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. Last Updated: 07/27/2016

China, Kazakhstan Agree to Link Pipe to Caspian

APHu shaking hands with Nazarbayev during a departure ceremony for the Chinese leader at Astana airport Saturday.
ASTANA, Kazakhstan -- China and Kazakhstan agreed Saturday to expand an oil pipeline that will link China to the Caspian Sea, giving Beijing direct access to an energy-rich region controlled by Kazakhstan.

China has become increasingly assertive in Central Asia, viewing neighboring Kazakhstan, an ex-Soviet state the size of Western Europe, as a key source for raw materials to fuel its booming economy.

Chinese President Hu Jintao, in Kazakhstan on a state visit, agreed with Kazakh counterpart Nursultan Nazarbayev to expand the Atasu-Alashankou pipeline by 700 kilometers westward to link it to the Caspian Sea, home to many Kazakh oil and gas deposits.

"These are really big projects, and today we reached agreements on these matters," Nazarbayev told reporters alongside Hu in the capital, Astana, after signing agreements on cooperation in energy, metals and other sectors.

Hu and Nazarbayev also agreed to route a proposed new gas pipeline from Turkmenistan to China through Kazakh territory, embedding Kazakhstan as a transit nation after months of talks.

The pipeline is due to be built by 2009 and pump 30 billion cubic meters of gas to China.

The agreement signed by Hu and Nazarbayev followed last month's agreement between China and Turkmenistan on a 30-year gas contract. China and Turkmenistan had already agreed to build the pipeline, but gas prices had not been determined.

Turkmenistan's natural gas reserves of 2.8 trillion cubic meters, the second biggest among all ex-Soviet republics after Russia, are a major prize in the region.

But Turkmenistan has been forced to export its gas through Russia and Ukraine, which have their own gas companies that have squeezed out their smaller rival. Turkmenistan is eager to break free from Russia's influence and sees exports to China as one solution.

The existing $800 million, 966-kilometer oil pipeline, from Atasu in Kazakhstan to Alashankou in China, is part of Beijing's plan to strengthen energy supplies through more long-term contracts from oil producers.

China sees its expansion as a step toward entrenching itself in Central Asia, where energy trade is dominated by Russia and most of the pipeline infrastructure sends Caspian oil and gas west to Europe rather than east to the growing Chinese market.

Kazakhstan has been careful to pursue equally pragmatic contacts in both directions.

"We are strengthening our eastern direction but that does not mean we are weakening our western direction," Uzakbai Karabalin, president of Kazakh state oil company KazMunaiGaz, told reporters after the Hu-Nazarbayev meeting.

He said the Caspian extension could be built as soon as 2009 but did not say how much it might cost. Analysts say the pipeline can send China 5 million tons of Kazakh oil per year and could be expanded to supply four times as much.

As for the Turkmen project, Karabalin said the Kazakh part of the pipeline, which will run through the south of the country, was also likely to be completed by 2009.

"Our plans are very aggressive," he said.

Separately, Hu and Nazarbayev agreed to work closer in the steel sector, signing a deal to supply iron ore from Kazakhstan's Sokolov-Sarbai plant, part of the Eurasian Natural Resources Corporation, to China.

They also agreed that the Export-Import Bank of China would extend a $292.8 million, 10-year loan to the ENRC, a Kazakh metals major considering a float on the London Stock Exchange, to help finance construction of a primary aluminum plant in Kazakhstan.

ENRC is building the 250,000-ton smelter in the northeastern city of Pavlodar and expects production to start next year. ENRC already received a $1.48 billion loan in July to help fund its expansion.

The Kazakh government, which owns 24.8 percent of ENRC, in March said that it planned to sell shares to local investors before an initial public offering in London. The rest of the company is owned by Alijan Ibragimov, Alexander Machkevich, Patokh Chodiyev and Kazakhmys chairman Vladimir Kim.

ENRC, which runs five iron-ore mines in Kazakhstan, also agreed to supply the steelmaking raw material to a new venture in China. The company will sell an unspecified amount of iron-ore concentrate to a new plant set up by International Mineral Resources of the Netherlands and China's Jiuquan Iron & Steel Group. The venture will make rolled steel and steel pipes in northwest China. Kazakhstan borders China, the world's largest consumer of commodities such as iron ore and copper.

Reuters, AP, Bloomberg