China is gradually pushing out the U.S. and the Euro-pean Union from Kazakhstan's investment market in the energy sector
Since gaining the independence, Kazakhstan, due to its highly attractive energy potential has become one of the key investment markets for the leading Western countries. And although the conditions for embedding large amounts of money from outside into the energy sector of Kazakhstan over these years have repeatedly changed, the overall attractiveness - and, above all, in terms of making signifcant profts - steadily maintained. Of course, at the initial stage (at least until the end of the 90s of the last century) the operation in Kazakhstan, including major investments to the republic, was very risky. However, those who risked at that time, not only obtained a solid proft, but maintained fairly strong positions in the investment scenario of Kazakhstan also for the present time.
But the situation of the last few years in the investment climate of the energy sec-tor of Kazakhstan has gradually changed. And a common vector of orientation that was aimed exclusively to the Western loans (primarily the U.S., Canada, EU, Australia) became more and more shifted to Asia, and particularly - towards China.
America is still the most important investor to Kazakhstan's energy sector. But is unlikely to remain so for the nearest future
Several years ago, the total amount of foreign investments into Kazakhstan's economy amounted to $ 97.6 billion, and the lion's share of these funds went exclusively to the oil and gas sector. It is worth noting that the United States were signifcantly ahead of all other foreign investor countries at that time (above all - going after them EU members, Netherlands, the United Kingdom, France and Italy) in terms of assets embedded to the Kazakhstan’s energy.
It is also worth considering the fact that for the mineral resources extraction there was accounted for about 15% of the total amount of $ 137 billion invested to Kazakhstan from abroad. At the same time the energy companies from the United States invested $ 9.34 billion just to the extraction of natural resources, including $ 1 billion invested into Kazakhstan's oil sector by leading U.S. energy giants as Chevron, Exxon Mobil and ConocoPhillips.
Overall, U.S. companies have invested to oil and gas sector of Kazakhstani economy more than $ 11 billion. And perspectives of working in the republic they had always evaluated as quite comfortable, which do not cause them any fear.
It was connected mainly to the fact that over these years in the country there was remained a stable political environment; U.S. companies, even if there were some problems (they were especially uncomfortable of a high-level corruption, frequently changing legislation and other interference), still reliably received high profts.
And the common vector of political and economic cooperation between Kazakhstan and the United States (the same for the Republican or Democratic administration in the White House) gave a clear signal to U.S. companies operating in the energy sector, to preserve and expand the investment cooperation. It is also important that from the start of working in the Kazakhstani market U.S. energy companies had not actually met any particular competition not from Russia, nor European partners, nor the neighboring Central Asian infuential powers (such as China, Turkey or Iran). However, over the last years, the situation of increased competition in the Kazakhstani energy market had created a lot of problems for U.S. companies, and in the future there will be more and more.
Kazakhstan's «Path to Europe» through «big power»?
Another important investment contributor to Kazakhstan's energy sector is still European Union.
Leading European countries also actively use the expansion of economic cooperation and trade with Kazakhstan of all kinds - especially to strengthen its presence throughout Central Asia. In addition, the European trade with Kazakhstan in terms of volumes greater than analogous indicators of the other four countries of the region taken together.
For Kazakhstan, the expansion of a diverse collaboration with the European Union, including - the energy sector, makes it possible to rapidly implement defned by Astana at the highest political level «Path to Europe». It means the modernization of the Kazakhstan state with benchmarks to key European values and «common rules of a game». And «big power» in this area provides the republic substantial assistance, and additionally motivates the unifed European leadership in Brussels to forge tighter ties with Kazakhstan in all areas.
The French and Italian energy companies show a special interest for the Kazakh energy. So, the French energy company «Total» has 16.8% of shares in an international consortium that develops the Kashagan oilfeld in the Caspian Sea. Due to the fact that, in general, Kashagan is the largest oil feld in the world, opened over the last 30 years (and from the start of operation by 2015 oil production in Kazakhstan will increase to 60 million tons), the French and the Italians
are intended to long-term working in the republic and participation in the development of its energy natural resources. Let me note that more than 40% of all foreign investments to Kazakhstan are com-ing from EU countries. Two-thirds of this volume exclusively fall to investments in oil and gas sector of the country. It's also im-portant that Kazakhstan provides for today more than 20% of the energy needs of the European Union, and by 2015 this number could rise to the quarter of energy supplies needed by the united Europe.
