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Guest Post: China Secures Gas Supply From Turkmenistan: Who's the True Winner?
Guest Post by Philip H. de Leon of Oilprice.com
On December 14, 2009, an inauguration took place that deserves more attention than it received because it marks an economic power shift to the benefit of three Central Asian countries and China and to the detriment of Russia. The presidents of China - Hu Jintao, Turkmenistan - Gurlanguly Berdymukhamedov, Kazakhstan - Nursultan Nazarbayev, and Uzbekistan -Islam Karimov, inaugurated the Central Asia-China gas pipeline that links Turkmenistan's natural gas fields on the Caspian Sea to the Western Chinese border in the Xinjiang province.
This pipeline then connects with the West-East Gas Pipeline that crosses China and supplies cities as far as Shanghai and Hong Kong. 13 billion cubic meters (bcm) are supposed to transit through this pipeline in 2010, 30bcm by the end of 2011 and over 40bcm by 2013. Ultimately that pipeline could supply China with more than half of China's present day natural gas consumption.
Diversification of gas export routes seen as a regional security factor
Most commentators and officials have stirred clear from saying openly that Russia is losing ground in Central Asia because of political sensitivities. Despite years of recurrent official declarations that there are no spheres of influence - with the word "influence" being astutely replaced by the word "interest" - there is a delicate balance of powers in the region with historic, cultural and economic ties that cannot be ignored. There is also the need to accommodate the growing interest in the region of new players such China, the United States and the European Union. Russia sees the region as its natural backyard but many countries no longer consider Russia as the most rewarding partner or one that should always have the upper hand.
Turkmenistan is the big winner with this new pipeline as this new export route for its gas production frees it from the diktats of Gazprom: about 70% of its natural gas production used to exit the country through the Gazprom network. Turkmen President Berdymukhamedov stated, "The successful implementation of this project could become a prototype for all international energy partnerships," adding that "this pipeline will have a positive impact across the entire region and beyond, and it will become a major contributing factor to security in Asia." Other winners are Uzbekistan and Kazakhstan that will also be able to supply the pipeline with their own gas production, notably from the Karachaganak, Kashagan and Tengiz fields in Kazakhstan.
The Central Asia-China gas pipeline is a US$7.3bn project, 1,833 km long with 188 km going through Turkmenistan, 530 from Uzbekistan to Kazakhstan, and 1,115 km from Kazakhstan to China. The West-East Gas Pipeline crossing China is over 4,500 km long, making of the joint pipelines the longest in the world.
A new natural gas player: Turkmenistan
In 2008 the independent British auditing company Gaffney, Cline & Associates Ltd was tasked with assessing the volumes of Turkmen gas reserves in the Yoloton-Osman fields. Despite allegations that Turkmen officials - which included the heads of Turkmengas, Turkmenneft and Turkmenneftegazstroy - misled the auditors by providing inaccurate inflated data, it remains reasonable to believe that Turkmenistan holds the 4th or 5th largest natural gas reserves in the world in light of regularly announced gas discoveries in regions with already proven reserves. President Berdymukhamedov himself sacked the Turkmen officials entangled in this scandal in October 2009.
The problem for Turkmenistan until now was that its export routes were limited as over 70% of its gas exports transited through Gazprom's pipelines. An explosion at a key pipeline in April 2009 resulted in bitter battles: Turkmenistan and Russia blaming each other as to the causes of the accident; Turkmenistan supposedly losing over $1 billion per month in revenues; Gazprom refusing to pay European market prices for Turkmen gas per a deal concluded when prices were higher; Turkmenistan announcing it would provide gas to Nabucco, the nemesis of Russian-sponsored South Stream pipeline; etc.
The recent report by Vedomosti that Gazprom plans to purchase "not more than" 10.5 bcm from Turkmenistan during 2010-2012 compared to the usual 50 billion bcm is the confirmation that Turkmenistan absolutely must diversify its export routes. The bringing online of this new pipeline could not have been timelier.
