Kazakhstan: A Lynchpin of the Sino-Russian Oil Trade?
Russian oil shipments to China through Kazakhstan have grown over the years. Is this trend sustainable and meaningful for the Sino-Russian relationship?
By Jordan Bekenstein, Analyst
Kazakhstan is a key transit state in the Sino-Russian oil trade, with Russia sending around 10 million tons of oil to China per year through the Kazakhstan-China Pipeline (KCP). While being a transit state brings in revenue, in order to be profitable, the relationship has to be long-term to pay off initial infrastructure costs.This is especially worrisome in a world where the long-term effects of COVID-19 on oil demand are yet to be seen and the seriousness of China’s 2060 net zero emissions pledge is yet to be tested. While there is big talk around Sino-Russian cooperation and deals, how much substance is there to this and is this seen as important by local media in Kazakhstan?
While there is big talk around Sino-Russian cooperation and deals, how much substance is there to this and is this seen as important by local media in Kazakhstan?
This article looks at media sentiment to examine how much Kazakh media has focused on Rosneft over the past decade. When considered along with the development of Sino-Russian energy relations, we can better understand what’s below the surface of increasing oil shipments to China and the future of energy relations among these three countries.
The Growing Role of the KCP in Sino-Russian Oil Trade
As China and Russia have grown closer, more oil has been shipped to China over time. The KCP, an important pipeline in this oil trade, was completed in 2005 after years of negotiations starting in 1997. Russian oil was then transported to China through this pipeline since oil fields in Kazakhstan were still being developed. This arrangement lasted until 2010, after which Russian oil ceased transiting Kazakhstan to go to China for economic reasons.
On June 21, 2013, however, Rosneft and CNPC signed an agreement to ship Russian oil through the KCP to China. Thereafter, for the period 2014–2017, Rosneft sent 21 million tons of oil to China via this pipeline. This was equivalent to 6 million tons per year or a bit more than a quarter of the KCP’s annual capacity of 20 million tons.
In 2017, Russia and China agreed to an extension to the deal through December 31, 2023. The extension deal envisions that for the period 2018–2023 Rosneft will send 70 million tons of oil to China via the KCP or about 14 million tons per year.
Despite Deal Extension, Kazakh Interest in Rosneft is Falling
Rather predictably, Rosneft was mentioned most in Kazakh media shortly after the initial deal was signed in 2013 and shipments started in 2014, and then again in 2017, when the extension was signed. After 2017, however, mentions of Rosneft dropped off dramatically. This suggests that either events with Rosneft have been quieter since the deal was signed or that interest has dropped off.
A closer look at overall sentiment toward Rosneft in Kazakh media suggests declining interest. Kazakh sentiment towards Rosneft is largely lukewarm, but varies by source. More business-focused media sources, such as Kapital and Inbusiness, mentioned Rosneft more in 2014 and 2017 than in other years, and interestingly, both were more negative about Rosneft compared to typical sentiment scores for the papers in 2017. This raises interesting questions, especially when compared to state-owned Kazinform, which went from comparatively negative sentiments in 2016 to overwhelmingly positive ones in 2017. This suggests strong state support for the deal despite lower interest among the business community, which is understandable, considering the actors involved are all state-owned.
A closer look at overall sentiment toward Rosneft in Kazakh media suggests declining interest.
Kapital’s overall sentiment of Rosneft does not stand out as particularly positive compared to other outlets. By comparing coverage of Rosneft to what is typical for Kapital, however, we can see that although the outlet reports less favorably about Rosneft compared to other subjects, sentiment rose overall in 2013 when the deal was signed, signalling optimism about the deal. Nonetheless, in 2017, sentiment worsened compared to normal for Kapital because of other negative news about Rosneft unrelated to the deal extension, such as a gasoline shortage.
Much is made in Western media about Rosneft selling oil to China, but despite the 2017 extension of the deal and optics around increasing oil shipments, reality paints a different picture from the hype. Although the deal extension in 2017 called for 14 million tons of oil per year going through the KCP, total throughput in 2019 was just 10.8 million tons, compared to a maximum capacity of 20 million tons. Meanwhile, there have been several negotiations and renegotiations of tariffs for transporting Russian oil through Kazakhstan that suggest the venture is not particularly profitable for some of the involved actors in the first place. The fall in mentions of Rosneft seems to suggest that expectations have not been fulfilled. For example, earlier in 2020, shipments of Rosneft oil to China through KPC had to be halted because of issues with chlorine in the oil.
Implications
For Russia, Kazakhstan, and China, the energy relationship among the three countries seems to be solidifying. About a third of Russian oil shipments to China go through the KCP. Should KCP oil shipments continue or even increase past 2023 this may indicate a continuing deepening of the relationship between Russia and China, and an increased role for Kazakhstan as a transit state. Furthermore, we can see that decisions affecting issues of oil shipments from and through Kazakhstan to China are more political than economic. This is reflected in the media sentiment seen above, as well as in reporting about tariff disputes and general lackluster economics of the project compared to other possible markets. The poor economics is evidenced by the fact that Russia stopped using the KCP from 2010 to 2013. The major actors in the 2013 deal — Rosneft, KazMunayGas, and CNPC — are all state-owned, and from this we can see that politics trumps economics.
The underwhelming volume of oil transiting through Kazakhstan coupled with the general disinterest in Kazakh media suggests that this oil deal isn’t all that it’s made out to be.
At the same time, the underwhelming volume of oil transiting through Kazakhstan coupled with the general disinterest in Kazakh media suggests that this oil deal isn’t all that it’s made out to be. There is no glowing coverage of Rosneft in Kazakh media except for when the 2013 and 2017 deals were signed. During other years, reporting on and discussion of transiting Russian oil is almost nonexistent. This is certainly odd, considering that more than half of the oil going through the KCP, a major project, comes from Russia, and this deal is set to lock in tens of millions of tons more oil being shipped to China until 2023. A final concern is whether the KCP will ever operate at full capacity, considering general weakness in the global energy market. This question bodes ill for prospects of Kazakhstan serving as an energy bridge between Russia and China.
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ABOUT THE AUTHOR
Jordan Bekenstein is an analyst at Hillhouse Analytics. A graduate student at Georgetown University, studying Eurasian, Russian, and East European Affairs, he has particular interest in Sino-Russian cooperation and competition, as well as political legitimacy in the post-Soviet space. He speaks Russian and Mandarin and previously spent two years teaching English in Harbin, China.
ABOUT HILLHOUSE
Hillhouse Analytics specializes in sustainable development, infrastructure, and energy analysis in frontier markets, helping organizations understand today’s challenges and opportunities. To learn more about retaining our team for custom analysis and reports, please click here.
