KAZAKHSTAN - Decision Makers - Oil Pipeline To China.

On May 3, 2004, during a visit to Beijing by President Nazarbayev at the head of a large delegation, the CEOs of state-owned China National Petroleum Corp. (CNPC) and KMG sign an agreement in principle to have a 1,240-km crude oil pipeline built from Atasu, in north-western Kazakhstan to China's Alataw Pass on the border of north-western region of Xinjiang which would cost up to $850m. It will have a 200,000 b/d capacity in the first phase. Construction work was to start in August and the pipeline should be on stream by December 2005. The capacity will be raised to 400,000 b/d later and eventually to 1m b/d.

This will be the second section of a 3,000-km pipeline the two countries agreed on in 1997, when CNPC got 60% in two Kazakh oil producing companies (see Part 2). The first 448-km section of the pipeline began operating in March 2004.

From late 2005, the line's first phase will deliver Kazakh crude to a railway system on the border for onward shipment to three of CNPC's refineries in Xinjiang, a predominantly Turkic region which has a majority of Uighurs who include advocates of a separate state to be called East Turkestan.

China has become a big market for Kazakh crudes which now reach it by rail. China in 2003 imported 8.3m barrels of Kazakh crudes, up 19% over 2002. But this was only a small fraction of China's total 2003 crude oil imports of 636.8m barrels. China trade with Kazakhstan in 2003 hit $3.3 bn.

In March 2003, the China National Onshore Oil Co. (CNOOC) and Sinopec reached a deal with BG group to buy its 16.67% stake in the Agip-led Northern Caspian consortium that would produce 1.2m b/d of crude oil by 2015. It was for each to pay $615m for an 8.33% share in the Kashagan field, a super-giant. But the other partners in the consortium later exercised their pre-emption rights to buy BG's stake, which killed the deal. Now Astana is insisting on this stake going to KMG.