China-Turkmenistan: the end of Russian monopoly

Turkmenistan is one of the world’s largest natural gas exporters with proven natural gas reserves of approximately 17,5 trillion cubic meters.[1] The abundance of natural gas has drawn significant interest from China. In 2006, Beijing signed with Turkmenistan an agreement in order to buy 30 billion cubic meters of gas per year; the first phase of the project became operational in December 2009. The first idea to build a gas pipeline between Central Asia and China dates back to 1994, and emerged during a visit by Premier Li Peng in Ashgabat. That year, Turkmenistan and China National Petroleum Company (CNPC) signed a Memorandum of Understanding for the development of cooperation in the oil and gas industry, whose feasibility was assigned to a specific study. The isolationist policy carried out by the President of Turkmenistan, Saparmurad Nyazov, forced the project into dissolution due to both the lack of support during the preliminary study and the lack of political dialogue with neighboring countries (Uzbekistan and Kazakhstan) who were partners in the project. In 2000, during a new Chinese state visit in Ashgabat, a new Memorandum of Understanding was signed which also contained guidelines for cooperation in the energy field. The agreement allowed China to start prospecting and exploration in storage allocated in the Amu Darya basin, which would then become the source of future Turkmenistan-China gas pipeline.

CNPC was the first foreign company allowed to operate on-shore gas extraction activities on a production sharing agreement basis. In parallel, the Chinese state company initiated a feasibility study for the production of LNG from the field of Koturtepe (western Turkmenistan), where China already had some technicians. These were the first steps of the growing Beijing penetration into the energy market of Turkmenistan. In April 2006, during a visit to China, Nyazov concluded an agreement for the annual export of 30 bcm of gas to China, for a period of 30 years starting in 2009. Despite the skepticism of those who believed unrealistic to achieve in such a short time such an ambitious goal, times have been met and the pipeline was inaugurated in December 2009.[2]

According to IEA, in the next years China’s natural gas import would be around 30-40 bcm, an amount that could be satisfied by Turkmenistan with its 60 bcm annual export capacity. By 2020, China’s consumption will range between 180 bcm and 200 bcm, with a production between 120 bcm and 140 bcm. Based on this assumption, the gap between demand and domestic production will amount to between 40 bcm and 80 bcm. The special role granted to Chinese companies in the exploitation of Turkmen onshore gas fields has supported China’s aim to be more and more present in Turkmenistan natural gas market. In fact, breaking with the practice of attributing to foreign companies exclusive rights to exploit deposits only in the offshore sector (while for onshore ones they were requested to enter into partnership with Turkmengaz, the national energy company), CNPC was the first and to date the only foreign company to be granted exclusive rights to exploit significant onshore gas fields. This privilege is strictly linked to the relevance of a bilateral cooperation that would have deepened thanks to Chinese banking institutions loan for gas initiative. Indeed, in July 2009 and again in April 2011, the Development Bank of China granted Turkmengaz loans for a total value of $8.1 billion aimed at the development of the South Yolatan giant gas field - in whose exploitation CNPC concomitantly won a participation. As in other similar cases, the loan would have been repaid through gas supply - 40 billion cubic meter per year which CNPC and Turkmengaz agreed upon between 2008 and 2009.[3]

As a consequence, the entry of China as an energy partner of Turkmenistan has stopped the almost absolute Russian monopoly, making Beijing a privileged energy partner for Ashgabat. Moreover, the scope and the benefices of Beijing’s Central Asian gas strategy are not limited to Turkmenistan. Indeed, the lack of shared borders between China and Turkmenistan implied the need to involve other regional players as transit states. Building on this necessity, Kazakhstan and Uzbekistan were both engaged not just as transit countries but also as suppliers, through the laying of the three parallel lines currently composing the Central Asia-China Gas Pipeline (CACGP) system. Finally, as a result of the agreements signed in September 2013, a fourth line is going to be built, by 2020, along a route through Uzbekistan, Tajikistan and Kyrgyzstan.

During the Soviet period, all the pipelines were oriented towards Russia, which acted as a real monopolist of the Turkmen resources. Once independent, Turkmenistan had the strong need to gain the control over the exploitation of its resources. Hence the deteriorating of bilateral relation with Russia due to the restrictive agreements founding the commercial bilateral partnership and the lack of investment for the renewal of the obsolete infrastructures. Moreover, the incidents occurred along the pipeline from Turkmenistan to Russia in April 2007 widened the lack of trust between the two countries, while China was offering full support for the development of Turkmen gas market. Since then bilateral relations between Ashgabat and Beijing progressively strengthened and Turkmenistan is currently expected to became China’s principal supplier of natural gas.

Table 11.2 - China gas import by source (2012)

Country

Import (Bcm)

Share

Turkmenistan

21.3

51.4%

Australia*

4.8

11.7%

Indonesia*

3.3

8.0%

Malaysia*

2.5

6.1%

Yemen*

0.8

2.0%

Qatar*

6.8

16.3%

Russia*

0.5

1.2%

Nigeria*

0.4

1 .0%

Egypt*

0.4

1.0%

Trinidad & Tobago*

0.2

0.5%

Others

0,3

0,7%

* LNG import

Source: BP Statistical Review of World Energy, 2013

  • [1] BP, BP Statistical Review of World Energy, June 2013, p. 20.
  • [2] K. Hamm et al. Turkmenistan Natural Gas Outlook 2020: The Chinese Connection, Columbia University,2011.
  • [3] C. Frappi, M. Montanini, How Does China’s Thirst for Oil and Gas Impact on EU’s Energy Policies? The Africa and Central Asia Test Cases, ISPI Paper, April 2014.
 
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