First Chinese oil import pipeline a step towards supply diversity

July 18, 2005
Amid new projections last month that growth in China’s oil demand was slowing, construction progressed on a nearly 1,000-km (621-mile) segment of a much longer oil pipeline from Kazakhstan to China’s northwest province of Zinjiang.

Amid new projections last month that growth in China’s oil demand was slowing, construction progressed on a nearly 1,000-km (621-mile) segment of a much longer oil pipeline from Kazakhstan to China’s northwest province of Zinjiang.

The line is one of several proposed projects in recent years aimed at narrowing the annual gap between oil supply and demand.

A much-debated oil line from Russian Siberia, which was set to by-pass China in favor of Japan, may still be a strong possibility for the Chinese. Chinese Pres. Hu Jintao was to visit Russia and Kazakhstan in early July to talk about the pipeline (OGJ online, June 30, 2005).

Ahead of Hu’s visit, Deputy Chinese Foreign Minister Li Huei said the leaders of the two countries have already agreed in principle for the construction of an oil pipeline from the Russian Federation.

Another possible line from Myanmar and Thailand to China appears years away, at best. All projects are part of China’s effors to diversify its sources of imported oil, more than 50% of which comes from the Middle East.

At the same time, work is under way at PetroChina Co.’s refinery and petrochemical complex in Dushanzi, Zinjiang province, to expand capacity (OGJ Online, Feb. 23, 2005) to accommodate the expected additional supplies of Kazakhstan crude oil.

New projections

The International Energy Agency in June cut its 2005 forecast for oil demand growth in the country for the second month in a row. For May, IEA reduced its 2005 growth projections for China to 460,000 b/d from 470,000 b/d for April. The revision follows an apparent 2.8% demand growth drop for April.

Figures published by the US Energy Information Administration last month show a similar leveling: Projected first-quarter oil demand in China was 6.7 million b/d, the same as for actual fourth-quarter 2004 demand. EIA projected oil demand in second-quarter 2005 will reach 7.2 million b/d where it will flatten for the remainder of the year.

Despite this slowing in demand growth, however, recent history is impressive: In 2003, China moved past Japan as the world’s second largest oil market after the US. The next year, demand grew by 15%. Over the 4 years through 2004, China accounted for 40% of the world’s growth in oil demand. And by 2025, say EIA projections, China’s oil demand to reach 12.9 million b/d.

But EIA figures and projections also underscore China’s oil needs: With projected 2005 oil demand at 7.2 million b/d, EIA projects China’s indigenous oil supply will only reach 3.7 million b/d for 2005.


This shortfall is nothing new in recent events in China, as demand there for many raw materials has sucked in supplies from around the world and driven prices outside the country to record or near-record levels. With domestic oil supplies unable to satisfy domestic demand, the country has been casting about the last few years in search of oil supplies to bridge the gap.

China has searched for more oil overall and for more diverse supplies of oil to reduce its dependence on imports from the Middle East. In addition to deals with Iran, China has discussed or cut deals with Cuba, Venezuela, Kazakhstan, Sudan, and Angola.

For some time, one high-profile project was the subject of a tug of war between China and Japan for oil supplies from Siberia. After early negotiations, Russia agreed to build a pipeline from Angarsk, in eastern Siberia, to Daqing, in northeastern China, with a capacity of 30 million tonnes/year (tpy; about 602,500 b/d). Later, Japan proposed an alternative route from Angarsk to the Pacific port of Nakhodka with a capacity of 50 million tpy.

Japan won (OGJ Online, Jan. 17, 2005).

The proposed $11.5 billion, 2,600 mile, 48-in. pipeline will extend from Taishet, in East Siberia, to Perevoznaya via Kazachinskoye, Skovorodino, and Khabarovsk. Capacity will be 1.6 million b/d of crude oil.

China, however, was not apparently left in the cold, as reports early this year said Moscow was to commit to delivering by rail about 72 million bbl of oil to China this year, 28.8 million bbl more than in 2004.

And by 2007, deliveries of Russian oil, mostly by rail, will expand to 108 million bbl (OGJ Online, Jan. 17, 2005).

Another route for oil that has received considerable attention partly because of its environmental benefits would run nearly 560 miles from an Indian Ocean port in Myanmar to China’s Yunnan province. One proposal envisions a line from the Myanmar deepwater port of Sittwe to Kunming, capital of Yunnan province.

The line would shave nearly 745 miles and a wealth of sailing time off the import route and reduce traffic of hazardous cargoes through the overworked and dangerous Straits of Malacca.

Yet another route for oil into China and a way to avoid the straits would be a pipeline route through either Pakistan or Bangladesh (OGJ Online, Jan. 17, 2005).

A Pakistan pipeline would pass near the port city of Karachi, Pakistan, to Xinjiang, while a Sino-Bangladesh oil pipeline would run from Chittagong, Bangladesh, through Tibet.

Central Asia

Among all the plans and proposals, however, one project has moved ahead: Last year saw start of construction on what will be China’s first major land pipeline import route.

After several delays as the two countries jockeyed for better terms, construction began in September 2004 on the 621-mile segment of a planned 1,740-mile crude oil pipeline that will run from Atasu, Kazakhstan, on the Caspian Sea, to Dushanzi in China’s Xinjiang Autonomous Region. Kazakhstan has previously been the only Central Asian country to export crude oil to China, virtually all by rail.

China National Petroleum Corp. (CNPC) and KazMunaiGas, the Kazakhstan National Petroleum Corp. are directing the project (OGJ, Jan. 3, 2005, p. 59). The 150-mile segment in China began construction in March of this year.

Completion of the first phase of the entire line will be by yearend. The line will be able to move about 197,000 b/d. Second phase of the project targets 2011 and could raise Kazakhstan’s oil exports to China by almost 400,000 b/d.

In preparation for greater quantities of crude oil arriving in China’s western regions and bound for the products markets in its booming eastern regions, the country has begun expanding refining and petrochemical capacities

PetroChina Co. will spend $3.29 billion to expand the capacity at a refinery and petrochemical complex in Dushanzi (OGJ, Mar. 7, 2005, p. 32).

The refinery will be expanded to handle crude oil in the amount of the new pipeline’s capacity, an expansion in overall Chinese refining capacity of nearly 10%. The new capacity is planned to be on line by 2008.