Increasing Ties Between China and Turkmenistan

Via Energy Daily, an insightful analysis of the growing ties between China and Turkmenistan.  As we have recently discussed on this blog in earlier posts, China National Petroleum Corp. announced it will invest $2.16 billion to underwrite construction of a planned Central Asia-China natural gas pipeline. CNPC subsidiaries PetroChina and China National Oil and Gas Exploration and Development Corp. (CNOGEDC) will each cover 50 percent of the project’s costs. PetroChina and CNOGEDC established the Trans-Asia Gas Pipeline Company Ltd., a wholly owned subsidiary, to construct the pipeline in cooperation with two state-owned development companies in Kazakhstan and Uzbekistan.

China enters the Turkmen market with two major advantages over its competitors.  First, China is free of any imperial baggage, unlike Russia (whose dominance of Turkmenistan began in the 1860s and continued through the brutal socialist experiments of the Soviet era).   Secondly, akin to its policy in Africa, China is apt to engage Turkmenistan on more than an economic level, and provide educational, medical, and social assistance to a nation in need of such.  As the article notes:

“…The announcement follows on the heels of a July 2007 agreement with Turkmenistan under which CNPC, China’s largest oil and gas company, agreed to contract terms to import 30 billion cubic meters of Turkmen gas annually through the proposed pipeline for 30 years…

…The agreement represents a stunning victory for Beijing, which has been scouring the globe looking for inexpensive and reliable energy to feed is booming economy. The Chinese government intends to raise its ratio of natural gas consumption by 2.5 percentage points to 5.3 percent by 2010; while this is a significant increase, it remains still far below the international average of 25 percent…

…The effect on Russia’s Gazprom, which initially seemed to have cornered Turkmenistan’s gas supplies, is less clear… Simply put, Gazprom desperately needs continued access to Turkmen gas. Europe now represents nearly 70 percent of Gazprom’s total revenue. As Gazprom sells about two-thirds of Russia’s 550 billion cubic meters of annual gas production in the domestic market, Turkmen production is critical both to meet domestic needs while meeting its European commitments.BP has estimated Turkmen natural gas reserves at 2.86 trillion cubic meters. In 2006, Turkmenistan produced 62.2 billion cubic meters, placing it only behind Russia as the former Soviet Union’s largest natural gas producer. With 2005 domestic consumption estimated at 17.07 billion cubic meters, more than two-thirds of Turkmen production is available for export….

…If there is a cautionary note to be sounded in this, it is how Turkmenistan will be able to balance its current commitments to Gazprom as well as meet future Chinese demand. Under current contracts, Gazprom exports 50 billion cubic meters of Turkmen gas annually, and without a massive increase in development, that commitment along with the CPNC accord would total 80 billion cubic meters of exports annually, a 20 percent increase over Turkmen current production of 62.2 billion cubic meters, not counting domestic consumption. But, as the new Chinese line will take years to complete, doubtless Gazprom and Beijing are hard at work on development packages to increase Turkmen production. The major loser in the last 12 months in the eastern Caspian has been Washington, and it will apparently remain so for the foreseeable future.”

This entry was posted on Monday, January 7th, 2008 at 2:53 pm and is filed under China, China National Petroleum Corporation, Turkmenistan.  You can follow any responses to this entry through the RSS 2.0 feed.  Both comments and pings are currently closed. 

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