Kazakhstan starts building gas pipeline to China

NEAR ALMATY, Kazakhstan, July 9 (Reuters) - Kazakhstan joined construction of a pan-Central Asia pipeline on Wednesday, a major project to link up Caspian Sea gas reserves with energy-hungry China.

The pipeline is the first significant independent gas link connecting the former Soviet region with eastern markets while bypassing Russia. Russian gas monopoly Gazprom GAZP.MM is currently the main buyer of Central Asian gas.

Under the scorching sun of southern Kazakhstan, Kazakh and Chinese flags flapped in the wind as engineers assembled segments of the pipeline in a symbolic ceremony attended by senior energy officials.

“This project will be implemented in five stages with the final stage scheduled for completion by 2013,” said Sauat Mynbayev, Kazakhstan’s energy minister.

The ceremony was held on the open steppe 40 kilometres (25 miles) north of the commercial hub Almaty -- one of 3 sites in Kazakhstan where construction began simultaneously on Wednesday.

The Kazakh link is part of a route that links Turkmenistan’s natural gas deposits with China via Uzbekistan and Kazakhstan.

Uzbekistan also started construction of its part this month while Turkmenistan launched its segment last year.

Gas shipments will start in 2010 at 4.5 billion cubic metres (bcm) a year and will eventually reach 40 bcm a year. China will receive 30 bcm and Kazakhstan 10 bcm for its southern regions which face an energy deficit due to growing consumption.

China’s CNPC, the leading operator of the project, has signed deals with state oil and gas firms of Turkmenistan, Uzbekistan and Kazakhstan giving them 50 percent stakes in their respective parts of the pipeline.

It has yet to announce the project’s cost. Mynbayev declined to give the figure for the Kazakh part on Wednesday.

Turkmenistan, sitting on Central Asia’s largest gas reserves, will be the major supplier of the 7,000 kilometre (4,350 miles) pipeline.

Kazakhstan, which hosts 1,300 kilometres (800 miles) of the pipeline, plans to extend its part in the future, connecting it to its own gas fields near the Caspian.

Russia’s Gazprom buys about 50 bcm of Turkmen gas annually for resale in Europe. It also imports about 11 bcm from Uzbekistan and 8 bcm from Kazakhstan.

To maintain its influence over Central Asian gas flows, Russia has signed agrrements with Turkmenistan, Uzbekistan and Kazakhstan to build a new pipeline along the Caspian.

Gazprom has also vowed to pay European prices for Central Asian gas from 2009, but the exact figure has not been revealed.