (bcm) of gas to be delivered to China annually in its first phase.
The volume of gas deliveries is planned to reach 40 bcm per year.
The opening of the gas pipeline from Central Asia to energy-hungry China,
bypassing Russia, came as an unpleasant surprise to the Kremlin, which had
pinned much hope on the reconstruction of an existing but dilapidated gas
pipeline and laying an additional parallel pipeline. Preliminary agreements on
this project were reached between Russia, Kazakhstan and Turkmenistan in 2007.
But the Chinese, effectively forestalling the Russians in muted competition for
gas resources of Central Asia, dashed all hope of successfully carrying out the
plan. Russia's Gazprom and Lukoil still retain significant positions in
Uzbekistan, but the successful launch of the new pipeline points to the
weakening energy alliance between Russia, Turkmenistan and Kazakhstan. Once the
construction of the second gas route to China from western Kazakhstan through
Beineu, Bozoy, Shalkar and Samsonovka is completed in the coming spring, China
will secure access to long-coveted Caspian oil and gas. The second 1,500
kilometers pipeline section to the Chinese border is expected to supply 10 bcm
of gas annually.
Uzbekistan and Kazakhstan will have to be content playing the role of transit
countries, while China will receive its main bulk of gas supplies (up to 30 bcm
annually) from Turkmenistan and nearly half of that volume from the Samandele
fields. Potentially, Kazakhstan's Zhanazhol gas deposits in Aqtobe region can
attract Chinese companies, but its estimated reserves are insufficient to
secure long-term supplies to China. The most important Kashagan fields are not
expected to operate earlier than 2013.
Many experts in Astana regard the rapidly developing pipeline projects as part
of Beijing's economic expansion into Kazakhstan. Chinese investment volumes
into Kazakhstan's economy are likewise growing at a staggering speed. Analysts
expect investment flowing from China to exceed US$20 billion within two to
three years. Some Kazakh members of parliament expressed alarm over the growth
of the national debt to China - from $4 billion in 2008 to $7.9 billion in the
first six months of 2009. China currently ranks fourth among the main lender
countries to Kazakhstan after the Netherlands, United States and the UK.
The increasing budget deficit, the growing need to update the oil and gas
infrastructure, and inefficient financial management compels the Kazakh
government to rely on Chinese investments, which, unlike Western financial aid,
comes without any political price attached. In April 2009, during his official
visit to China, Nazarbayev secured $10 billion from Beijing for the KazMunaiGaz
state-controlled oil company and the Development Bank of Kazakhstan. The
Samruk-Kazyna Foundation, set up by presidential decree in 2009 to promote
business projects, concluded an agreement with the State Bank of China to
borrow $3 billion.
Large-scale financial investment into Kazakhstan's economy enables China to
inch forward into the country's energy sector. In November 2009, KazMunaiGaz
and China National Petroleum Corporation (CNPC) purchased a 100% share of
Mangistau Munaigaz, one of the largest Kazakh oil and gas companies, from
Indonesian Central Asia Petroleum Ltd. Astana also granted China licenses to
develop uranium deposits in Kazakhstan. Unsurprisingly, Chinese Sinopec readily
offered to implement the modernization project at Atyrau oil refinery in
western Kazakhstan, estimated to cost $3.4 billion by the Japanese Marubeni
Company, for $1.4 billion.
In his talks in Astana, Hu demonstrated his readiness to make some political
concessions, stating that the long-debated issues on the joint use of
trans-border rivers would be settled jointly, and that China would refrain from
any action against Kazakhstan's national interests. A few days before Hu's trip
to Astana, a bilateral agreement was reached on the shipment of 3 million
tonnes of Kazakh grain to South East Asia through China. Most likely, Beijing
will make additional friendly gestures to Astana in future. However, few
understand what underlies such Chinese generosity.