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Chinese interest on Central Asian Energy Resources sample essay

There are several prospective predictions that can rationally be made concerning the future of the strategies and pipelines such as the China-Kazakhstan oil/gas pipeline. This must however appreciate the difficulties involved in efforts to provide reliable predictions, but from the observed disadvantages and advantages of these pipelines, we can apparently assume that existing pipelines will be continuously used to transport gas and oil. It can also be assumed that pipelines under construction will continue and be online sooner or later.

Furthermore, it is known certainly that Central Asian gas export routes are facing more difficulties than those experienced in the oil routes. This is particularly so in regard to the Kazakh and Turkmen gas which cannot currently be brought to markets except for a minor KKK and small soviet era pipelines. Political involvement has therefore taken the order of the day between countries with gas and oil reserves and those whose demands for oil and gas imports are insatiable (Harry, 2004, p. 24).

China and Kazakhstan has mutual benefit from the Kazakhstan-China Pipeline (KCP), which provides a more direct transportation route as opposed to all other proposed or existent central Asian oil routes. This is specifically so because there is no need for transit fees payment and more importantly there is no country that would close the pipe or raise fees to hold Kazakhstan’s oil hostage. Moreover, Kazakhstan is guaranteed continued market for its oil from the fact that China willingly overpays for natural resources and will not abate high oil demands in the recent future.

However, it is important to speculate the opaqueness of the Chinese government which makes China not contemplate much of the corrupt Kazakh partnership as long as oil prices are maintained on agreed terms and delivery is made on time. This though, calls for an inquiry into the economic prospects of the Chinese government from the bilateral relationship with Kazakhstan in matters related to oil energy acquisition, preservation and consumption in order to understand what the country may be up to in future (Mark, 1999, p. 19).

There have been some disadvantages in the KCP deal. The 3000km distance is fairly long to make a pipeline run efficiently even under the favorable flat terrain it passes through. There is also extreme Kazakh steppe cold in winter months. This makes the relatively low quality and high paraffin content oil low in viscosity and as thus may stop if there is a stop in the pumping stations (like that of the 2005 and 2006 winter). There are also increased maintenance and repair costs of the pipeline due to the harsh weather and length.

Furthermore, China and Kazakhstan are not in full control of the amount of oil shipped through this pipeline even though it is owned solely by Chinese and Kazakh companies. Much of the oil shipped comes from the Caspian oil fields with drilling and underwater oil explorations demanding higher technological advancement than which is possessed by Kazakhstan or China. There is particular concern about this fact in the massive Kazakhstan high-pressure fields which have substantially large, poisonous hydrogen sulfide quantities.

This may make it possible for the Italian ENI company that leads the Kazakhstan oil consortium to stop oil pumps to Chinese markets by succumbing to western pressure in the occurrence of an embargo (Joseph, 2003, p. 41). In addition, there are majority of other different Caspian fields who may be willing to supply their minority oil through the Caspian Pipeline Consortium (CPC) or via American-sponsored channels. On the same note, Kazakhstan is limited in the sense that it can only sell oil which is pumped to China through the KCP.

This has led to prospective ideas like construction of a pipeline that would penetrate to the Pacific Ocean across China. This has specifically been squashed by the virtue that China has adamantly and reluctantly refused Kazakh’s oil to be taken to the open market (Andrew, 2001, p. 57). At the same time, such a project would involve debilitating costs to the Kazakh’s economy and as thus the issue of a single buyer has not been a major issue though the Kazakh government is aware of the risks involved by allowing large chunks of its national revenue to be controlled by a foreign power.

It can only be hoped that the benefits accrued from this kind of bilateral trade relationship outweigh the risks that may occur in future. The two governments seem careful enough to safeguard their mutual interests by maintaining cohesive international relations between them. Kazakhstan on its part have shown some considerable reluctance in allowing China behold excessive control of its oil reserves. This can be specified by the fact that Kazakhstan insisted on a 1/3 KazMunaiGas holdings purchase from China in partial fulfillment of the PetroKazakhstan agreement (Jin, 2004, p.

85). KCP’s capacity may be increased by the continued increase in China’s energy needs though this cannot be precisely predicted at this time. It is possible though, from an economic and political perspective, that some Caspian oil purchase agreements may suffer some difficulties. This could particularly be ameliorated by the two nation’s closeness which sires some positive possibilities of extra trade agreements. The only major factor that can make the pipeline be denied oil is the onset of an embargo.

Additionally, there are possibilities that China may not be able to purchase all the oil from Kazakhstan directly, and this may mean an increase in the oil prices. If this happens, then the autonomy of this pipeline (which is its major advantage), may be removed. This further implies that if the two governments’ relationship sours, then Kazakhstan can easily stop the pumps, but this also seems most unlikely since the pipeline is a crucial revenue stream for the country (Soucek, 2000, p. 46). China has had long interests in buying Central Asian energy.

