Kazakhstan Plans to Start Refining Crude in China

04.10.2012 -

Kazakhstan plans to begin processing some of its crude oil in China this year to make up for a shortfall in domestic refining capacity, a senior government official said on Thursday.

Deputy Oil and Gas Minister Bolat Akchulakov said Kazakhstan planned to send between 1.0 million and 1.5 million tons of crude per year for processing in western China. Light oil products would be delivered back across the border, he said.

"The volumes for the tolling operation will match the deficit of oil products on the Kazakhstan market," Akchulakov told a news conference. "We would like to begin this year."

He did not specify how much crude might be shipped by the end of this year.

Kazakhstan, the largest former Soviet oil producer after Russia, began seeking alternative ways to refine its crude after a temporary drop in Russian supplies led to a prolonged summer gasoline shortage in the Central Asian country last year.

It has three refineries, two of which are owned by state oil and gas company KazMunaiGas (KMG). Ownership of the third refinery, Shymkent, is shared between KMG and Chinese state-run CNPC.

Their combined capacity to process 14.5 million tons of crude per year is insufficient to meet domestic demand. KMG has launched a $6 billion program to upgrade the refineries by 2015 and raise combined annual capacity to 19.5 million tons.

The upgrades will also allow Kazakhstan, holder of 3% of the world's recoverable crude reserves, to raise the quality of its refined products to meet Euro-4 and Euro-5 emissions standards.

China's Export-Import Bank agreed in June to supply a $1.13 billion loan to help finance an upgrade of the Atyrau refinery. China's Sinopec Engineering is overseeing the $1.68 billion project.

Kazakhstan expects to produce 81 million tons of crude oil this year and to raise output to 130 million tons per year by the end of the decade, an increase of 60% driven by three large projects.

The Kazakh oil and gas ministry has said the Chinese refineries would be located relatively close to the border with Kazakhstan, in the Xinjiang autonomous region.

PetroChina dominates oil and gas production in Xinjiang, with its Dushanzi, Urumqi and Karamay refineries.

Rival China Petroleum and Chemical Corp (Sinopec) plans to invest $8.4 billion by 2015 to boost its refinery capacity and build up production in the region, a plan that includes doubling capacity at its Tahe refinery.