IHS World Markets Energy Perspective | |
Significance | CNPC and Kazmunaigaz have formally signed a deal to establish a joint venture (JV) to develop the Urikhtau gas field following an earlier deal to jointly build a pipeline to transport gas from that field to southern Kazakhstan, where it will link to the existing Kazakh section of the Central Asia-China trunkline. |
Implications | The agreement on the gas field JV is another in a string of deals between the two state-owned companies as Kazakhstan and China continue to strengthen their political and economic ties via project-specific energy co-operation agreements. |
Outlook | Gas production from the Urikhtau field is expected to begin no later than 2017, but with construction already under way on a 1,475-km pipeline to connect the field to the Central Asia-China gas trunkline, the timetable for Urikhtau may need to be accelerated. |
"Blooming Ties" and Win-Win
The existing energy partnership between Kazakhstan and China and their respective state-owned companies, Kazmunaigaz and CNPC, became that much stronger yesterday (23 February) when representatives of the two companies signed an agreement to form a joint venture (JV) to develop the Urikhtau gas field in western Kazakhstan. The deal to form a 50:50 JV to develop the field was just one of a number of economic agreements signed in the Chinese capital, Beijing by Chinese president Hu Jintao and Kazakh counterpart Nursultan Nazarbayev in the context of Nazarbayev's three-day visit to the country. Energy sector agreements in particular, however, have become a cornerstone of the Kazakh-Chinese bilateral relationship, which saw trade growth of 45% year-on-year, to USD20 billion, in 2010 alone, according to China's Xinhua news agency.
President Hu was effusive in his praise for the relationship being built by the two countries, saying, that it is, "our unswerving policy to promote the Chinese-Kazakh strategic partnership that is long-lasting, stable, good-neighbourly, friendly, cooperative, and win-win". The deal to establish a JV to develop the Urikhtau field certainly qualifies as a win-win result in that regard, as production from the field—which has reserves estimated at 39.8 bcm of gas and 11.6 million tonnes of condensate—is slated to be pumped via a pipeline to southern Kazakhstan, where it will be linked to the existing Kazakh section of the Central Asia-China trunkline. Not only will gas from the field help meet gas consumption requirements in southern Kazakhstan, ending the region's need to rely on erratic imports from Uzbekistan, but it will also help boost gas export volumes from Central Asia to China.
CNPC and Kazmunaigaz previously agreed to work jointly to develop the Urikhtau field, but yesterday's agreement formalises the earlier deal and could speed up the timetable for the project. The two companies are already working together on the pipeline tie-in, with construction of the first, 1,164-km section connecting Bozoi to Shykment having begun in December of last year (see Related Articles). A second, 311-km section of the pipeline will then connect the gas field, near the city of Beyneu, to Bozoi. Construction of the estimated USD3-billion pipeline is expected to be completed by 2015, with the first stage scheduled to be ready by as soon as next year. Once it is operational, the pipeline should have the capacity to deliver at least 5 bcm of gas to Kazakhstan's southern regions, with another 5 bcm of gas available for export via a connection to the Central Asia-China trunkline near Shymkent.
Outlook and Implications
Chinese president Hu characterised the Kazakh-Chinese relationship as one of "blooming bilateral ties", and based on the string of energy sector agreements between CNPC and Kazmunaigaz alone in the past five years, one would have to say that he is right. Aside from the twin Urikhtau gas field and pipeline tie-in agreements, the two companies have joined forces to build the Kazakhstan-China oil pipeline, as well as having teamed up for a number of acquisitions of Kazakh oil producers such as PetroKazakhstan and Mangistaumunaigaz. CNPC and its fellow state-run Chinese companies may have taken an "older brother" approach to Kazakhstan, and investments in the strategic partnership have been a one-way street from China to Kazakhstan, but thus far the relationship has benefited both countries: China gets access to the energy supplies it needs to power its growth, and Kazakhstan attracts the foreign investment it requires to develop its economy.
The question now for the Urikhtau field development is whether Kazmunaigaz and CNPC will speed up the timetable for the launch of the field. Previously, Kazmunaigaz talked of producing 1 bcm/y from the field by 2017, but with the Beyneu-Bozoi-Shymkent pipeline slated to be operational by 2015, CNPC, in particular, will surely be keen to bring forward the development of Urikhtau in order to ensure gas supplies so that the pipeline does not sit empty. Aside from helping tie in a source of gas supplies from Kazakhstan to the Central Asia-China pipeline, construction of the Beyneu-Bozoi-Shymkent pipeline could also provide an alternative export outlet for other gas fields in western Kazakhstan, notably the Karachaganak field. Gas from that field in north-western Kazakhstan is currently stranded as Russia says it has no need for additional volumes as long as European demand remains weak, and thus the phase three development to bring another 16 bcm/y of gas onstream remains on hold. The future existence of a pipeline running from Beyneu all the way to the Chinese market could be a welcome alternative export outlet for Karachaganak output further down the road.
Related Articles
- Kazakhstan - Central Asia: 22 December 2010: Work Begins on Kazakhstan Gas Pipeline Tie-In to Central Asia-China Trunkline
- Kazakhstan: 2 November 2010: Kazmunaigaz Targets 1 bcm of Gas Production from Kazakhstan's Urikhtau Field by 2017
- Kazakhstan: 21 September 2010: Oil and Gas Ministry Insists Kazakh Spur on Central Asia-China Pipeline Remains on Target
- China - Kazakhstan: 8 June 2010: Kazakhstan, China to Form New JV in July to Carry Out Phase-Two Construction of Gas Pipeline
- Kazakhstan: 26 January 2010: Kazmunaigaz Says Karachaganak Phase III Cost Estimates are Growing; Kazakhstan Seeks Increased Role
- Central Asia - China: 14 December 2009: Chinese, Central Asian Leaders Celebrate Historic Launch of Gas Pipeline
- Kazakhstan - China: 9 December 2009: Kazakh President Ratifies Agreement on Gas Pipeline with China
- Kazakhstan - China: 16 October 2009: CNPC, Kazmunaigaz Agree on Joint Development of Urikhtau Gas Field in Kazakhstan
- Kazakhstan - China: 13 July 2009: Construction of Kazakhstan Section of Central Asia-China Gas Pipeline Completed
- Kazakhstan: 27 February 2008: PM Reveals Revamp to Trans-Kazakhstan Gas Pipeline, Plans Tie-In to Turkmenistan-China Route