The second situation illustrating China’s energy policy on Central Asia has to do with a country that formally has no SCO membership; however, this does in no way restrain China’s policy of advancing towards the Caspian Sea region resources. The Central Asian country in question is Turkmenistan.
Ashgabat has long discussed the construction of a 6,400 kilometre gas pipeline from Turkmenistan to China to Japan. The construction project was due to be carried out in 10 years and was pretty costly (11 billion dollars, of which some 1.7 billion dollars would account for the sea section of the pipeline). It was possibly because of that, and also because of China’s changed energy policy in the 21st century that the easterly direction of Turkmen natural gas deliveries was sort of “updated”, namely the option for laying a pipeline to Japan was dropped, with China having been made the only terminal point of delivery.
The China National Petroleum Corporation, CNPC, and Exxon Turkmenistan (Amu Darya) Limited have for many years studied the hydrocarbon potential of the promising fields along the Amu Darya Turkmen bank. The studies aimed to find out about the economic expediency of what was then hypothetical project of an eastern gas pipeline. The geophysical study was made all over the Amu Darya right bank. A number of new gas fields, specifically in the Garagoi area, have been discovered at the approaches to the Kyzylkum desert in the year 2000.
According to the Exxon Company, the project of laying a long-haul gas pipeline from Turkmenistan to China could only prove realistic if it were used to supply 30 billion cubic metres of gas or more per year. But experts thought that the amount could also include gas from China’s western areas. Turkmenistan was to guarantee the annual delivery of 33 billion cubic metres of gas (including 3 billion cubic metres to ensure the operation of compressor stations) throughout 25 years.
The Chinese factor has been central to Turkmenistan’s foreign policy since approximately 2006. The two countries had by then signed 36 intergovernmental agreements. Turkmenistan had registered 37 investment projects involving Chinese companies, to the tune of 382.6 million dollars and 360 million Yuan.
A more important development for Turkmenistan in 2006 was the republic’s president S. Niyazov’s visit to China in early April. The main agreement in a package he signed in Beijing was the General intergovernmental agreement on the implementation of the Turkmenistan – China gas pipeline project and on selling natural gas from Turkmenistan to the People’s Republic of China in the volume of 30 billion cubic metres annually for 30 years since the time the gas pipeline was commissioned, which was due in 2009. Under the agreement the Amu Darya River right bank should be used as a resource potential area for the supplies in question, with Chinese experts to be engaged in prospecting and development jointly with Turkmen experts. However, the agreement also featured a provision whereby Turkmenistan guaranteed gas deliveries to China, if need be, also from other gas fields of the republic.
The duration of the agreement was set at three years. The People’s Republic of China allocated 200 million Yuan as a cheap loan to Turkmenistan in the framework of another agreement shortly afterwards. Two weeks after his visit to Beijing S. Niyazov ordered the setting up of a special Turkmen-Chinese cooperation Directorate at the Ministry of Oil and Gas Industry and Mineral Resources.
One year later, in summer 2007, the two countries concluded yet another agreement to make the pipeline to China a reality. CNPC was authorized to make relevant efforts in Turkmenistan and granted an operator licence for prospecting for gas and development of gas fields on land, the first ever licence that Turkmenistan has granted to a foreign company. The overall length of the new Turkmenistan-China gas pipeline will make up some 7,000 kilometres, with over 180 kilometres due to be laid in Turkmenistan, 530 kilometres, - in Uzbekistan, 1,300 kilometres, - in Kazakhstan, and over 4,500 kilometres, - in China. The overall cost of the project makes up some 20 billion dollars. 17 billion cubic metres of Turkmen gas were due to be annually exported through the development of new gas fields, while the remaining 13 billion cubic metres of annual gas exports,- through the construction of gas purification and treatment plants at the largest gas condensate field Bagtyyarlyk.
Incidentally, the Stroytransgaz Russian Company has won a 395 million-euro contract for laying the 188-kilometre Turkmen section of the gas pipeline from Malai to Bagtyyarlyk. The company will also build a plant to purify and dehydrate gas and a gas-measuring station. The construction of the pipeline got under way in 2008.
During the Beijing Olympics in 2008 Turkmenistan’s new President Gurbanguly Berdymuhamedov said the flow efficiency of the pipeline to China would be increased. The deal was made part of a special framework agreement that was signed during an official visit to Ashgabat by China’s leader Hu Jintao. The flow efficiency of the pipeline to be commissioned in 2009 is due to be boosted from an annual 30 billion cubic metres of gas to 40 billion cubic metres of gas. Unlike Kazakhstan, Turkmenistan continues to insist that all 40 billion cubic metres of gas will be pumped into the pipeline from the gas fields on Turkmenistan’s right bank of the Amu Darya River. However, it has still been unclear what Turkmenistan will charge China for its gas. Ashgabat obviously reserves the right to having the final say, in the hope that in future it will be able to play on contradictions between its trade partners who will seek to get Turkmen gas.
