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ANALYSIS-Kazakh oil flows shift east to China
March 7, 2013 / 1:26 PM / 5 years ago

ANALYSIS-Kazakh oil flows shift east to China

* Kazakhstan links Caspian Sea with pipelines to China

* Oil from giant Kashagan field may flow both East and West

* Kazakh deliveries to China to rise by fifth in 2013

* Rosneft also considers supplying China through Kazakhstan

By Alla Afanasyeva and Gleb Gorodyankin

MOSCOW, March 7 (Reuters) - Kazakhstan is reversing the flow of oil in pipelines east to ramp up sales to China, from west through Russia to Europe, dealing a blow to Moscow in its battle with Beijing for control of Central Asian energy resources.

Russia previously lost its grip over billions of dollars of natural gas flows from neighbouring Turkmenistan, when the country diverted production to China and Iran.

In Kazakhstan, the shift in oil routes comes before an expected jump in output later this year, when production starts at one of the world’s largest fields, Kashagan, by a group of major oil companies including Exxon Mobil and Royal Dutch Shell.

“The European market is saturated, so it is better for them to divert oil to China ... Especially given that the shale revolution (in the United States) will divert oil from the Middle East, Africa and Latin America to Europe,” said Valery Nesterov, an analyst at top Russian bank Sberbank.

“Asia remains the only promising market,” Nesterov said.

Russia, the world’s largest oil producer, has been the main transit route for crude from Kazakhstan since the collapse of the Soviet Union, taking flows of around 300,000 barrels per day through Transneft, Russia’s state-controlled pipeline monopoly.

CPC, a private Chevron-led consortium, also has been exporting some 600,000 bpd of Kazakh crude via Russia over the past decade to the Mediterranean markets.

Oil volumes piped by CPC and Transneft were expected to double later this decade after Kazakhstan launches Kashagan. But that is far from certain now as China, the world’s largest energy user, increases its imports.

“The plans remain just plans; there is no progress so far,” Transneft spokesman Igor Demin said when asked about plans to increase the capacity of the 300,000 bpd Atyrau-Samara pipeline.


China first imported large volumes of oil from Kazakhstan in 2005, when it built the 965 km (600 miles) Atasu-Alashankou pipeline to bring 200,000 bpd from fields in central Kazakhstan to China’s northwest.

Since then volumes have remained largely unchanged, but changes in Kazakhstan’s pipeline system point to a big rise in flows towards China in the future.

Three years ago Atasu was connected to the Kenkiyak hub of fields in western Kazakhstan with 1,100 km (680 miles) of pipelines, effectively crossing the entire vast central Asian nation.

This year, Kazakhstan reversed flows along the existing 450 km (280 miles) link from Kenkiyak to the Caspian port of Atyrau to pump oil east instead of west.

That means that a pipeline that used to transit oil from fields in the country’s center towards Russia and the Caspian Sea can now take flows in the opposite direction all the way to the Chinese border.

Industry sources say that, thanks to the reversal, flows to China are due to rise by 20 percent this year to some 240,000 bpd.

This was effectively confirmed by January data from Kazakhstan’s oil and gas ministry, which showed a spike in supplies.

In the long term, Chinese imports will double and could rise at an steeper pace should new projects such as Kashagan decide to use the route for export.

“We are considering all options to evacuate oil from Kashagan, including Alashankou,” an official at the Kashagan consortium said on condition of anonymity because he is not allowed to speak to the press.

Kashagan has focused mainly on European oil export options. The field should produce 300,000 starting from 2013, gradually rising to around 1 million bpd. Besides Exxon and Shell, the group’s members include Kazmunaigaz, Eni, Total , ConocoPhillips, and Inpex.


Rising Kazakh shipments to China will reduce the revenue of Russia’s Transneft, which needs to generate healthy profits to complete its own ambitious projects such as a new link to the Pacific coast.

The bad news doesn’t stop there as the rapid expansion of Kazakh pipelines encourages Russian producers to divert some volumes away from Europe towards China through Kazakhstan.

Industry sources told Reuters last month Russia’s top oil producer Rosneft wants to raise billions of dollars from China in loans guaranteed by oil deliveries.

Rosneft is offering a combination of routes, which could include increased deliveries through an existing pipeline from Russia, from a Russian Pacific port as well as extra deliveries via Kazakh pipelines.

The plan caused dismay at Transneft, which says it will lose $180 million in annual revenues if 100,000-140,000 bpd of Russian oil is diverted to China through Kazakhstan.

“This will be a straight direct loss to us,” Transneft’s boss Nikolai Tokarev said last month. “Maybe oil firms will benefit, but the idea is problematic.” (Writing by Denis Pshenichnikov; editing by Dmitry Zhdannikov and Jane Baird)

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