Oil Report

Kazakhstan, China agree on pipeline from Caspian

ASTANA, Aug 18 (Reuters) - China and Kazakhstan agreed on Saturday to expand an oil pipeline that will link China to the Caspian Sea, giving Beijing direct access to an energy-rich region controlled by Kazakhstan.

China has become increasingly assertive in Central Asia, viewing neighbouring Kazakhstan, an ex-Soviet state the size of Western Europe, as a key source for raw materials to fuel its booming economy.

Chinese President Hu Jintao, in Kazakhstan on a state visit, agreed with counterpart Nursultan Nazarbayev to expand the Atasu-Alashankou pipeline by 700 km (435 miles) westward to link it to the Caspian Sea, home to many Kazakh oil and gas deposits.

“These are really big projects and today we reached agreements on these matters,” Nazarbayev told reporters alongside Hu in the capital Astana after signing agreements on cooperation in energy, metals and other sectors.

Hu and Nazarbayev also agreed to route a proposed new gas pipeline from Turkmenistan to China through Kazakh territory, embedding Kazakhstan as a transit nation after months of talks.

The pipeline is due to be built by 2009 and pump 30 billion cubic metres of gas to China.

The existing $800 million, 600-mile (966 km) oil pipeline from Atasu in Kazakhstan to Alashankou in China, is part of Beijing’s plan to strengthen energy supplies through more long-term contracts from oil producers.

China sees its expansion as a step towards entrenching itself in Central Asia where energy trade is dominated by Russia and most pipeline infrastructure sends Caspian oil and gas west to Europe rather than east to the growing Chinese market.

Kazakhstan has been careful to pursue equally pragmatic contacts in both directions.

“We are strengthening our eastern direction but that does not mean we are weakening our western direction,” Uzakbai Karabalin, president of Kazakh state oil company Kazmunaigas, told reporters after the Hu-Nazarbayev meeting.

He said the Caspian extension could be built as soon as 2009 but did not say how much it may cost. Analysts say the pipeline can send China five million tonnes of Kazakh oil a year and could be expanded to supply four times as much.

As for the Turkmen project, Karabalin said the Kazakh part of the pipeline, which will run through the south of the country, is also likely to be completed by 2009.

“Our plans are very aggressive,” he said.

Separately, Hu and Nazarbayev agreed to work closer in the steel sector, signing a deal to supply iron ore from Kazakhstan’s Sokolov-Sarbai plant, part of the Eurasian Natural Resources Corp. (ENRC), to China.

They also agreed the Export-Import Bank of China would extend a $293 million, 10-year loan to the ENRC, a Kazakh metals major considering a float on the London Stock Exchange, to help finance construction of a primary aluminium plant in Kazakhstan.