China-Kazakhstan: Strategic partnership and even more
Beyond the maintenance of traditional trade relations with Russia in the energy sector, in the early 1990s Kazakhstan started a multivectoral foreign policy which allowed the establishment of a fruitful relationship with China that still seems to offer new opportunities for broadening and deepening. At the base of this partnership, there are essentially agreements related to the exploitation of Caspian Sea energy resources and the construction of the necessary infrastructure for the transport of those resources towards east. For China, in fact, Kazakhstan is a direct source for oil supply and a major transit route for gas imports from Turkmenistan and Uzbekistan.
Since 2006 a pipeline is operating as the result of a joint venture between CNPC and KMG (KazMunaiGas). The pipeline connects the port of Atyrau (Kazakhstan northwest) with Alashankou (north-west of the northwestern Chinese region of Xinjiang ) along 2,228 kilometers and has a capacity of 252,000 bbl/d of crude. An capacity increase of up to 400,000 bbl/d is ongoing in order to use the pipeline for the transportation of part of the oil from the Kashagan field. The pipeline consists of several segments. The most recent segment is Kenkiyak-Kumkol (Phase 3), which started commercial operations on 6 October, 2009, and connects the two pipeline Kenkiyak-Atyrau (Phase 1) and Atasu-Alashankou (Phase 2), and is online since 2006. The Kenkiyak- Atyrau pipeline was the first built in Kazakhstan since independence. The line was connected to the Kazakhstan-China pipeline and the flow direction was reversed, so that now runs from Atyrau to Kenkiyak. Prospects for cooperation in the short to medium term include increased Chinese participation in the exploitation of the reserves of Kashagan and the construction of Beineu- Bozoi-Akbulak pipeline, which should be completed in 2015.
In mid-October, 2013, Kazakh President Nursultan Nazarbayev signed the law on ratification of the bilateral agreement on the development of the operations of the Kazakhstan-China oil pipeline, a 2228 km infrastructure running from the Caspian shore to Xinjiang and jointly owned by KMG and CNPC. The agreement establishes a uniform tariff for the transportation of Kazakh oil through the Kazakhstan-China pipeline, regardless of the distance from the entry point. In the event of shortage of oil in the internal distribution network in Kazakhstan, the body responsible for the Kazakh side may suspend exports for a month, after notifying the other party of China.
The implementation of the agreements in the energy sector concluded by China and Kazakhstan are the core business of the bilateral cooperation between the two countries as developed since the conclusion of the Sino- Kazakh 2003-2008 cooperation program, and the launch of the strategic partnership in 2005. Periodically, the contents of the agreement have been updated and expanded in different stages of revision of the partnership itself, which is a clear example of how the Chinese Good Neighborhood Policy is implemented. In the bilateral summit in Astana on 7 September 2013, Chinese President Xi Jinping has specifically cited the partnership with Kazakhstan as an example of good neighborly relations and mutually beneficial cooperation. In his speech, he declared his full support for the process of development of Kazakhstan as suited to its own national conditions, in order to safeguard state sovereignty and independence, to ensure economic and social promotion, so that Kazakhstan can play a constructive role at international and regional levels. For Chinese diplomacy, indeed, the development of friendly relations with Kazakhstan is a diplomatic priority, in order to achieve fruitful results at the bilateral level and contribute to the peace and prosperity of the region. The words of the President of Kazakhstan Nursultan Nazarbaev were of similar content. He noted the support of the Kazakh people in the process of renovation going on in China and reiterated that, whatever happens Kazakhstan will forever be a good neighbor, good friend and good partner of China. The two heads of state declared that the mutual support of each issue or concern related to the fundamental interests of one of the partners is the essence of the comprehensive strategic partnership. With regard to energy cooperation, the two heads of state stressed that it is made up of complementary advantages, mutual benefit and win-win outcomes.
In the energy sector, the two countries are long-term, stable and reliable partners. Both sides agreed for the construction of cross-border oil and gas pipeline, the strengthening of cooperation on the exploration and processing of oil and gas, the strengthening of CNPC in the exploitation of the Kashagan oil field. In this regard, during the September 2013 meeting, the company KazMunaiGas and China National Petroleum Corp have signed an agreement for the purchase of a share of 8.33% of the Kashagan field, for about $5 billion. Joining the exploitation of the largest oil field discovered in the last 50 years has been a great achievement for China, which had to overcome a formidable opponent such as India. Moreover, China and Kazakhstan paved the way for further 22 agreements (for a total investment of $30 billion), which also affect the energy sector and, in particular, the construction of an oil refinery in Kazakhstan. Kashagan offers significant growth opportunities for the export of Kazakh oil, which currently amount to about 1.2 million barrels per day. Some analysts estimate that by 2021 Kazakhstan could reach production of about 4 million barrels a day, a rate that approaches Iran’s daily production of 4.5 million bpd.
Figure 11.1 - China’s Crude oil imports by source (2013)