Kazakhstan and China sign oil and gas pipelines agreement

Kazakhstan and China have agreed to build pipelines to carry oil and gas from fields near the Caspian Sea, one of the world's most promising new oil provinces, to China.

"The Caspian will be linked to western China," Nursultan Nazarbayev, the president of Kazakhstan, said after a meeting with Hu Jintao, the Chinese leader, in Astana, the Kazakh capital, on Saturday.

The agreement marks a setback for the European Union and the US, which have both urged Kazakhstan to export oil and gas across the Caspian to western markets.

The projects may also be regarded grudgingly by Russia, the dominant route for Central Asian gas exports, which is also targeting new pipelines to China.

Last year, Kazakhstan and China completed a pipeline from a field owned by Chinese National Petroleum Corporation (CNPC) in the central part of the republic to Xinjiang province, China.

That pipeline will now be connected with another CNPC field and pipeline in western Kazakhstan, creating an export route spanning the breadth of Kazakhstan from the Caspian, where CNPC is negotiating for acreage, to China.

CNPC plans to expand its presence in Kazakhstan, where it has invested $6.5bn in oil projects. But analysts said Kazakhstan's plan to limit the new pipeline to 400,000 barrels a day signalled a hesitation to over-commit oil to China.

Julia Nanay, a senior director at PFC Energy, said: "The oil pipeline to China is another element in Ka-zakhstan's diversification strategy, but the majority of the republic's oil exports will still move through Russia."

Mr Nazarbayev said the pipeline from Kazakhstan to China would also carry supplies from Turkmenistan.

The pipeline, designed to carry up to 30bn cubic metres a year of gas, will provide Central Asia with a first large non-Russian route for gas exports.

However, Kazakhstan and Turkmenistan have also agreed to build a gas pipeline north to Russia.

The Chinese Exim Bank has signed an agreement to award a $292.8m credit to Kazakhstan Aluminum Smelter, part of the Eurasian Natural Resources Corporation, the Kazakh group, to build a smelter in Pavlodar in the north of the republic.