Tuesday, May 18, 2004

Beijing, after years of negotiations, has persuaded oil-rich neighbor Kazakhstan to complete one of the world’s longest pipelines to slake China’s growing thirst for oil.

The countries’ biggest oil companies signed an agreement to build the longest remaining segment of the 1,875-mile pipeline — a 625-mile stretch from central Kazakhstan to the Chinese border. The deal came during a four-day visit to Beijing this week by Kazakhstan President Nursultan Nazarbayev.

Kazakhstan will pay 51 percent of the $700 million cost and China 49 percent, Kazakh sources said.

“All financial and technical issues relating to the construction of the Atasu-Alashenko pipeline have been resolved,” the Kazakh Embassy in Washington quoted Foreign Minister Kasymzhomart Tokayev as saying.

Construction will start soon and be finished by the end of 2005, he said. Initial capacity will be 200,000 barrels a day and will reach 70 million barrels of oil a year when completed, according to Chinese news media.

A 280-mile segment in Kazakhstan was completed last year. The final section, between Aktobe and Kumkol, remains to be built.

“The driver for the deal is clearly China,” said Caspian analyst Laurent Ruseckas. “China is more anxious to secure a stable supply than Kazakhstan needs another export route.”

Inside China, the pipeline will continue to Dushanzi, where the initial flow will be refined. If the Tarim Basin in central China can produce significant oil, the Kazakh and Tarim output could justify continuing the pipeline closer to China’s coast — the area of the country that consumes the most energy, according to Mr. Ruseckas and other analysts.

If not, the oil will be used to develop China’s western provinces.

Over the past few years, China’s booming economy has made it a net importer of crude and a source of high oil prices. Talks with Russia about building a pipeline to supply it with Siberian oil have reached an impasse as Moscow appears to be leaning toward building a pipeline to Nakhodka, near Vladivostok on the Pacific coast, aimed at exporting the crude to Japan.

The moves resulted in an acceleration of China’s Kazakh option, analysts said.

Mr. Ruseckas, director of Europe and Eurasia at the Eurasia Group, said the pipeline seemed to be motivated more for political than economic reasons.

“China will be paying a premium for the Kazakhstani oil because it will be more expensive to transport east,” he said. “I presume they will agree on a price formula that will take this into account.

“And with the option to sell their oil to other clients, the Kazakhs will be able to keep their prices up,” he said.

Kate Hardin of Cambridge Energy Research Associates said the West would feel little impact on prices. “When China buys oil from Kazakhstan, it simply allows more oil to be available on the open market.”

The China National Petroleum Corp. operates several fields that produce more than 10 percent of Kazakhstan’s output of 1 million barrels a day, due to triple within 15 years. Their production is exported in both directions — some by rail to China and some to Russia and the West.

The largest, Aktobemunaigas Corp., is half-owned by Nelson Resources Ltd., a company widely be believed to have ties to Mr. Nazarbayev’s family.

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