Searching for diversity in investors and routes to export its oil and gas, Kazakhstan has opened its energy sector for further development jointly with foreign oil and gas-producing companies. Since the 1990s, Kazakhstan’s oil and gas industry has been characterized by westward orientation of oil and gas export flows. However, in the beginning of 2000s the trend of developing eastward direction of energy export has appeared. Actually, it was just a matter of time before Kazakhstan’s eastern neighbor, namely, China, becomes deeply involved in the field of Kazakh oil and gas exploration and production.
In 2015 China’s total crude oil imports increased by 8.8% to 335.5 million tons, accounting for 60.6% of Chinese total oil consumption amounted to 534 million tons. China's oil dependency reached 45% in 2006 and then grew by 2% each year. According to the forecasts of the Economics & Technology Research Institute of China National Petroleum Corporation, by 2020 the share of imported oil will increase to nearly 65% of country’s total oil consumption. Due to the fact that China has a constantly growing dependence on deliveries of energy resources from abroad it becomes clear why Chinese authorities are interested in boosting cooperation with energy-rich Kazakhstan.
To date, Beijing has become one of the main partners of Astana in the mining sector investing in the wide range of activities that include: (a) onshore and offshore exploitation of hydrocarbons under long-term concession agreement, (b) cross-border oil and gas pipelines construction for delivering resources to China, (c) modernization of domestic oil refinery (Shymkent) and construction domestic gas processing plant (Zhanazhol). The most significant Chinese investor in Kazakhstan’s energy sector is the state-owned company, China National Petroleum Corporation (CNPC) followed by China International Trust and Investment Corporation (CITIC) and China Petroleum and Chemical Corporation (Sinopec). There are also a great deal of smaller private Chinese companies as well.
The Chinese companies made the first attempts to enter Kazakhstan’s oil and gas industry in 1997. After winning a tender on the privatization of AktobeMunaiGaz the CNPC established the CNPC-AktobeMunaiGaz Joint-Stock Company owning 60.3% of its shares. The CNPC-AktobeMunaiGaz obtained the production license for the Zhanazhol, Kenkiyak Oversalt and Kenkiyak Subsalt oilfields in the Aktobe region. In 2003 the CNPC paid over $150 million for increasing its share in the company to 85.42%. Due to the sizeable associated gas production at the Zhanazhol field the CNPC decided to build the gas processing plant at the field; which made it possible to launch gas shipments from the field to the domestic market in southern Kazakhstan through the Bozoy-Shymkent section of the pipeline in 2014. (KazEnergy, 2016)
In 2002, the CNPC-AktobeMunaiGas commenced exploration in the eastern Pre-Caspian Basin. The Hope oilfield which was discovered in 2005 is considered as one of the major exploration breakthrough of the company in the past decade in Aktobe. Further expanding the oil-bearing area of the Hope oilfield created the need for construction of the oil and gas processing plant, which was finalized in 2011. (CNPC, 2014)
In 2003 the CNPC could manage purchased 65% shares of Chevron Texaco North Buzachi Inc. (TNBI) from Chevron Texaco. Later in 2004, the CNPC sold its 15% interest in the project to Canada’s Nelson Resources, thus bringing the CNPC’s share in the North Buzachi oilfield located in the Mangystau region in western Kazakhstan to 50%. (RPI, 2008) It should be admitted that later in 2005 Nelson Resources sold its share in the North Buzachi oilfield to the Russian Lukoil’s subsidiary, Caspian Investments Resources Ltd, which is developing oil fields in Kazakhstan such as the Alibekmola and the Kozhassai in the Aktobe region, as well as the Karakuduk and the Arman in the Mangystau region. However, 50% interest of Caspian Investments Resources Ltd. were sold to Chinese Sinopec in 2010. Russia’s Lukoil has closed a deal to sell second 50% shares of Caspian Investments Resources Ltd. to Sinopec for $1.087 billion in 2015. Therefore, currently the two companies, namely, CNCP and Sinopec, jointly operate the North Buzachi oilfield.
