Kazakhstan’s oil starts flowing east

May 12, 2006 02:00 AM

by Amangeldy Kirtaev

China is waiting for the first Kazakh oil to arrive via Atasu-Alashankou pipeline. When the loading of the pipe started it was announced that Kazakhstan was going to start oil deliveries to China from May 2006.
The Chinese having calculated the speed of Kazakh oil in mid-April decided that the historical event in Alashankou was due to take place on April 30, but they were mistaken. Nevertheless the arrival of the Kazakhstani oil in China is going to be announced shortly.

Five or seven years ago nobody thought that such a pipeline construction was possible. And not because it could be regarded as too ambitious or costly from the economic point of view. It proved to be impossible due to political reasons.
Kazakhstan and China became allies only when the Shanghai Five was created. And now when the project was realised with record speed, it becomes clear that the life itself dictated it. Kazakhstan during its sovereignty concentrated all its efforts on the oil production (it is into oil industry that the majority of foreign investments were made) and now it perceives a necessity of expanding its markets.

The existing capacities do not satisfy the demand for Kazakhstani oil on the world markets and this problem is going to be aggravated with time because Kazakhstan plans to increase the extraction of oil.
As for China, it demonstrates high economic growth and needs diversification of the sources and channels of its oil supply. It has happened mainly because it needs much more oil than the traditional suppliers in China itself and in South East Asia could provide.

Chinese top officials highly estimate the commissioning of the oil pipeline. They underscore its characteristics distinguishing it from all other pipelines.
Firstly, it is the first onshore pipeline constructed by China together with another country.
Secondly, it is the first foreign onshore pipeline that has already started to pump oil.
Thirdly, it is the first Central Asian pipeline to China.

Chinese experts believe that the Kazakhstani oil supplies will stimulate co-operation between China and other countries on construction of oil and gas pipelines. First of all, Kazakhstan has already announced its plans to build up a "parallel gas pipe" on the same route.
An identical pipe construction is also planned by Turkmenistan -- it is ready to build up a joint gas pipeline in the nearest future and an oil pipeline in the case that China will participate in the development of Turkmen Caspian offshore oil fields.

Russia, which pondered quite a lot about whether to export oil to China or not eventually announced construction of Taishet-Nahodka pipe. Despite the positive assessments of the Atasu-Alashankou pipeline made by Chinese specialists the way in which the pipe will be loaded remains uncertain.
The rated capacity of the pipeline is 20 mm tons. It is suggested that 10 mm tons per annum will be pumped at the first phase. Moreover, China believes that Kazakhstan will provide only a half of this volume and Russia the second half.

However, so far despite all persistent and attractive invitations neither of Russian companies has agreed to pump oil to China by this route. One can only imagine what ideas prevail in the heads of stubborn Russian managers.
Meanwhile, they of course need such untraditional decisions as suggested by Kazakhstan and China: it is quite an opportunity to "pump" their oil to the new market and eventually occupy a serious niche there. The conditions for it are quite acceptable. The oil transport company of Kazakhstan, KazTransOil, has recently announced that it guaranteed an unconditional accession for Russian oil to Atasu-Alashankou pipeline among other options through the pipeline connection Priirtyshsk-Pavlodar-Atasu.

The Chinese side in its turn guarantees conclusion of long term agreements for acquisition of oil. It means that there are no formal obstacles for the mutually beneficial co-operation.
The only remaining intrigue is the tariff forthe transportation of Russian oil. It will be approved by the Agency of Kazakhstan for Regulating Natural Monopolies right after the pipeline commissioning. But it is quite easy to suggest that the price of oil export to China will be on the same level with prices for export to other states. There is nothing new only the vector will change from West to East.

Refusing the fact that co-operation with China is profitable means refusing development of your own economy, even if its growth relies only on oil and gas export. Only last year, according to preliminary calculations, the China's oil import could reach 150 mm tons. It is a good chance for developing economies to pave their way towards the Chinese market.
Moreover, PRC is fully conscious that it should lower proper dependence on the energy import by means of energy-saving technologies. Considering big interior investment potential (when a country can cover its own demand financing its own solutions) it means that China actually gives green light to other countries. Currently they are satisfying the China's demand for oil and then they will receive their contracts as a sign of gratitude.

However, Kazakhstan and Russia should pay attention to another factor. It is the Asian economy that shows the biggest growth in the world (the West cannot compete with it) and an aggressive demand for energy resources in the nearest 10-15 years will exist precisely in this region.
This is where a simple economic truth comes from: our oil should flow east.

Source: Gazeta.kz
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