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Kazakhstan aims to ramp up oil sales to China
The Central Asian republic of Kazakhstan is looking to reverse a decline in oil exports to China, one of its main trading partners
COMMENTARY
WHAT:
Kazakhstan wants to raise exports to China to 140,000 bpd from 26,000 bpd in 2018.
WHY:
The country wants to reduce its dependence on European markets.
WHAT NEXT:
China’s appetite for crude will soak up whatever supplies Kazakhstan sends its way.
KAZAKHSTAN is aiming to signi cantly ramp up its crude oil exports to China, a er sales to its eastern neighbour slumped to a record low in 2018.
The Central Asian producer’s exports to China have declined sharply from almost 240,000 barrels per day (bpd) six years ago to just 26,000 bpd in 2018.
Speaking to Reuters last week, Kazakh Dep- uty Energy Minister Aset Magauov announced plans to turn this trend around and ramp up Chinese shipments to 120,000-140,000 bpd by diverting supplies from Europe. Kazakhstan sells the bulk of its output to markets in Europe, with much of its infrastructure geared towards exporting crude westwards.
According to Magauov, the main factor behind falling Chinese volumes has been declin- ing production at maturing elds in northwest- ern and southern Kazakhstan – many of which are run by Chinese operators. ese elds also serve domestic re neries, limiting oil available for export.
Overall production in Kazakhstan has climbed steadily in recent years, reaching a new height of 1.93mn bpd in 2018. But this growth has almost exclusively come from the country’s three biggest projects – Kashagan, Karacha- ganak and Tengiz – which are mainly operated by Western investors and sell their oil primarily in Europe.
Reversing the ow
Kazakhstan will increase shipments to China by reversing the ow of its Kenkiyak-Atyrau pipe- line, Magauov said. Operated by a joint venture between state-owned China National Petroleum Corp. (CNPC) and Kazakhstan’s KazTransOil (KTO), Kenkiyak-Atyrau currently flows oil westwards, but was built with eventual Chinese exports in mind. It is linked with the Kenki- yak-Kumkol pipeline, which together with the Atasu-Alashankou pipeline forms the 400,000 bpd Kazakhstan-China Pipeline (KCP) system. KCP is also managed jointly by KTO and CNPC.
“ e oil pumped in the other direction will be heavier. is will require upgrades in the form of building extra pumping stations,” he said, with- out specifying the project’s cost.
e pipeline’s reversal, which should be com- pleted in the second half of 2020, will connect more oil elds in western Kazakhstan with local re neries. is in turn will free up production in the south and northwest of the country for shipment to China, according to Magauov. He added that extra Chinese sales were unlikely to come from Kashagan, Karachaganak and Ten- giz, however, as their international developers were dissatis ed with China’s pricing 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.
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.
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w w w . N E W S B A S E . c o m Week 27 10•July•2019