Does China Really Control Kazakhstan’s Oil and Gas Industry?

A decade ago it was common in Kazakhstan to talk about China’s creeping takeover of the energy industry. This does not happen.

Next month will mark the 25th anniversary of a Sino-Kazakh intergovernmental agreement on cooperation in the oil and gas industry.

The state-owned China National Petroleum Corporation’s first acquisition was a 60% stake in Aktobemunaigas, an oil and gas company based in the northwest province of Aktobe. CNPC would then take over the entire company, now known as CNPC-Aktobemunaigas.

China also pledged at the time to build a 2,200 kilometer pipeline between western Kazakhstan and its own province of Xinjiang. About 150 million tons of oil have been pumped east along this route since its installation.

Since 1997, CNPC has invested more than $45 billion in Kazakhstan’s oil and gas sector, according to a paper presented at a CNPC-sponsored conference in Almaty in November.

That’s a big number, but the trend generally hasn’t pointed to growth. Proportionally, China’s presence in Kazakhstan’s oil and gas industry has gradually declined in recent years.

Since 2010, China’s share of national oil production has halved, from 31% to 16%. Cumulative investment in the oil and gas sector has also slowed from $3.7 billion in 2013 to $1.3 billion in 2021, according at the National Bank.

The latter figure represents less than 1% of investment in Kazakhstan’s energy sector. Companies based in the Netherlands and the United States are much bigger players, mainly due to their involvement in megaprojects like Kashagan and Tengiz.

Of the 61.2 million tonnes of oil drilled in 2020, only about 10.5 million tonnes came from companies controlled by CNPC. And most of that oil, about 85 percent, stayed inside Kazakhstan, according to the Almaty conference document.

In fact, most of the oil pumped from Kazakhstan to China is supplied by partly domestic companies. And China is far from being the main buyer of Kazakh oil. Of the 65.7 million tonnes of petroleum and petroleum products exported in 2021, 3.6 million tonnes went to China. Buyers in Italy, the Netherlands and France received more.

Some caution in attempting an overly revisionist assessment of Beijing’s role in Kazakhstan’s energy sector, however. Yerkin Baidarov, a senior researcher at the Ramazan Suleimenov Institute of Oriental Studies, a government-run think tank, says it’s not always easy to guess the true scale of Chinese investment.

“There are invisible investments, such as Chinese capital entering Kazakhstan via other jurisdictions, mainly via the Netherlands, as well as Kazakh companies with Chinese involvement,” Baidarov told Eurasianet.

The Kazakh government has sometimes played hardball with Western investors, especially those developing the Kashagan field. But his stance toward Chinese energy investors is no less relentless.

There are few better confirmations of this than the way authorities have repeatedly questioned CNPC-Aktobemunaigas about the kinds of transgressions typically associated with Chinese investors in Central Asia.

Last October, anti-monopoly officials determined that the company had designed a tender for the supply of pipes in such a way as to exclude all bidders except its own preferred bidder. Later, in May, prosecutors in the Aktobe region found that CNPC-Aktobemunaigas was abusing its monopoly position in the local liquefied petroleum gas market to maintain artificially high prices. And in July, environmental officials reported that the company had committed numerous waste management and pollution violations at its Kenkiyak field and had fined it.

This lead to speculation among industry observers that the government may seek to renegotiate the duration of the concession.

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Perhaps in an effort to clean up its reputation as a polluter, China is now investing heavily in green energy in Kazakhstan. The focus is on wind and solar.

There is no firm data on renewable energy projects linked to China, but according to the media, at least four of these companies have already been launched in Kazakhstan and 15 others, collectively worth about $5.2 billionare under construction.

Russia’s growing pariah status and often seemingly erratic behavior following its invasion of Ukraine has added a new dimension to the dynamics of Sino-Kazakh energy cooperation.

At the beginning of July, a court in southern Russia decided to suspend operations on the westward route of the Caspian Pipeline Consortium which Kazakhstan uses to export the vast majority of its oil. This suspension was quickly canceledbut President Kassym-Jomart Tokayev at that time nevertheless called for help American companies developing his country’s energy resources to help shore up oil export routes bypassing Russia. (On August 22, operations at the pipeline were interrupted again.)

However, this will take time. Boosting exports to the East can be a solid short-term solution.

“It seems likely that with the sanctions on Russian oil and gas, it will become increasingly difficult for Kazakhstan to continue exporting hydrocarbons to the West through channels like CPC. This creates an additional opportunity for Kazakhstan to export its oil and gas to China,” Kate Watters, executive director of Crude Accountability, an environmental and human rights watchdog, told Eurasianet.

Energy Minister Bolat Akchulakov earlier this month announcement plans to increase the annual capacity of the oil pipeline system to China by 8.5 million tons, or about 70 percent, in the coming year.

Ironically, while this option looks like a way to minimize reliance on Russia, the extra capacity can be used to serve the interests of an eastward shift by Russia’s own oil companies.

When Russian President Vladimir Putin visited Beijing in February, just weeks before embarking on the military assault on Ukraine, state-owned Rosneft sign a 10-year deal to supply 100 million tonnes of oil to CNPC-controlled refineries in northwest China. All the oil will be pumped through Kazakhstan.


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