Kazakhstan is not afraid to look to China

Feb 27, 2004 01:00 AM

While Kazakhstan is keen to maintain its "important military-to-military relationship" with the United States, when it comes to business, Astana is not afraid to look to its eastern neighbour and US rival, China. Especially when it comes to a major new oil pipeline from western Kazakhstan to China.
US Defence Secretary Donald Rumsfeld held talks with Kazakh Prime Minister Daniyal Akhmetov, Defence Minister Mukhtar Altynbaev and Foreign Minister Qasymzhomart Toqaev about expanding military relations.
"We talked about the US support for Kazakhstan's sovereignty and independence and our important military-to-military relationship," Rumsfeld said after the meeting.

Earlier, Kazakhstan's top oil company, KazMunaiGaz, said that it would build a new oil pipeline from western Kazakhstan to neighbouring China. The construction of the 1,300 km, $ 700 mm Atasu-Alashankow oil pipeline was due to start in August, and would take two years to complete, Uzakbai Karabalin, head of KazMunaiGaz, was quotedas saying.
Rumsfeld said that Washington was committed to ensuring the security of Kazakhstan's portion of the oil-rich Caspian Sea, adding that such security was important not only for Kazakhstan, but also for the world.

Rumsfeld also asked Kazakh officials to become more actively involved in the North Atlantic Treaty Organization's (NATO's) Partnership for Peace program.
"We talked about the relationship that Kazakhstan has with NATO's Partnership for Peace program and how important we believe that is, and that we are grateful for the strong and growing relationship we have and for the friendship and for the steadfastness of the Kazakh people," Rumsfeld said.

Relations with Washington have strengthened since 2001, after the terrorist attacks on New York and Washington, when Kazakhstan offered the US-led coalition in Afghanistan the use of an airport for emergency landings and refuelling. Last August, Astana sent about 30 peacekeeping troops to Iraq to help with demining and restoring water supplies. It is the only Central Asian nation to do so -- other Muslim nations in the region being reluctant to assist in the troubled US-led occupation.
"Kazakhstan is an important country in the global war on terror and has been wonderfully helpful in Iraq, and I came here to personally say 'thank you' and express our appreciation," Rumsfeld said.

The Kazakh Defence Ministry was quoted as saying the two countries signed a five-year cooperation plan last September for delivery of helicopters, military cargo aircraft, and ships for Kazakhstan's Caspian Sea forces. Under the plan, the US will also supply equipment for Kazakh troops and provide anti-terrorism training.
Of the five Central Asian nations, Kazakhstan received the most US aid last year -- $ 92 mm. More than half -- $ 49 mm -- was targeted for security and law enforcement programs.

With the proposed pipeline to China, Kazakhstan aims at funnelling 73.5 mm barrels (10 mm tons) of crude oil a year to China in the first stage, and the amount is to be doubled eventually, according to Karabalin of KazMunaiGaz. The pipeline would need protection and production guarantees. In terms of politics, China has pursued aggressive policies against Uighur separatists in its eastern regions -- an approach that Kazakhstan has effectively backed.
Kazakhstan's government increasingly is working more closely with China in the energy sector. In January, foreign minister Toqaev travelled to Beijing and expressed hope that construction of an oil pipeline from western Kazakhstan to China might begin by spring. This projection underscores Kazakhstan's desire to form broader economic and security ties with the world's most populous nation and a rising economic power both globally and in Asia.

Toqaev had travelled to Beijing for a meeting of the secretariat of the Shanghai Cooperation Organization (SCO) on January 15, when the body became a full-fledged membership organization, comprised of China, Kazakhstan, Kyrgyzstan, Russia, Tajikistan and Uzbekistan.
Since October 2002, Chinese officials have cited strengthening cooperation in energy as a key tactic for promoting SCO's goals. At one SCO meeting since then, Chinese state planner Zeng Peiyan told members that China hoped to cooperate with Russia and Central Asia to immunize itself against a potential blockade of energy supplies from the Middle East. Kazakhstan is China's most logical source of Central Asian oil; a groundbreaking for a pipeline in 2004 would make that association as strong as any in the SCO.

China is also turning its shared security concerns with SCO members into treaties that promote Central Asian markets and protect sources of Chinese energy consumption. China has pursued exploitation of Kazakhstan's oilfields for quite some time.
Last August, China National Petroleum Corporation (CNPC) acquired 35 % of the North Buzachi oilfield from Saudi oil company Nimir Petroleum. Later, CNPC took control of the field by buying the remaining shares from ChevronTexaco, which has tussled withKazakhstan's government.

