$3 Billion Kazakh Pipeline Could Be Part of Far East Supply Network with Russia and China

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Researched by Industrialinfo.com (Industrial Information Resources, Incorporated; Houston, Texas). The pipeline builders with projects connecting Russian and the Caspian oil and gas regions with China appear to be living interesting times. The demand for the product they will transport to the Far East is not in doubt, but there is still some, planning, budgeting, and route confirmation to take place. The old imperialists used to draw national borders with straight rulers and a to-Hell-with-the-locals attitude. Pipeline planners and politicians try for routes that will hit multiple sweet spots and carry as many constituencies along with the route as possible.

In the same week, on the same day, in mid-April, two statements were reported by Interfax coming out of Astana, Kazakhstan. One was that the start of construction on the Atusa-Alashankou pipeline from Kazakhstan to China would be postponed from mid-2004 until 2005, according to the Kazakh President Nursultan Nazarbayev's office, and the other was "According to documents prepared jointly by Kazakhstan and China, it is planned to start building the pipeline in August this year and to complete the linear part of the pipeline in December 2005," according to Murat Buldekbayev, press secretary to the Kazakh Prime Minister Danial Akhmetov. Cost of this section is around $700 million with credits guaranteed by the Chinese. There are still several options on financing the project under discussion. Once under construction the section will be completed in two years.

The pipeline is the second stage in a project to build a pipeline from Kazakhstan to China. The line should be built from the oil ramp at Atasu railway station in Karaganda region to the Kazakh-Chinese border near the Druzhba-Alashankou railway terminal. The total length of this section is 998 kilometers. The first phase of the pipeline to China was the 448-kilometer Atyrau-Kenkiyak section built in 2003 with a capacity of up to twelve million tons of oil per annum.

When the total pipeline 3,000-kilometer project is completed, it will have 20 million tons per year carrying capacity and come in at a cost of about $3 billion.

Kazakh Prime Minister Akhmetyov's office said, "Given the need to rapidly diversify exports of Kazakh oil and the possibility of integrating the Russian, Kazakh, and Chinese pipeline systems, the prime minister set ministries and the national oil and gas company KazMunaiGaz the task of preparing documents and carrying out all the necessary procedures within ten days so that it will be possible to start implementing the project in 2005."

Concurrent with the Kazakh announcements the Russian Industry and Energy minister, Viktor Khristenko, said after a meeting with a Japanese delegation that preparation of a feasibility study for investment in the construction of an oil pipeline to the Asia-pacific region would be completed in July. He said that this project is the most interesting and significant for the eastern Siberia and Far Eastern regions and that agreements between China and Russia would be taken into consideration before the final decision following the investment feasibility study. He stated that this project had every chance of being implemented.

Khristenko said that the Sakhalin projects were also discussed with the Japanese delegation. In particular, the sides discussed the sale of Sakhalin-2 liquefied gas in Tokyo. For details on this see archived, April 16, 2004, IIR Industry Alert - $2 Billion Cost Increase as Sakhalin 2 LNG Project Contracts Move Ahead with Half Output Sold.

Meanwhile, oil exports from Kazakhstan to China are being hampered by lack of rolling stock. A large number of wagons have been switched to agricultural delivery in China. This has seen a 25% drop in 2004 first quarter crude imports by China. At the same time the Kazahk domestic market is plagued by chronic shortages of fuel and lubricants that has forced the government into unpopular price controls and export restrictions.

As the country targets a crude oil refining capacity of 18.6 million tons per annum by 2015 refinery reformation and development will have to be dragged through and will hopefully bring steady economic growth, independent of outside suppliers and benefiting from offshore Caspian crude supplies. The next decade appears to be at least interesting and perhaps problematical.

Some less Byzantine, and simply delicious news for breadwinners, is coming out of the Caspian Sea states. The sturgeon population has been growing in the past two years by between 16% and 28% (2.3 million to 4.2 million) as reported by the Russian fisheries ministry. The fish have been putting on weight and fishing quotas are up for next year. The really good news for the Russian oil tycoons, who are not sequestered in Moscow prisons, is that Russia will be able to export 50 tons of black caviar this year, which should make Roman Abramowich of Sibneft, recently named as the UK’s richest resident, very happy. $ 13.5 billion buys a lot of fish roe, plus a couple of English mansions and Chelsea soccer club with more than loose change leftover for even more interesting times.