Kazakhstan-China Oil Pipeline Will Commence Operations in 2010

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Researched by Industrial Info Resources (Sugar Land, Texas)--Chinese oil firm PetroChina Company Limited (NYSE:PTR) (Beijing), the flagship company of state-owned China National Petroleum Corporation (CNPC) (Beijing), announced that the 20 million-ton-per-year crude oil pipeline being laid from Kazakhstan to China is likely to be completed by the third quarter of 2009 and will be ready to start operations from 2010. This is the final stretch of the pipeline and will connect Kumkol and Kenkiyak, the end points of the first two stages of the pipeline. CNPC and KazMunayGaz Razvedka Dobycha AO (KAS:RDGZ) (Astana, Kazakhstan) are the two investors in the project.

In 1997, CNPC and KazMunayGaz formed a joint venture entity, Sino-Kazakh Oil Pipeline Company Limited, to lay a 3,000-kilometer crude oil pipeline from the Caspian Sea to Xinjiang in China. The first stretch of the pipeline was completed in 2003 and runs from CNPC's oilfields in the Aktobe region to the oil hub of Atyrau on the shores of the Caspian Sea. The pipeline further stretches up to Kenkiyak. The second stretch runs from Kumkol through Atasu in northwestern Kazakhstan to the Alataw Pass at the Chinese border. This leg of the pipeline commenced operations in 2005. Oil is sourced from the Kumkol oilfield owned by CNPC and KazMunayGaz. The pipeline finally transports oil from Alataw to the Karamay refinery and the PetroChina Dushanzi Petrochemical Corporation in Dushanzi City in the Xinjiang Autonomous Region.

In other joint venture projects, CNPC and KazMunayGaz formed Mangistau Investments BV (Aktau, Kazakhstan), a 50:50 joint venture company, to acquire oil and gas company JSC MangistauMunayGaz (KAS:MMGZ) (Aktau) from Indonesian firm Central Asia Petroleum Limited (Jakarta), which has a 99% stake in MangistauMunayGaz. According to Jiang Jiemin, Chairman of PetroChina, the acquisition cost the two companies $3.3 billion. In addition to the company, the acquisition also includes a 1,000-barrel-per-day (BBL/d) oilfield. MangistauMunayGaz owns 36 oil and gas fields, of which the Zhetybai and Kalamkas oilfields are the largest. Other upstream and exploration assets are also included in the deal.

Kazakhstan is estimated to have crude oil reserves of approximately 30 billion barrels, the eleventh largest in the world. In 2008, the country produced approximately 1.5 million BBL/d of oil, and its production forecast for 2009 is 1.7 million BBL/d. The country is expecting the actual production figure to fall below the projected figure because of the possibility of production cuts in the face of a continued decline in oil prices. The government hopes to ramp up the nation's oil production capacity to about 3.5 million barrels per day by 2015.

Kazakhstan has three refineries with a total refining capacity of 345,000 BBL/d. The refineries are in Atyrau in the west, Pavlodar in the north and Shymkent in the south. All three refineries have been operating since the Soviet era and are struggling to cope with current demands and standards. KazMunayGaz owns the Atyrau refinery and also owns a 50% stake in the Shymkent refinery with CNPC holding the other 50%. The Government of Kazakhstan and MangistauMunayGaz jointly own the Pavlodar refinery. Ownership of the Pavlodar refinery will change as soon as the CNPC-KazMunayGaz acquisition of MangistauMunayGaz is completed in July 2009.

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