Crude oil from Kazakhstan began flowing into Xinjiang in Northwest China yesterday (May 25) the first time a pipeline has been used for imports.

Experts say the piped oil would increase supply, improve energy security and provide an ideal outlet for Kazakhstan's exports.

The first-phase 962-kilometre pipeline which originates in Atasu, Kazakhstan was completed late last year at an expenditure of US$700 million. The two countries split the construction costs.

The pipeline will pump 10 million tons of crude a year, the amount doubling when the project is completed in 2011, linking Atyrau on the Caspian Sea. The total length of the pipeline would then be around 3,000 kilometres.

The pipeline is designed to eventually carry 20 million tons annually, equivalent to 140 million barrels.

"It means a lot for China's oil security," said He Jun, a Beijing-based energy analyst at Anbound Consulting. "Twenty million tons are about one-sixth all of China's imports."

China imported 127 million tons of crude last year, which made up about 40 per cent of total consumption.

Liu Hequn, a senior analyst at the planning institute of China National Petroleum Corp, said the pipeline was also a timely boost for China at a time when it is in talks with Russia for a proposed pipeline to deliver Siberian oil to the northeast.

That line could be built by 2008 and carry about 19 million tons a year.

China and Russia are also in talks over a cross-border natural gas pipeline which may run through Heilongjiang in the northeast or Xinjiang, with an annual capacity of 30 billion cubic metres. Last year, China consumed about 48 billion cubic metres of natural gas.

Currently, most of China's oil imports come from the Middle East and Africa, a lengthy journey by sea and passing through the Strait of Malacca which is vulnerable to piracy or other disruptions.

Industry insiders hailed the new pipeline as beneficial to both countries.

"It provides a direct link between Kazakhstan's rich oil resources and China's robust market," said Yin Juntai, deputy general manager of China Petroleum Exploration and Development Company.

The pipeline was jointly developed by China National Petroleum Corporation (CNPC) and Kazmunaigaz, the Kazakh state energy company.

Kairgeldy Kabyldin, vice-president of Kazakhstan National Petroleum and Natural Gas Company, called the pipeline a "new paradigm of co-operation."

China has completed laying a 252-kilometre oil pipeline from Alataw Pass to Dushanzi where the refinery's capacity will be expanded to 10 million tons a year by 2008.

With crude prices continuing to stay high on the international market, the Chinese Government on Wednesday raised the prices of gasoline, diesel and aviation fuel by 500 yuan (US$62.4) per ton, a 10-per-cent rise. It was the ninth and the biggest price hike for refined oil products since July 2003.

IN THE PIPELINE

Kazakhstan, which has huge reserves in the Caspian Sea, produced 50 million tons of crude oil in 2002 (the most recent data available). About 70 per cent of its oil is exported. The country's oil output is expected to top 100 million tons by 2015.

China produced 182 million tons of crude oil in 2005, a figure expected to reach 195 million tons by the end of 2010.

The pipeline will nearly quadruple imports of Kazakh crude to 4.75 million tons, or 33.25 million barrels, this year from 1.3 million tons, or 9.1 million barrels, last year.

That amount will rise to about 8 million tons, or 56 million barrels, in 2007.

Editor: Yan