India reassessing Kazakh relations after losing Kashagan stake

By bne IntelliNews July 9, 2013

bne -

Incensed by Kazakhstan's decision to hand the stake in the giant Kashagan field it had agreed to buy to China instead, India is reportedly reassessing its relations - including other investments in the Central Asian country's developing energy sector.

OVL, the overseas arm of Indian state oil company ONGC, agreed a $5bn deal last year to buy US energy major Conoco Phillips' 8.4% stake in Kashagan. However, Astana stalled on approving the deal, as China lobbied to take over the stake.

Following months of delay and speculation, Kazakhstan's ministry of oil and gas announced on July 2 that the government is to exercise its preemptive right to buy the stake via state company Kazmunigas (KMG). The asset will then be sold on to China National Petroleum Corp (CNPC).

Indian foreign ministry officials have now reportedly asked the Kazakh government for an explanation for the decision. They have also opened talks on future cooperation in the energy sector, Reuters reports, citing unnamed Indian government sources.

India has increased its presence in international energy markets recently as it seeks to secure supplies of oil and gas for its fast growing economy. In the Caspian region, OVL has bought into Kazakhstan's Satpaev field, as well as investing into Azeri assets.

However, there is no infrastructure linking the region to India, despite a proposal from New Delhi to build pipelines. India is also working on plans to build the Turkmenistan-Afghanistan-Pakistan-India (TAPI) pipeline, which would deliver gas from the Turkmen Caspian region to India, but the security situation in the transit countries is a clear obstacle.

By way of contrast, links to China are up and running, and being expanded. In 2009, the Kazakhstan-China oil pipeline was opened, while the opening of the Central Asian gas pipeline in 2008 allowed exports of the first Turkmen gas to China. Uzbek gas began flowing eastwards to the neighbourhood giant last year.

On July 4, Astana gave a plan to expand the Kazakhstan-China section the green light. China will fully fund the $5.45bn cost of adding a third line to the route, which will expand the current 34.5bn cubic metre capacity by 25bn cm. That existing infrastructure is believed to have been the major factor behind Astana's decision to hand the Kashagan stake to CNPC.

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