China Investment Corporation’s acquisition of a stake in KazMunaiGas Exploration Production and the opening of a pipeline linking oil-rich western Kazakhstan to the Chinese border meant it was inevitable that China’s grasp of Kazakh natural resources would be the hot topic at this year’s Kazakhstan International Oil and Gas Exhibition (Kioge) conference.
Kioge week, as it is known in Almaty, also saw major deals being concluded with French and Azeri companies that will help open up western export routes. But the spotlight was on Kazakhstan’s relations with China.
The previous week, on September 30, China’s sovereign wealth fund, the CIC, bought an 11% stake in London-listed KazMunaiGas EP through the purchase of around $939m of its global depositary receipts.
In another important development, commercial operation of the Kenkiyak-Kumkol pipeline, part of the Kazakhstan-China Pipeline, started commercial operations ahead of schedule. The pipeline, with initial capacity of 10m tonnes of oil a year, connects the eastern and western part of Kazakhstan’s oil transport network, allowing oil to flow from the Caspian Sea to China.
Optimistic mood
With oil prices hovering around $70 per barrel, speakers at the conference were already looking ahead to when demand will resume its strong upward trend as the world emerges from the crisis. In Kazakhstan, where the economy is heavily dependent on energy prices, a mood of cautious optimism has returned.
The country is expected to become one of the top three non-Opec oil producers by 2030. Some 110 years since the birth of the oil industry in Kazakhstan, mega-projects such as Tengiz and Kashagan are set to boost production. State oil and gas company KazMunaiGas this year adopted an ambitious expansion programme spanning exploration, production, pipeline construction and related activities, as outlined by the company’s president, Kairgeldy Kabyldin. However, questions of how and where the oil will be exported have yet to be answered.
In 2009, around 80% of total oil exports are expected to go through Russia. By 2030, the volume of oil being transported to Russia is expected to rise, but its share of total exports is expected to drop below 60%, according to research from Wood Mackenzie presented at the conference.
Europe, and in particular China, are expected to increase their imports of Kazakh oil and gas. While none of the major Chinese oil companies had speakers at the conference, the Europeans were vocal in their pleas for access to Kazakh energy resources.
Vaclav Bartushka, the Czech Republic’s ambassador for energy security, forcefully put the case for Central Asia to cooperate with the EU on the Southern Corridor and other energy export projects. “We have plenty to offer you and you have nothing to fear from us,” he told delegates.
Asking rhetorically what the EU can offer to Central Asia when diversification has already been offered by China, Bartushka continued: “Europe has something precious to offer, that goes beyond being rich and paying our bills on time: we don’t threaten anyone, we don’t scare anyone.”
Bartushka stressed that the EU is “firmly behind the Southern Corridor project,” which was echoed by Angus Miller, Caspian energy adviser at the UK’s Foreign and Commonwealth Office. Miller also advocated the idea, currently being mulled in Brussels, of creating the Caspian Development Corporation - a single company that would be mandated to buy gas on behalf of the EU member states. “This would put Europe as a buyer on the footing as CNPC or Gazprom. It’s a response to the China dilemma,” Miller said.
Europe has scored some successes in Kazakhstan recently. A €1bn deal signed during French President Nicolas Sarkozy’s visit to Astana on October 2 gives Total and GDF Suez a 50% stake in the Khvalynskoye project. KazMunaiGas has also signed a set of deals with Azerbaijan’s state oil company Socar that will facilitate transport of oil across the Caspian and indicates the two companies long-term aim of linking Kazakhstan’s oil to Azerbaijan’s oil transport systems.
But China got there first. As Bartushka admitted, China started building pipelines while the Europeans were still debating routes.
Julia Nanay, senior director at advisory firm PFC Energy, pointed out that China started building relationships with Central Asia’s oil-rich republics in the late 1990s. Since then, Chinese companies have taken a monopoly board approach to Kazakhstan, buying up assets when they become available.
CNPC first took control of the 100,000 barrel per day Uzen oilfield back in 1997, and later completed the $4.5bn acquisition of PetroKazakhstan. In addition to these and other mega-deals by CNPC, CITIC, Sinopec and a number of smaller Chinese companies have also invested into Kazakhstan. “Chinese companies are not adverse to heavy oil fields, or put off by a lack of infrastructure. They are just building whatever is needed,” Nanay said.
The most recent deal, CIC’s investment into KazMunaiGas EP, Nanay says, is a way of building its relationship with the Kazakh company and ensuring sufficient supplies to fill the new pipeline. “We think enough oil will be supplied by Gazprom and TNK-BP to fill the pipeline this year, but from 2010 it may be filled with Kazakh oil. Once they complete the MangistauMunaiGas acquisition, China will have access to more than 300,000 barrels per day.”
Kazakhstan is just starting to emerge as an important player on world energy markets. For all the talk from Europe about the importance of its relation with the Caspian Sea region countries, most of the action has been from China. With Russia set to remain the primary exporter of Kazakh oil and gas, and China shooting into second place, as European representatives made abundantly clear, they will have to fight hard for a slice of Kazakhstan’s resources.
silkroadintelligencer.com
By SRI
