WHY OIL COSTS MORE: CASE STUDIES – CHINA

Konys-Kumkol oil pipeline opens in Kazakhstan
Eric Watkins, September 6, 2007 (Oil and Gas Journal)
and
China’s key oil producers may suspend gasoline exports
August 31, 2007 (AFP via Yahoo News)

Why? Because a very energy hungry China is moving in on oil operations from the Sudan to Indonesia. This pipeline solidifies a relationship for the Chinese right in the heart of the Caspian oil and gas region, putting them in competition with Russian national oil company interests at the same time that Russian and Central Asian national oil companies are using every legitimate and cooked up excuse to move western multinationals out.

Chinese demand is as insatiable as US demand and the Chinese economy is growing 9%/year, much faster than the US. The Chinese must pursue supply aggressively. The impact on world oil prices is inflationary. (5th in the WHY OIL COSTS MORE series: KAZAKHSTAN, SAUDI ARABIA, NIGERIA, VENEZUELA, INDIA)

WHO
- KuatAmlonMunai, a 50:50 joint venture of China National Petroleum Corp. Ltd. and Kuat Holding Co.
- Sinopec and China National Petroleum Corp. (CNPC), 2 of China’s biggest oil producers

A pipeline across Asia begins with a short journey from Konys to Kumkol. (click to enlarge)

WHAT
- The joint venture will build a 45-mile crude oil pipeline.
- In order to protect China’s domestic oil supply Sinopec and China National Petroleum Corp. (CNPC) are considering suspension of gasoline exports.

WHEN
- The pipeline is expected to carry 2000 cu meters/day (12, 580 barrels/day) of oil. The joint venture’s oil production is expected to be 50% greater in 2007 than in 2006.
- The announcement of the possible gas export suspension came on August 31, as oil prices surged. (They continue to rise.) Sinopec and CNPC requested government permission in July to raise prices on refined oil products to reduce demand but were denied for fear of causing domestic inflation. But if they cut off exports in the region, the effect is likely to be the same.

WHERE
- The pipeline runs from the Konys oilfield to Kumkol in central Kazakhstan.
- Chinese exports of refined products are largely regional.

WHY
- The pipeline is expected to cost 1.7 billion tenge ($13.9 million). It will replace the transports of oil by truck and train.
The government is pressuring the oil companies to control supply to feed the domestic economy.
- China’s oil imports were 19.6% higher last year than the year before.
- China imported almost half its oil supply last year.

Anything the Chinese need to know about pipelines, they will learn.

QUOTES
- Article: “Officials said the new pipeline will speed deliveries of oil to China and will greatly reduce transport costs.”
- Article: “China's fast economic boom has sharply driven up the country's oil demand and has made it more sensitive to international price changes.”