Without a doubt, one of the most important connecting links between Kazakhstan and the EU, is the idea of laying the Trans-Caspian pipeline within the framework of the «Nabucco» project. Brussels is hoping that Kazakhstan therein will be still involved, and by this way the volume of energy cooperation between the two sides could dramat-ically increase.
In this case, for their part, the European companies would increase their investments (and they have been repeatedly requested of this by Kazakh side at the highest level) into new technologies (and not only in oil and gas) and non-energy sectors of the economy of the country. But just in the case, of course, if Astana connects to the «Nabucco» project, and through its own channels motivates its Central Asian neighbors and Azerbaijan for the participation in the project.
Yes, here it is certainly needed to consider the fact that Kazakhstan plays not a leading role in commercial hands of «Nabucco», because the main «gas players» here for Europe are Turkmenistan, in part - Uzbekistan and Azerbaijan. But political power of Astana and personally of President Nursultan Nazarbayev in this region is very high, which may under certain circumstances pro-vide the «Nabucco» some support.
For Europeans, it is also important that Kazakhstan coordinate its energy policy with neighboring Central Asian countries, and attract European companies to the region for establishing delivery of energy resources to European markets. Such cooperation is carried out within the framework of the in-ternational project TRACECA, as well as the programs of «International transportation of oil and natural gas to Europe».
Also, it is essential that European energy companies have already settled, and accustomed to work in new conditions of Kazakhstan. And, taking into account, the close political ties between the EU and Kazakhstan, energy cooperation - including the invest-ment area, is quite promising for the future. But now, it slightly «dipped» due to serious fnancial and economic problems facing the European Union.
But Astana and Brussels preserve the general vector for understanding and cooperation, although the amounts of such cooperation will be gradually declining for quite objective reasons. And one of them - a remarkable upsurge from China in working on investment projects in the energy sector of Kazakhstan.
Beijing calculates the Kazakh energy sector "for long"
The current economic relations between China and other countries, especially in the feld of the energy sector, are based exclusively on a pragmatic ground, deprived of frills of «high politics» and, as a rule, are based not only on a «friendship on business
down», but also on strong and reliable political contacts at the «top». Exactly these components of strengthening the position of China in Kazakhstan together with the importance of getting from Astana mineral and energy resources have played a crucial role in the current state of investment cooperation between Astana and Beijing.
In fact, ever since gaining the independence of Kazakhstan, the Chinese government has paid particular attention for cooperation with its Central Asian partner. All these years on the level of heads of the states and heads of the governments there remained very close personal ties, regardless of who held these offces at various times. Also important the fact that over the past time, the Chinese offered Kazakhstan lu-crative fnancial conditions for the imple-mentation of all oil and gas deals without exception, in comparison with American, European and Russian competitors. Symbolic, and in many ways a breakthrough in this area is considered a visit of Chinese President Hu Jintao to Kazakhstan in August 2007, that laid the foundation for a gradual strengthening of the Chinese presence in the energy sector of the country. In this case, an important part of cooperation between Beijing and Astana was the laying of pipelines to transport crude oil and natural gas from Kazakhstan to industrial facilities of Xinjiang Uyghur Autonomous Region of China.
In this regard it should be noted that nei-ther Russia nor the U.S. nor the EU countries have not offered Kazakhstan an active construction of new pipeline routes (no one remembers anything about the Caspian pipeline to Russia) and much less they were going to invest to them. China for its part stakes at a long-term cooperation in the «pipeline diplomacy» - and even less for the near than for longterm perspective.
According to American experts, another major attractive aspect of Chinese investment expansion is the fact that Chinese companies always overpay for the acquisition for those or other oil and gas assets in Kazakhstan. By what, on the one hand, they cut off their direct competitors from the energy deals (USA, EU. Russia), on the other hand – they more often get a carte blanche for future work from the Kazakh side. Thus, in order to capitally penetrate to Kazakh energy market, China deliberately offers a much larger amount at acquisition of certain energy assets in the country (for example, for the purchase of «Nations Energy» Chinese offered $ 4.18 billion). Plus, China had intended to buy the American oil company Unocal through which they planned to enter into several energy projects of Kazakhstan.
It is also signifcant that at the beginning of this century, China did not appear almost at all in the list of investors of Kazakhstan and even more so - in the energy sector. But for the rapid development of China's economy Beijing became more actively looking for sources of energy. And Kazakhstan, like other Central Asian countries, was the frst in «the Chinese energy object-glass» due to the close borders of China's geographic location, and a relatively organized system of Soviet refning and transportation infrastructure.