In late December, China's Sinopec bought 50 % of three large blocs near the Tengiz field. The new pipeline could make these investments quicker to recoup and more valuable to Chinese consumers, while sizable stakes in Kazakh energy projects give China better access to Kazakhstan's oil.
For Kazakhstan, Chinese investment partners might provide both money and latitude. The government has tried for many months to diversify its export options. For instance, earlier, Kazakhstan announced plans to supply 21,000 bpd of crude (1 mm tpy) to Iran in 2004. Kazakh oil is now being shipped to Iran from Aktau, a Kazakh port on the Caspian coast.

Shell Middle East, through its Shell Kazakhstan Development arm, said that with its partners it had taken a final investment decision that could see about $ 29 bn invested in the development of Kazakhstan's giant Kashagan oil field. Shell is a partner in the consortium, the North Caspian Production-Sharing Agreement, with ENI of Italy, Total of France, ExxonMobil, ConocoPhillips and Inpex of Japan.
The move ends months of delays, which have held up the development of what is estimated to be the world's largest untapped deposit. The Kashagan field was discovered in 2000 and is estimated to have 38 bn barrels of oil, making it one of the largest discoveries in 30 years. Shell holds 16.67 % of the project, a stake which will rise to 20.37 % on completion of the previously announced purchase of part of British Gas' shareholding.

The first oil from Kashagan is expected to be pumped in 2008. Initial production is expected to be 75,000 bpd of oil, increasing to 450,000 bpd during the first phase of development. Eventually full field production is expected to amount to 1.2 mm bpd. Kazakhstan's plans to export 3 mm bpd of crude by 2015 heavily rely on Kashagan. Such a volume is more than Russia exports today and would make Kazakhstan one of the world's top exporters.
The operating company, AGIP KCO, submitted its development plan in December 2002.But the Kazakh government refused to approve the plan because it implied that the first commercial crude would flow in 2006, instead of 2005 as previously planned. Subsequently, the Kazakh government insisted on imposing a fine of several hundred million dollars that the consortium refused to pay, hence the negotiations dragged on for more than a year.

On February 23, Kazakhstan's top oil executive announced that the nation would formally join the US-backed Baku-Tbilisi-Ceyhan (BTC) oil pipeline project.
"We could sign an agreement on joining the BTC soon," Karabalin of KazMunaiGaz told. Kazakhstan aims at funnelling 73.5 mm barrels (10 mm tons) of crude a year via the BTC, Karabalin said.
The 1,760 km BTC project, which is already half-built, is due to start pumping in 2005 from Azerbaijan through Georgia and on to Turkey. However, it is understood that without Kazakh oil, the BTC may not reach the planned 1 mm bpd peak capacity.

Kazakhstan intends to link up with BTC through a new port at Kuryk, which in turn, would serve as a link to another port in Kazakhstan, Aktau, 76 km to the northwest. Eventually, oil from Kazakhstan's Kashagan field would flow from Aktau to Kuryk for shipment across the Caspian Sea to Baku and the BTC.
The port at Kuryk should be ready by the time the first oil begins to flow from Kashagan in 2007 or 2008.

In recent months, multinational oil companies have reportedly grown disenchanted with the government of Kazakhstan for its invasive business practices. These alleged practices include changing laws in ways that severely undermine existing contracts and imposing requirements that seem useless, especially with regard to site inspections.
Moreover, foreign direct investment in Kazakhstan brought an unwanted by-product: allegations of bribes and kickbacks, known as "Kazakhgate." A US grand jury in New York is investigating possible corruption involving Kazakh officials in violation of the US Foreign Corrupt Practices Act. According to some reports, Kazakh leaders repeatedly lobbied top Bush administration officials, including Vice President Dick Cheney, to either contain the criminal probe, or get it dismissed altogether. US officials reportedly rejected the Kazakh appeals.

The Russian government has been keen to remain in charge of lucrative business to manage oil transit from Kazakhstan. Russia's deputy prime minister, Viktor Khristenko, has been lobbying to raise Kazakh crude transit via Russia to 19 mm tpy of crude. Khristenko, who was appointed Russia's acting prime minister, was due to visit Kazakhstan for economic talks.
Russia has been eager to maintain its influence over energy transit routes in the Caspian Basin. Russian officials pressed the Kazakh leadership to agree to a 15-year deal under which Kazakhstan would commit to exporting at least 15 mm tpy of crude oil via the Baku-Novorossiisk pipeline.

Source: Asia Times Online
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