Nor is it clear whether Ashgabat will be able to supply the entire China-requested gas volume. The Chinese also claim the right to develop another two major projects in their own interests. The projects in question are as follows:
1. A cluster of gas fields on the right bank of the Amu Darya River, with the maximum projected gas capacity estimated at 25 billion cubic metres to 30 billion cubic metres per year. The projected capacity should be attained some time between 2015 and 2020 approximately. 12 billion cubic metres of gas are expected to be produced in the gas fields in 2010. The largest gas fields of the cluster are Samandepe and Altyn Asyr. The estimated reserves of the Bagtyyarlyk contractual area make up 1.7 trillion cubic metres; however, the figure has failed to be proven. A total of 17 gas and gas condensate fields have been discovered on the right bank of the Amu Darya River, including Samandepe and Farap (under development); Metejan, Kishtivan, Sandykty (mothballed); Akgumalam, Tangiguiy, Iljik, Yanguiy, Eastern Yanguiy, Chashguiy, Girsan, Beshir, Bota, Uzyngyi, Bereketli, Pirgyi (under exploration). The largest of these for the time being is Samandepe with the 80 billion cubic metre gas reserves.
2. The Yashlar-South Yolotan cluster of gas fields, of which the largest are South Yolotan (Gunorta Yoloten) and Osman. Turkmen geologists claim the reserves of the fields make up from 3 trillion cubic metres of gas to 7 trillion cubic metres of gas. A British company, asked to estimate the reserves, shared the opinion and actually came up with a higher figure for the gas saturated thickness. Notably, just three years ago the maximum projected gas output was estimated at 15 billion cubic metres to 20 billion cubic metres per year, but the Turkmen now claim the output in the gas fields will have reached 45 billion cubic metres of gas per year by 2020. The projected capacity is due to be attained between 2015 and 2020 approximately. 10 billion cubic metres of gas are due to be produced in 2010.
13 billion cubic metres of gas should be supplied to the Chinese pipeline from the Samandepe and Altyn Asyr gas fields, which are currently developed by the Turkmengaz Company. The Turkmen see the reserves as proved. The remaining 17 trillion cubic metres of gas are due to be supplied through the development of the gas fields that haven’t yet been opened up in the Bagtyyarlyk contractual area, where the CNPC Chinese experts work on product sharing agreement terms.
Following an explosion of the Central Asia- the Centre pipeline on the 9th of April 2009 Ashgabat decided to spite GAZPROM and include Chinese companies on the project to develop the South Yolotan deposit. It has thus clinched China’s earmarked credit of 3 billion dollars to develop the gas deposit on an industrial scale. This has largely added to the steadiness of the project to supply Turkmen gas to China and complicated the feeding of gas to Russia on reasonable terms. In early June 2009 the Turkmen President said confidently that the republic would start pumping 40 billion cubic metres of gas to China through the new pipeline by later 2009.
The pipeline to China is sharp evidence that Beijing is tightening grip on Turkmenistan. In 2006 and 2007 the Turkmen-Chinese trade turnover grew 18-fold. 30 Turkmen-Chinese joint ventures were operational in Turkmenistan as of August 2008. Chinese companies are involved in 49 investment projects in Turkmenistan to the tune of 1,284 billion dollars.
While taking part in SCO activities, China never forgets about its own interests. It has been steadily gaining access to the energy wealth of Central Asia, while ousting American, European and Russian companies from the area. This is what one should give a thought to now. All the wish-wash about the SCO future supranational currency is suggestive of the Soviet-time discussion of “forming a communist society person”. One should realize that the energy policy interests of Central Asian countries, Russia and China are far from always coincident. The SCO Energy Club has to this day failed to come up with a cooperation model that would suit all member-states. China seeks to keep up its high economic growth rates. China is currently energetically penetrating Central Asia to gain access to the local oil and gas reserves. The Chinese are simultaneously laying pipelines to transport the mineral resources in question to China’s western border.
So far there’s been no rapprochement between the SCO member-states on energy cooperation, although the concept of SCO energy policy has been under discussion for several years now. At least the latest SCO summit-approved Yekaterinburg Declaration offers nothing but “diplomatic fog” to that end. Signs are we are watching some trendy stage production.