This has been amid fears of maritime imports reliance due to the fact that the U. S. and other navies could interdict. There have also been some unhappy experiences between China and Russia in developing china’s energy policy, which has since moved from the unbridled unilatelism especially one that has been very expensive. The fundamental reason that has caused this exploitation is that China has to pay for fields’ ownership equity and the prices thereof have been much higher than the market prices, as well as lower energy outputs than expected.

China has thus embarked on a new energy policy that is hoped to be effectively reliable and cheaper when implemented. China is, in these terms, viewed as a country that has had lessons and interests from the experiences of the multilateral organizations. Speculations are such that China may strive to erode the strategic Russo-Chinese alliance though the precarious nature of these partnerships in economic foundations of energy dimension could hamper the whole process (Reinman, 2001, p. 32). Furthermore, China seems well prepared in planning its energy security.

This is as manifested by China’s desire to dominate the KCP proceedings putting into consideration that there is an eminent global energy game in which China has conscientiously schemed to be a major player. It has also made sure that its oil reserves are always in excess of eighteen billion barrels. Its main international overseas exploration investment since the year 2000 is estimated to be approximately $40 billion through its own China National Petroleum Corporation (CNPC). Through its “string of pearls”, China is making very concerted efforts to take a lions share in the Asian oil game.

Apart from the Kazakhstan-China Pipeline dealings, the country has been considering possibilities of installing pipelines that would traverse Bangladesh and Pakistani territories. This is aimed at bypassing the Straight of Malacca through which approximately 80% of China’s oil imports pass and through which about forty percent of all the piracy in the world is executed (Tian, 2005, p. 105). Moreover, China has been more interested in the Kazakhstan oil because for one Kazakhstan holds a large recoverable oil reserve of about four billion tons and approximately three trillion cubic meters of gas.

Industrial analysts claim that it is possible for Kazakhstan to produce over three billion barrels in a day by the year 2015 if the country embarks on extensive oil production expansion as well as new fields developments. This yields a good background for China’s interest in investing in this region with particular interests being to refrain from making Kazakhstan’s oil an open market endeavor. On its part, Kazakhstan government has increased its oil deals by making sure that it increased the taxes involved in all subsequent oil projects.

Furthermore, there were several amendments that the government made to the ‘Law on Subsoil and Subsoil Use’ as a security valve in case any subsoil contract is deemed to be a threat to the country’s national security interests in economical terms. Through these amendments, the government has the right to amend or annul such offensive contracts, although the government has promised its international community that it won’t retroactively use the amendments to interfere with contracts that were already in existence before the amendment was effected (Peck, 2004, p. 78).

Along with other nations, Kazakhstan and China are members of the Shanghai Cooperation Organization which in 2000 established the Eurasian Economic Community that has re-energized harmony in trade tariffs, with creation of a free trade zone that is constituted under a special custom union. This regulates the oil dealings not only between Kazakhstan and China but also between other nations in the block (Frank, 2003, p. 27). China is relatively new in the oil import industry which is the major reason it has great aspirations to encroach itself into the Central Asian energy proceedings and politics.

The objective of this insertion is to diversify its petroleum supplies with a Chinese economy that must use about 4. 3 million barrels of oil daily. Furthermore, the Kazakhstan government enjoys autonomy in the sense that it earns a substantial dependable income away from the Russian manipulation. On the same note, China has been able to carry out its planned oil/energy strategy while at the same time utilizing and exploring foreign oil resources and developing its own domestic western oil reserves.

References:

Andrew Watson (2001) Dictionary of the Politics of the People’s Republic of China. London: Routledge, pp. 57 Frank Cass (2003). Russia between East and West: Russian Foreign Policy on the Threshold of the Twenty First Century. New York: Blackwell Publishers, pp. 27 Harry Harding (2004). The India-China Relationship: What the United States Needs to Know. New York: Columbia University Press, pp. 24 Jin Zhang (2004). Catch Routledge. -up and Competitiveness in China: The Case of Large Firms in the Oil Industry. London: Routledge, pp. 85 Mark Burles (1999) Chinese policy toward Russia and the Central Asian Republics. New York: Rand, pp. 19

Joseph Tony (2003) Asian Economic Integration. London: Rand, pp. 41 Peck E. Anne (2004) Economic Development in Kazakhstan: The Role of Large Enterprises and Foreign Investment. London: Routledge, pp. 78. Peimani Hooman (2001). The Caspian Pipeline Dilemma: Political Games and Economic Losses. Mahwah, NJ: Praeger Publishers, pp. 32. Soucek Syat (2000). A History of Inner Asia. New York: Cambridge University Press, pp. 46 Tian Xiaowen (2005). Law and Investment in China: The Legal and Business Environments after China’s WTO Accession. Routledge: London, pp. 105

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