Industry and Energy

Industry and Energy

Turkmenistan-China pipeline changes energy balance

21 December 2009 08:47 (UTC +04:00)

By Alexander Jackson
Caucasus Update No. 58, Dec. 21, 2009
Caucasian Review of International Affairs (CRIA)
www.cria-online.org

China has arrived in Central Asia. That is the unmistakeable lesson of the opening of the Turkmenistan-China gas pipeline on December 12 (BBC, December 14). The 1,833 kilometre pipeline, which will carry up to 40 billion cubic metres (bcm) of gas, also traversing Kazakhstan and Uzbekistan before linking into Chinaâ€™s network in Xinjiang, was formally agreed only in April 2006. The construction of such an ambitious project in a relatively limited time-frame is a concrete demonstration of Beijingâ€™s push to secure the regionâ€™s natural resources.

â€œThe strategic significance of the Turkmenistan-China pipeline cannot be underestimatedâ€, said analyst Borut Grgic (Atlantic Council, December 18). It is hard to argue with his assessment. This pipeline could be yet another blow to the EUâ€™s Nabucco pipeline, from the Caspian to Europe: but Nabucco is already so frail that the possibility of losing Turkmen gas as well seems inevitable. Far more significant is the implications for Russian and Iranian Caspian policies, as well as Chinaâ€™s rising influence in Central Asia.

For Ashgabat, the pipeline will be a vital economic lifeline when operating at full capacity in 2012: the lack of supply to Russia is currently costing around $1 billion per month. It also opens the way for greater Chinese investment in the countryâ€™s huge but largely untapped gas fields. In the long-term, we could even see Chinese-built pipelines stretching across the deserts of Turkmenistan to Chinese-operated gas fields in the Caspian Sea. We are also likely to see a ripple effect from this project, as Kazakhstan and Uzbekistan begin plugging their own gas supplies into the Turkmenistan-China pipeline.

Iran is only peripherally involved, but will still be watching Chinaâ€™s actions closely. Currently, a single pipeline takes 8bcm of Turkmen gas to northern Iran, but another pipeline is almost complete. When both are fully operational, 20bcm per year will be flowing to Turkmenistanâ€™s southern neighbour.

If Russia begins to aggressively defend its stake in the countryâ€™s gas fields, we could soon see a three-way struggle between Moscow, Beijing and Tehran for control of Turkmen gas fields. Although Turkmenistanâ€™s resources are vast, there is still no agreement on exactly how vast they are, partly as a result of the countryâ€™s suspicions towards outside investors and unreliable, centrally-planned economy. If there are insufficient supplies to satisfy all three hungry customers, there could be serious geo-economic competition in Turkmenistan.

For Russia, the pipeline is a major blow. It will deprive Moscow of its strategic control over large-scale Turkmen gas supplies. These supplies have been suspended since April 2009 due to a pipeline explosion, blamed on technical problems arising from a pricing dispute between Russiaâ€™s Gazprom and Turkmenistan. Although Gazprom is still contracted to purchase 90% of Ashgabatâ€™s gas, when the pipeline restarts this share will be nearly halved, due to the China route and a new route to Iran (RFE/RL, December 14).

Gazprom has had a near-monopsony on Turkmenistanâ€™s gas since 1991, relying on a mixture of Soviet-era pipeline infrastructures, preferential tariffs, political pressure and economic support. But Russia can no longer rely on the legacy of the USSR to keep Turkmenistan in its sphere of influence. As the pipeline shows, there are new players in town with deeper pockets and more political capital.

The Kremlin has tried to put a brave face on matters. First Deputy Prime Minister Igor Shuvalov insisted that â€œwe support these projectsâ€ (ITAR-TASS, December 19). His boss Vladimir Putin also reassured reporters that the pipeline would not affect Sino-Russian cooperation on energy, a strategic priority for Moscow (Oil&Gas Journal, December 7). But Russia is clearly concerned. The same scenario that played out to the west of the Caspian â€“ the grasp of former Soviet energy resources by outside players â€“ has now taken place to the east.

There are also implications for Russiaâ€™s bilateral gas trade with China. Vladimir Socor at the Jamestown Foundation notes that Siberian gas supplies to China now face a competitor in the form of Turkmen gas, increasing Beijingâ€™s leverage in ongoing price negotiations (Jamestown Foundation, December 18). Chinaâ€™s increasing domination of Russiaâ€™s former dominions in Central Asia â€“ which has also included recent plans to buy up Kazakh farmland (RFE/RL, December 17) â€“ will have long-term implications for Russiaâ€™s political, energy and economic strategies. How it handles the rise of China in the region will be one of the most unpredictable trends of the next decade.

In order to keep the three Central Asian transit states cooperating with each other (not guaranteed given their history of disputes), China will have to make a firmer political commitment to the region. Just as Georgia, Azerbaijan and Turkey have become close allies as a result of the Baku-Tbilisi-Ceyhan project, so China, Kazakhstan, Uzbekistan and Turkmenistan will be bound together through this new pipeline. The implications - for Russia, Iran, and the West â€“ will be serious.