Page 5 - FSUOGM Week 27 2019

FSUOGM COMMENTARY FSUOGM
re neries. is in turn will free up production in the south and northwest of the country for ship- ment to China, according to Magauov.
He added that extra Chinese sales were unlikely to come from Kashagan, Karachaganak and Tengiz, however, as their international developers were dissatis ed with China’s pric- ing formula.
By scaling up Chinese exports, Kazakhstan will reduce its dependence on oil sales to its major customers in Europe, such as Italy, the Netherlands, Switzerland and France, which typically receive around two-thirds of Kazakh- stan’s total exports. e plan would also boost utilisation at KCP, generating extra revenues for its Chinese and Kazakh operators. e pipeline system is already used to pump around 200,000 bpd of Russian oil to China, and according to Magauov, transit volumes could climb further if Russia’s Tuymazy-Omsk-Novosibirsk (TON) pipeline is expanded.
“ e parties are still in the process of analys- ing this issue, which is at an initial stage of devel- opment,” the deputy minister said. “In general, both sides have expressed interest in increasing transit; technical details are being discussed.”
Russia will only go for this option if its pro- ducers need more export capacity to China than is o ered at the Eastern Siberia - Paci c Ocean (ESPO) pipeline. ere was previously a bot- tleneck at ESPO, but this was alleviated when the capacity of its main spur into China was expanded last year from 300,000-400,000bpd to 600,000bpd. Capacity constraints could re-emerge if Chinese demand for Russian crude climbs further, however.
More connected
Increased Kazakh oil ows to China would also be a major boon for economic ties between the two countries. Overall trade between the pair slumped from more than $22.7bn in 2013 to just $8bn in 2016, as a result of China’s economic slowdown and the reduction in Kazakh oil sup- plies. It has since recovered, reaching $10.5bn in 2017 and $11.6bn last year. Trade was buoyed by Kazakhstan’s launch of gas supplies to China in late 2017, which are expected to reach 10bn cubic metres (bcm) per year.
e export plans follow a recent transfer of power in Kazakhstan from long-time ruler Nur- sultan Nazarbayev to Kassym-Jomart Tokayev. During his three decades in power, Nazarbayev
advocated warmer ties with China while also remaining on good terms with Russia and the West.
A uent Mandarin speaker, Tokayev is antic- ipated to continue his predecessor’s foreign pol- icies, potentially pulling Kazakhstan closer into China’s orbit or, at the very least, maintaining good relations at a time when the treatment of ethnic Kazakhs in China is a source of tension.
For China, extra Kazakh oil would help bol- ster energy security in Xinjiang region as well as at a national level.
Import agenda
China has been talking about boosting pro- duction in the remote western region for years, with the intent being that greater local oil ows will underpin future economic growth while reducing its growing reliance on eastern China’s oil elds as well as Russian and Central Asian crude.
In 2018, CNPC outlined plans to spend more than CNY150bn ($21.77bn) by 2020 to boost the region’s oil and gas production. e company’s Xinjiang oil productions amounted 11.45mn tonnes (229,000 bpd) in 2017. In May, CNPC unit PetroChina said it had drilled 47 wells in the Jimsar shale oil reservoir this year. e reserve contains an estimated 1bn tonnes (7.33bn bar- rels) of oil. Production is projected to reach 1mn tpy (20,000 bpd) in 2021 before rising to 2mn tpy (40,000 bpd) in 2025.
But it is not clear how much of that invest- ment will be allocated to oil projects and how much will lead to natural gas developments. While the country’s oil majors have stabilised crude production over the last year and a half at 3.8mn bpd on average, investment has poured into raising natural gas output. Gas production in the rst ve months of the year climbed 12.9% to 72.49 bcm. At the same time, oil imports have continued to expand, reaching an all-time high of 10.68mn bpd in April.
China’s oil import needs are growing. Being to be able to increase ows of Kazakh and Russian oil into the country’s west would give the sparsely populated and restive region greater access to crude and increased income from transit fees. It would also increase pipe- line imports – Beijing’s preferred method of transporting energy purchases given its increased security – from friendly neighbour- ing economies.™
Russia’s ESPO pipeline system. Source: Transneft.
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