China buys half interest in Kazakh energy company

Saturday, April 25, 2009

By PETER LEONARD,Associated Press Writer AP - Saturday, April 25ALMATY, Kazakhstan - The rivalry between Russia and the West for Central Asia's energy resources has generated headlines. But it's Chinese companies that have been snapping up assets in the region.
State-owned China National Petroleum Corp. is acquiring joint ownership of Kazakhstan's fourth-largest energy company, MangistauMunaiGaz, which controls an estimated 500 million barrels of oil reserves. The deal, announced Monday, is expected to be completed in July.
Backed by hefty foreign currency reserves, China is doing big energy deals in Central Asia's biggest oil supplier and elsewhere as it seeks to secure future energy supplies for its growing economy.
The purchase of the stake in MangistauMunaiGaz means that Chinese energy companies will control around 15 percent of this former Soviet nation's current total oil output.
'If you compare that with the Kazakh national energy company (KazMunaiGaz), it is now almost the same share,' and that demonstrates how large China's presence has grown in the local energy sector, said Sergei Smirnov, energy writer for Expert-Kazakhstan business weekly.
As part of the deal, China National Petroleum lent $5 billion to cash-strapped KazMunaiGaz, which will own the remaining 50 percent in MangistauMunaiGaz.
CNPC bought Canadian oil producer PetroKazakhstan for $4.18 billion in 2005, the largest foreign purchase by a Chinese company at the time.
Other Chinese companies, including Sinopec and the government-owned CITIC investment company, are also involved in developing and operating promising Kazakh oil fields. By 2025, Kazakhstan is set to become one of the world's top 10 crude oil producers, reaching a potential peak output of 3 million barrels daily _ explaining why so many countries are competing to do energy deals in the former Soviet republic.
CNPC efforts to secure the MangistauMunaiGaz stake was complicated by the lively interest shown by Russian and Indian rivals, but Beijing's jaw-dropping $2 trillion foreign reserves gave it an unassailable advantage.
It is that kind of solvency that has given China the leverage to strike deals at a time when the global financial crisis has left other governments scrambling for cash. In February, China signed a long-term oil supply contract and pipeline deal with Russia worth $25 billion. Days later, Brazil agreed to supply up to 100 million barrels of crude oil a day to China in exchange for a loan of up to $10 billion.
That same month, Venezuela and China struck a deal to put an additional $6 billion into a fund used finance joint development projects in areas including oil production. Venezuelan President Hugo Chavez said the fund would in part be aimed at increasing oil exports to China from 330,000 to 1 million barrels a day by 2015.
China's growing appetite for oil imports is expanding by around 10 percent yearly _ reaching 179 million tons in 2008 _ which accounts for its campaign to buy energy assets globally.
With around four-fifths of the country's oil deliveries currently shipped in pipelines or rail cars crossing Russia, Kazakhstan's export options are limited, however.
'What we've seen from Kazakhstan in the post-Soviet period is that it's trying to diversify and reduce its reliance on Russia as an oil market and transit state,' said Andrew Neff, an energy analyst with Global Insight.
Another key element of Beijing's strategy is the Kazakhstan-China oil pipeline. When fully completed in 2011, the route will span almost 3,000 kilometers from the oil-rich Caspian coast to the Chinese border and ferry around 20 million tons of Russian and Kazakh oil every year.
China imported six million tons of oil last year through the first eastern stage of the route, which began commercial operations in July 2006 and was Kazakhstan's first oil export pipeline not to cross any third country.
While Kazakhstan's government welcomes the prospect of foreign investment amid the global economic downturn, some are concerned the country will lose control of its natural resources.
Commenting on the MangistauMunaiGaz deal, the opposition Azat party said that the government was selling off vital assets instead of protecting them for the good of the country.
This kind of partnership 'can cause irreparable damage to the economic and national security of our country,' Azat said in a statement.