Chinese oil companies started to behave in Kazakhstan so successfully and actively that last year they participated almost in half of extraction of all Kazakh oil. Joint ventures with Chinese participation extracted 22 out of 40 million tons of oil in Kazakhstan. And companies that are completely controlled by Chinese capital extracted 18 million tons of oil from Kazakhstan's subsoil. As a result, we can confdently say that the Chinese «oil investment pressure» in Kazakhstan was of the fastest time of implementation, and of volume growth. For example, in 1999, China had invested to the oil sector of Kazakhstan only $ 5 million. But last year it increased more than a hundred times - $ 550 million China invested to oil and gas sector of the country.
Only over the last fve years, Chinese companies have acquired so many assets in the oil feld of Kazakhstan that today they control about 1 billion tons of oil reserves of the country. Among the largest investment projects undertaken by China in Kazakhstan, it is worth to mention the acquisition by the China National Petroleum Corporation 70% of shares of «PetroKazakhstan»; there is a Chinese interest in the Karazhanbasmunaioil feld which has proven reserves of 46.6 million tons of oil and in some other projects. We must not forget that in addition to oil and gas sector, China also very actively invests enormous sums to mining and metals industry of Kazakhstan. Since the end of 90s of the last century, China's investments to Kazakhstan exceeded the amount of $ 3.6 billion, making China the eighth foreign investor in the country in terms of volume. In this case $ 1.3 billion China invests exclusively to the mining industry of Kazakhstan's economy.
And therefore it is not surprising that almost all of Kazakhstan's exports to China - a raw, frst of all - energy raw. Oil and gas is about a half of Kazakhstan's exports to China, and Chinese themselves over the last few years in exchange for Kazakh raw materials actually turned the republic into the extremely proftable for themselves a market for Chinese goods.
Again, unlike Europe, USA and Russia that cannot boast of these "market achievements" in Kazakhstan, China not only gradually presses the Kazakh market under itself with goods, but also uses the republic's territory for transshipment of goods to the entire Central Asian region as well as surrounding areas of Afghanistan, Russian Siberia, the Urals and the republics of Transcaucasia. Recently China signed an agreement with Kazakhstan on cooperation in the feld of renewable energy sources, co-fnancing the second stage of gas pipeline from Kazakhstan to China, and loan agreement on the reconstruction of an oil refnery plant in Atyrau, Western Kazakhstan. Also, the case of pipeline cooperation between the two countries comes at an accelerated pace.
One gas pipeline, which is 1304 km long, from the Kazakh-Uzbek border to the border with China is already laid. There is completed an installation of the second stage of the pipeline which length is 1,500 km (its throughput capacity - 10 billion cubic meters. of natural gas) through Beineu, Bozoy, Shalkar and Samsonovka to the western regions of China that thereby makes it possible for Beijing to get oil and gas from the region of the Caspian Sea (and so in the future to connect Turkmenistan and Azerbaijan to these projects and supplies). It may also be noted the fact that the gas feld of Zhanazhol in Aktobe region is also potentially attracting Chinese companies for possible investment. But the volume of deposits is unlikely to suit the Chinese in terms of long-term gas supply (which is for the Chinese - the main priority).
According to experts over the next two or three years, the Chinese investments to the energy complex of Kazakhstan will exceed 20 billion and it is important to note that unlike Russian and Western investments, the money comes from China to Kazakhstan always without any infuence of politics and ideological «binding».
China traditionally has never discusses the granting of loans to Kazakhstan in a «pack-age» with human rights, freedom of press, of assembly and political parties, and many other «similar conditions» that are always at the forefront in Washington and Brussels. So, without a question, the fund, «Samruk-Kazyna» received from the State Bank of China a credit of $ 3 billion, and also there was granted a Chinese loan to Kazakhstan in $ 5 billion for the construction one of the petrochemical complexes. And there are still a lot of China's investments for uranium mining, the development of the nuclear industry and other energy projects of Kazakhstan.
In general, the overall strategy of China in feld of investment to the energy complex of Kazakhstan in comparison with similar policies of the U.S., EU and Russia looks more purposeful, calculated for the long term and in fnancial terms more proftable for Asta-na. Further implementation of this policy of Beijing could be prevented by a heightened anxiety of the Kazakhstani government about the excessive Chinese control over the Kazakh energy complex with the help of «long-yuan», and any serious disruptions on world energy markets in the future.