Kazakhstan approves expansion of China gas pipeline

By bne IntelliNews July 5, 2013

bne -

Astana has given plans to expand the Kazakhstan-China gas pipeline the green light. The move comes as Kazakhstan hands a stake in the giant Kashagan offshore field to Beijing.

A statement from Kazakhstan's presidential press office said President Nursultan Nazarbayev has ratified amendments to the 2007 agreement on the pipeline, state news agency Kazinform reported July 4. The bill will allow the construction of a third pipeline - C - alongside the existing A and B lines.

Kazakhstan put the first stage of its gas pipeline to China - with capacity of 4.5bn cubic metres (cm) per year - into operation in 2009. Line B was commissioned in 2010, adding a further 30bn cm; an increase to 40bn cm is possible on that pipeline. Construction of the third line will add a further 25bn cm of capacity, with 5bn cm intended for Kazakh consumers.

China will fully fund the $5.45bn the new line is set to cost. China Development Bank has already agreed to provide a $4.7bn loan, with the remainder to be financed by the Asian Pipeline company, reports Tengrinews. The main contractors on the construction of line C will be Kazakhstan's KazStroyService and China Petroleum Pipeline Engineering.

The Central Asian republics have increased oil and gas exports to the Chinese market in recent years. The opening of the Central Asian gas pipeline in 2008 allowed exports of the first Turkmen gas to China. In 2012, Uzbekistan began exports to the neighbouring giant.

In 2009, Kazakhstan also opened the Kazakhstan-China oil pipeline, which links existing pipelines from the Caspian basin to the Chinese border, providing a 2,228km link from Atyrau. Throughput, currently at around 14m tonnes per year, is expected increase to around 20m tonnes when commercial production starts at Kashagan.

Kazakhstan's existing infrastructure to China, and the potential to build additional links between the neighbouring countries, is believed to have been one of the factors in Astana's recent decision to block the sale of Conoco Phillips' 8.4% stake in Kashagan to India's OVL in favour of China National Petroleum Corp (CNPC). Kazakhstan and India do not share a border, and there is no pipeline infrastructure currently in place.

According to BP's Global Energy Outlook 2030, China's demand for oil is expected to increase from 7m barrels per day (bpd) in 2013 to 17m bpd in 2030, while China's gas import needs will increase by around 11% per year. Although Beijing is looking at its own reserves, as well as the potential to increase imports from southeast Asia, Central Asia is well positioned to fulfill a large share of that growing demand.

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