Major advances in Kazakh-South Korean ties

Oct 22, 2010 12:00 AM

The following is an examination of relations between Kazakhstan and South Korea.

It’s been a milestone for ties between Kazakhstan and South Korea. Major industrial companies in the two countries announced they were going to build a plant in the Central Asian, oil-rich nation to produce an important kind of aluminum used to make steel. And another partnership of major South Korean and Kazakh oil and gas companies won a large contract to develop an oil field in Iraq. Those deals both have long-term implications beyond the projects themselves.

They herald the start of potentially far-reaching partnerships between South Korean and Kazakh companies in developing the infrastructure of Central Asia. They also confirmed that the two governments are encouraging their state-owned energy corporations to develop energy reserves around the world in close cooperation with each other.

The Posco Corporation, the largest steelmaker in South Korea, announced it had concluded an agreement with the Zaman Group of Kazakhstan to construct a large factory that will make polysilicon aluminum, an important component of modern high quality steel. The two companies had agreed upon a memorandum of agreement under which Posco's materials unit Samjung P&A and Zaman would set up a joint venture (JV) giving the South Korean steel corporation 60 % control.

The new aluminum-making complex is scheduled to start operating within two years in Ekibastuz in north-eastern Kazakhstan. It will initially produce 45,000 tpy with an eventual annual output of 400,000 tons, Posco said. "The plant will enable Posco to secure a stable, economical supply ferrosilicon aluminum," the steelmaker said. "Posco is considering exporting the material to China and Europe through Daewoo International."

The JV marks a major change of policy for Posco which had previously bought its entire supply of ferrosilicon aluminum needs from China. The agreement is also a significant achievement for Kazakhstan. The government there has engaged in an ambitious program to give the country a long-term, sustainable industrial base by 2030. Creating a mature, high-tech steelmaking and related metals-producing capacity is essential to achieving that goal.

Posco is an ideal partner for the Kazakhs. It is already the third largest steelmaking corporation in the world and is in the middle of a wave of acquisitions and international expansion. It bought Daewoo International, a steel and chemicals trader and energy developer, in August for $ 2.8 bn. That purchase could open the way for far larger investments by Posco in Kazakhstan.

Daewoo focuses on the development of natural gas, nickel, coal and uranium. Kazakhstan has extensive coal deposits and is already the world’s largest annual producer of uranium as well as being one of the world’s leading sources of natural gas.

 

Another significant partnership also moved forward. A consortium of South Korea’s KOGAS Corporation and Kazakhstan's national oil and gas company KazMunaiGaz (KMG) landed the much-coveted contract to develop the Akkas super-gas field in western Iraq.

The two companies agreed to produce a peak level of 11.2 mm cm of natural gas per day from the Akkas field to be sold at a price of $ 5.50 per boe. The Akkas super-gas field contains 156 mm cm. That means it contains almost 5 % of all the 3.13 tcm of natural gas in proven reserves in Iraq.

Landing the contract could open even more opportunities for the South Korean and Kazakh companies. Seven and a half years after Saddam Hussein was toppled in the 2003 Second Gulf War, Iraq’s oil-and-natural-gas-producing sectors remain in shambles. Iraq can still only turn out 42 mm cm of natural gas per day.

Kazakhstan is a fellow Muslim nation to Iraq. While an ally of the United States, it has steered clear of the conflicts in the Middle East and enjoys excellent relations with China.  If Kazakhstan and South Korea manage to expand and stabilize production at the Akkas super-field, Iraq may well turn to them to develop some of its other enormous oil and natural gas resources.

Even these two significant deals are just the tip of the iceberg of South Korean-Kazakh industrial and strategic cooperation, however. The presidents of both countries are hoping to do a lot more together.

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