The opening of the first segment of the Turkmenistan-China gas pipeline last month is only one in a series of recent events in Caspian Sea basin energy developments. It signifies Turkmenistan’s first real moves to break its dependence upon Gazprom and the Russian state for international sales of its energy resources. These developments are to the detriment of Europe, which remains dependent upon Russia and Turkey as transit countries and has been unable to push forward the implementation of its Nabucco pipeline project.
The idea of building a pipeline from Turkmenistan to China goes back to the early 1990s, when international energy companies began to contemplate prospects for the development of Central Asian resources for export to world markets. At the time, however, a lack of experience in the field, the enormous distance to be covered (it would have to transit both Uzbekistan and Kazakhstan en route), doubts about the unproven resources despite rumors of enormous quantities, and the isolation imposed by Turkmenistan’s erstwhile president Saparmurad Niyazov all militated against the development of the project. Even the combination of the decline in the country’s exports throughout much of the 1990s, its total dependence upon Russia’s pipeline system, and the low prices received from Russia relative to commercial world rates did not accelerate Ashgabat’s inclination to pursue this project, or indeed to pursue any international pipeline at all (other than one for relatively small volumes to northeastern Iran for domestic consumption there).
As other projects such as the Baku-Tbilisi-Ceyhan (BTC) oil pipeline were realized in the meantime, and the possibility of using third countries for transit became established, the Turkmenistan-China gas pipeline project was not forgotten. China in the meantime built the West-East Gas Pipeline (WEGP) from Xinjiang to Shanghai, first of all to carry gas from Xinjiang itself, but also to establish the feasibility and the path for subsequent pipelines along the same route. The construction of an oil pipeline from eastern Kazakhstan into Xinjiang (now being extended westward piece by piece to the Caspian Sea basin) established as Beijing’s gateway to Central Asian energy resources. The idea of a 4,500-mile pipeline from eastern Turkmenistan to the Chinese coast no longer seemed so outlandish.
In April 2006, Niyazov himself signed a framework cooperation agreement for the project with China’s President Hu Jintao in Beijing. He died eight months later in December, but the project did not lack follow-through. By July 2007, Niyazov’s successor Gurbanguly Berdimuhamedov had consolidated his power enough to travel to Beijing in order to witness an agreement between the Chinese National Petroleum Company (CNPC) and Turkmengaz for the pipeline’s construction.
One of the reasons why the pipeline project was able to take off so quickly is that it constitutes an add-on to a slightly more modest project, which CNPC had been negotiating with KazMunaiGaz for the import of natural gas from Kazakhstan. Thus the pipeline from Turkmenistan, which was originally planned for a volume of 30 billion cubic meters per year (bcm/y), will now be constructed to carry 40 bcm/y (if not still more in later stages), even though China is set to receive only 30 bcm/y from the start. Kazakhstan will generate the other 10 bcm/y and will also consume at least a fraction of that quantity.
Indeed, the first phase of the larger project sets a volume target of 10 bcm/y. Whereas a second stage of the original Kazakhstan-China pipeline was planned to increase Kazakhstan's exports to China to 30 bcm/y, it is now likely that at least some of that gas will go to the populous South Kazakhstan province. In the larger project, the Turkmenistani segment will run 190 kilometers (km) from the Bagtiyarlyk cluster in the eastern part of the country to the border with Uzbekistan, then 520 km across Uzbekistan, and another 1,300 km through Kazakhstan to the Chinese border, then through Xinjiang all the way across the country to Guangdong province and Shanghai. Within China, work on a second WEGP parallel to the first was begun in late 2008 for the purpose of making this project possible.
Chinese geologists estimate that the Bagtiyarlyk fields that will supply the pipeline hold 1.6 trillion cubic meters of gas altogether. The operating fields of Samandepe and Altyn Asyr will feed the project with 10 bcm/y in the first phase of development and 13 bcm/y when complete. The second phase will add 17 bcm/y to the original 10 bcm/y from deposits that the two sides are developing together in accord with the July 2007 contract, which is structured as a production sharing agreement. The route will involve refurbishing and expanding the Bukhara-Tashkent pipeline inside Uzbekistan and building the route through Almaty to Kazakhstan’s border with China, probably to Alashankou, which is where the aforementioned Kazakhstan-China oil pipeline crosses into China. The sale price for Turkmenistani gas to China has not been published, but credible sources report that it is “over US$100” per thousand cubic meters.
Much of the gas to China from Kazakhstan may come from the latter’s Karachaganak deposit, which has not been able to expand volumes until now due to Russia’s inability or unwillingness to honor a three-year-old agreement to expand the capacity of the Orenburg gas processing plant in southern Siberia, or later from the offshore Kashagan deposit. It seems likely to come in the first instance from Aqtobe, where the China National Petroleum Corporation (CNPC) has been present for the better part of a decade, via Kzyl-Orda and Shymkent to Almaty and Alashankou.
The opening of the Turkmenistan-China gas pipeline comes at almost the same time as that of an extension of the existing Turkmenistan-Iran pipeline that will expand existing volumes, and a new agreement with Russia to refurbish the East-West Pipeline running across the south of Turkmenistan as well as the Turkmenistani segment of the Caspian Coastal (sometimes called “Pre-Caspian”) Pipeline. Even though skepticism is called for concerning the projects with Russia (earlier similar agreements have had no result), what is clear is that Turkmenistan is moving strongly beyond its dependence on Gazprom.
In that connection, it should be noted that at the end of last month Turkmenistan awarded a US$9.7 billion contract to a consortium of companies from China, the United Arab Emirates and South Korea for the development of the large South Yolotan gas field. The British auditing firm Gaffney Cline last year estimated that this field holds 6 trillion cubic meters of gas, with a low estimate of 4 trillion and a high estimate of 14 trillion. In connection with the pipeline just opened to China, Beijing agreed to lend Ashgabat US$4 billion, and three-quarters of this sum will go to developing South Yolotan. Given the speed with which the first Turkmenistan-China pipeline was constructed, there is little reason to doubt that this project will equally see the light of day sooner rather than later.
Together with the fact that Denmark, Finland, and Sweden have all now granted permits for the Nord Stream (Russia to Germany under the Baltic Sea) pipeline to traverse their respective Exclusive Economic Zones (EEZs), these most recent developments in Asia underline that Europe continues to miss opportunities to decrease its dependence on Russian sources of natural gas. At the same time, the failure of Turkey to come to terms with Azerbaijan concerning bilateral gas sale arrangements has complicated their negotiations over Nabucco-related matters.
Turkey’s favor towards Nabucco’s competitor, the Russia-proposed South Stream pipeline (in return for Russia’s acquiescence in the construction of a trans-Anatolian pipeline from Samsun on the Black Sea to Ceyhan on the Mediterranean Sea), means that Ankara now takes lessons from Moscow as to how gas transit countries to Europe should act. Continuing bilateral consultations between the countries at the highest level, one just last week, underline that such an energy entente is real. An alternative is the White Stream gas pipeline project, now included as part of the EU’s Southern Corridor Strategy, which would convey Caspian Sea gas across Azerbaijan and Georgia and under the Black Sea directly to the EU, but its full development depends on finding a way to get Turkmenistani gas to Azerbaijan for transshipment.
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First published in Central Asia – Caucasus Analyst 12, no. 2 (3 February 2010): 4–6.