In this period, Chinese oil and gas companies started to increase their onshore and offshore producing assets in Kazakhstan. For instance, at the end of 2004, Sinopec purchased the First International Oil Company (FIOC) for $160 million from Albatross Trading Limited that was developing the Sazan-Kurak field. During the same year the CNPC bought 50% and 40% shares, in the Arman and Karakudyk fields respectively. Year 2005 proved to be the most productive year for China in this sense. Firstly, at the beginning of 2005 the China National Oil and Gas Exploration and Development Corporation (CNODC), which is a 100% subsidiary company of the China National Offshore Oil Corporation (CNOOC), the third largest oil company in China, purchased Aidan Munai for $160 million. Secondly, in 2005 Kazakhstan’s state-owned oil company, KazMunaiGaz (KMG) and the CNPC signed a Memorandum of Understanding regulating China’s purchase of a set of shares of the PetroKazakhstan Kumkol Resources. (Syroezhkin, 2012) A total outlay that the CNPC paid for acquiring 100% shares of the PetroKazakhstan amounted to $4.18 billion. However, after that the company faced claims by the KMG, which wanted to restore its owner’s rights through the approved amendments to Kazakh legislation allowing the government to interfere in the sale and purchase of available shares in hydrocarbon projects (Butyrina, 2007). According to the agreement reached with Kazakhstan's former Ministry of Energy and Mineral Resources on the issue of the PetroKazakhstan, the CNPC transferred 33% of its shares in the company to the KazMunayGaz in 2006 and retained the remaining 67% stake in the company. (CNPC, 2014) As part of the deal, the CNPC also acquired a 50% stake in the Shymkent refinery, with KMG holding the other 50%. Finally, the CNPC also acquired the right to a share of the PetroKazakhstan in other oil-producing joint ventures with its participation, namely, KazGerMunai and Turgay Petroleum.
It should be noted that after purchasing the PetroKazakhstan, the CNPC got control over the South Kumkol field and acquired 50% share in the North Kumkol field operated by Turgay Petroleum. Moreover, the CNPC had become an operator of the three fields in the South Turgay Basin, namely, the Akshabulak, Nuraly and Aksay, jointly developed with the KazGerMunay. (KazEnergy, 2016)
In 2006 CITIC paid $1.91 billion for the assets of the Nations Energy Company (CCEL KarazhanbasMunay), which operates the Karazhanbas oil field in Mangystau region. In 2007, as was the case with the PetroKazakhstan, Kazakhstan’s KMG acquired a 50% stake of the CCEL Karazhanbasmunay paying the CITIC a sum equal to $955 million.
In 2009, CNPC Exploration and Development Company Ltd and KazMunaiGaz purchased 100% of shares of the MangystauMunaiGaz from Central Asia Petroleum Ltd. The CNPC E&D bought its 50% share minus two voting shares of the company for $1.4 billion, thereby gaining the opportunity to explore onshore the Kalamkas and Zhetybay oil field.
China’s latest acquisition in the oil and gas sector of Kazakhstan was purchasing an 8.33% stake in Kazakhstan’s Kashagan Caspian offshore field. The CNPC paid over $5 billion for the KMG’ share in the North Caspian Operating Company, which is responsible for Kashagan field development.
As we can see, the Chinese investors are present across the entire country, not just in the western hydrocarbon region of Kazakhstan. Moreover, the Chinese companies mostly own mature fields, which are in a state of declining production or reaching the end of their productive lives. To date, Kashagan may be the only Kazakh field with a
Chinese shareholding that has significant production upside potential. According to Table 1, in 2015 the most successful oil and gas companies with China’s participation were the MangystauMunaiGaz, the CNPC-AktobeMunaiGas and KazGerMunay.
Table 1. Top oil and gas companies in Kazakhstan with participation of Chinese investors, 2015
Therefore, the four main assets in aggregate accounted for roughly 15.9 million tons of liquids production, which accounts over 20% of Kazakhstan’s total production in 2015.
It should be noted that not all companies mentioned in the list above has 100% China’s ownership. As a result, the Kazakh statistic agencies use specific methods for calculating China’s participation in the Kazakhstan’s oil and gas sector. As it shown in Figure 1, the Chinese equity share of Kazakhstan’s oil and gas industry increased rapidly in 2005 reaching 25% by 2009, albeit decreasing slightly in subsequent years. (KazEnergy, 2016)
Figure 1. China’s participation in the Kazakhstan’s oil and gas sector
Source: IHS Energy
It can be concluded that while the current Chinese equity share in Kazakhstan’s total oil production is about 24% it could be changed if the Kashagan project will finally be put into operation. China’s companies, in contrast to Western ones, created joint ventures with Kazakhstan, which could bring some advantage for Kazakhstan’s economy. It is clear that a key goal for Chinese investors in Kazakhstan is to secure overland deliveries of energy resources to China by inland routes alternate to maritime shipments, which means that Beijing also has a geopolitical interest in strengthening energy cooperation with Kazakhstan. Therefore, it could be forecasted that China will continue to search for an opportunity to purchase Kazakhstan’s onshore and offshore assets in the middle-term perspective.
Lydiya Parkhomchik (nee Timofeyenko) was born on February 9, 1984 in Zelenodolsk city, located at the territory of the Republic of Tatarstan (Russia). Since 1986 she became resident of the Republic of Kazakhstan.