updated 5/18/2004 9:04:01 AM ET 2004-05-18T13:04:01

The biggest oil companies in China and Kazakhstan have signed an agreement to build a 625-mile-long pipeline to deliver Central Asian crude to meet soaring Chinese demand for imported energy, state media reported Tuesday.

The deal is part of China's effort to secure foreign energy sources amid surging needs for oil and gas. It also suits Kazakhstan's aspirations to become a major oil exporter.

The agreement signed Monday by state-owned China National Petroleum Corp. and Kazakhstan's KazMunaiGaz calls for them to complete the pipeline from Atasu, in northwestern Kazakhstan, to China's northwestern Xinjiang region, the China Daily newspaper said.

It could be worth up to $850 million, according to earlier estimates.

The pipeline will be able to carry 70 million barrels of oil a year once completed in 2005, the report said. Capacity is eventually planned to double.

The deal came as Kazakhstan's president, Nursultan Nazarbayev, was visiting Beijing. He and Chinese President Hu Jintao signed an agreement for joint exploration and development of oil and gas resources in the Caspian Sea.

The two sides are stepping up consideration of plans for a pipeline to connect Caspian Sea gas fields to China, according to the official Xinhua News Agency.

"To expand and deepen cooperation in areas of oil and natural gas is of strategic importance to the economic development of the two countries," Xinhua said.

China is pursuing pipeline deals with Russia and its oil-rich Central Asian neighbors. It is offering cooperation in technology, transportation and other areas.

Beijing has also has signed long-term deals elsewhere to acquire oil and gas from Sudan, Iran and other countries.

China imported 8.3 million barrels of crude oil from Kazakhstan last year. That was up 19 percent over the year before, but only a small fraction of the country's total imports of 637 million barrels.

China's imports of Kazakh oil now travel hundreds of miles by rail to Xinjiang. A shortage of oil tankers has reportedly delayed some recent shipments.

The pipeline deal announced Monday is the second section of a 1,875-mile pipeline the two countries agreed to build in 1997. The first 280-mile section began operating in March.

Construction on the section from Atasu to the Alataw Pass on Xinjiang's border is expected to begin sometime this year, according to earlier reports.

Copyright 2004 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

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