China Steps Up Presence in Kazakhstan Oilfields

Kazakhstan's government, acting in response to criminal investigations and tough bargaining with western energy companies, is working more closely with China on energy concerns. Kazakhstani Foreign Minister Kassymsohart Tokaev traveled to Beijing recently and expressed hope that an oil pipeline from western Kazakhstan to China might begin construction by springtime. This projection underscores Kazakhstan's desire to form broader economic and security ties with the world's most populous nation.

Tokaev had traveled to Beijing for a gathering of the secretariat of the Shanghai Cooperation Organization (SCO) on January 15. This body became a full-fledged membership organization in 2003, comprising China, Kazakhstan, Kyrgyzstan, Russia, Tajikistan and Uzbekistan. [For an overview, see the Eurasia Insight archive]. Amid numerous stalled post-Soviet collaborations, say observers, the SCO is emerging as a vehicle for Chinese interests.

Beijing considers Central Asia a critical source of potential customers and a worrisome area for potential security threats. China has pursued aggressive policies against Uighur separatists in a semiautonomous province near its western border; Kyrgyzstan has effectively backed the Chinese approach. [For analysis, see the Eurasia Insight archive]. One Chinese expert, speaking on condition of anonymity, told EurasiaNet that China hopes to parley its shared security concerns with SCO members into treaties that promote Central Asian markets and protect sources of Chinese energy consumption.

China has pursued Kazakhstan's oilfields for many months. In March 2003, a Chinese company pledged $615 million to British Gas for roughly eight percent of the Kashagan oilfield, in the Kazakhstan section of the Caspian Sea. Four other shareholders, all energy giants, exercised their preemptive right to buy the shares. Five months later, China National Petroleum Corporation (CNPC) acquired 35 percent of the North Buzachi oilfield from Saudi oil company Nimir Petroleum. Later CNPC took full control of the field by buying the remaining shares from ChevronTexaco, which has tussled with Kazakhstan's government. [For background, see the EurasiaNet Business & Economics archive]. The company sold part of its stake in later months to a Canadian outfit called Nelson Resources, in a deal that mystified many analysts.

The sale to Nelson Resources appeared jarring because China appears committed to putting down stakes in the Caspian. In late December, a company called Sinopec bought 50 percent of three large blocks near the Tengiz field. A pipeline could make these investments quicker to recoup and more valuable to Chinese consumers. Moreover, say some observers, it would equip China with secure access to Kazakhstan's oil.

Some see China's exploration as a means of preparing for the pipeline. A pipeline, which could cost $850 million, would need protection and production guarantees. It could also deliver, according to some estimates, as much as 20 million tons of oil per year. In this light, it is easy to understand why Beijing would intensify exploration activities and seek to tie up resources in Kazakhstan.

For Kazakhstan, Chinese investment partners might provide both money and latitude. The government has tried for many months to diversify its export options. [For background, see the Eurasia Insight archive]. Kazakhstan's best-established American investor, ExxonMobil, has kept relatively quiet since federal investigators indicted one of its consultants for making illegal payments to Kazakhstan officials. [For background, see the Eurasia Insight archive]. This matter is not closed, say some observers, and may embarrass president Nursultan Nazarbayev. Chinese investment would not necessarily entail the same level of public scrutiny. It would also enable Kazakhstan to increase oil exports without competing against an American-led project serving western Europe.

Cooperation between China and Kazakhstan figures to increase. Since October 2002, Chinese officials have cited strengthening cooperation in energy as a key tactic for promoting the Shanghai Cooperation Organization's goals. At an SCO meeting then, Chinese state planner Zeng Peiyan reportedly told members that China hopes to cooperate with Russia and Central Asia in order 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.