A crack in Gazprom's Hegemony
Gazprom has for many years monopolized gas supplies from Central Asia. With growing interest from China and Europe to diversify their gas supplies, Gazprom engaged in a risky pre-empting game consisting of securing supply agreements, notably with Central Asian countries, to cut the grass under the feet of European countries that have been looking at alternative supply routes bypassing Russia. This has proven to be a costly and risky game, notably with Turkmenistan, as world market prices and demand dropped and the contracted prices were higher than the prices Russia could reasonably resell the gas for. The game played also includes undermining the Nabucco pipeline.
Nabucco, a natural gas pipeline bypassing Russia and endorsed by European countries and the United States, is the perfect example of the power struggle at play: by securing large gas volumes from Turkmenistan and Azerbaijan, the financial viability of Nabucco comes into doubt as it is not clear that there would be enough gas available to supply both Nabucco and the South Stream pipeline supported by Gazprom. Turkmenistan, bitterly annoyed by Gazprom running away from its contractual obligations, announced in July 2009 its willingness to supply Nabucco. Azerbaijan had also conveyed its willingness to supply both pipelines, though is recently playing harder to get in light of the recent Turkey-Armenia rapprochement.
China's steady approach to diversifying its suppliers for everything
China is very well aware that its economic growth and even domestic stability is conditioned upon securing supply chains through long-term agreements. One step at a time China is securing its supply of staple commodities, minerals and energy supplies. To further secure its position in the supply country, China offers loans and technical expertise in addition to gaining the management authority to run the local operations. China has become one of Africa's top three trading partners and several countries, no matter how unsavoury and corrupt they may be, became important trading partners like Sudan, which exports a majority of its oil to China, while others guarantee China's food supply. In November 2009, the China Metallurgical Group bought for US$3 billion a 30-year lease to exploit copper deposits in Afghanistan further demonstrating that no country, no matter how troubled it is, is off-limit.
Money helps shift the balance of power
As Cicero's saying goes "nervi bellorum pecuniae" (money is the sinews of war) and in the commercial wars that are being fought, China has huge financial reserves that it can put in the balance, notably through its state-run financial institutions such as the China Development Bank (CDB). The CDB played a critical role in financing the construction of the US$6.7bn Kazakh section, the largest and most expensive chunk of the pipeline. The China National Petroleum Corporation (CNPC) acquired 50% of MangistauMunaiGas in April 2009 for US$2.6bn and the China Investment Corporation acquired about 11% of KazMunaiGas Exploration & Production in September 2009 for about US$939 million.
China has a financial advantage at a time of liquidity shortages: its ability to instruct it state-owned companies to work on specific projects and to coordinate the involvement of all possible Chinese players (finance providers, construction and management companies, etc.) enables China to strategically position itself at every level of the food chain. For instance in Central Asia, China acquired shares in companies that exploit gas fields (MangistauMunaiGas and KazMunaiGas E & P); China got the rights to exploit fields in Turkmenistan when other countries are still struggling to obtain such rights; China financed and helped in the construction of the pipelines running from the fields (CNPC, China Petroleum Pipeline Bureau and China Petroleum Engineering and Construction Corporation); and China purchases the gas production.
China is at an advantage compared to its American or European competitors as the US has no state companies while Europe's few state companies are held to the same standards as private sector companies and cannot as easily be told what to do. Also, China's financial support has no string attached beyond a long-term commitment for guaranteed supply. The United States or members of the European Union often condition the granting of financing to the improvement of democracy and human rights which is seen by Central Asian countries as an intolerable mingling with domestic issues. Furthermore, China has a lot of state companies that the government can "instruct" to work on a project such as a pipeline. CNPC was the leading operator of the Central Asia-China pipeline project, working closely with each country towards its completion.
This conjunction of companies "ready-to-go" with guaranteed financing and full government endorsement and support gives China a competitive edge. However, moving away from Russia's arms into China's is not a love story but more a marriage of convenience. Concerns exist over China's growing influence and its lower environmental standards. Central Asian countries remain interested in American and European commercial involvement to see it have a balancing role. In addition US and European companies implement good business practices such as transparency, accountability, sanctity of contracts, rule of law, etc. that would greatly benefit Central Asia that is plagued by corruption.
One successful example of mutually beneficial regional collaboration
The fact that Turkmenistan, Uzbekistan and Kazakhstan managed to coordinate their efforts towards the common goal of building a pipeline that will serve them all is an achievement. China played an instrumental role as conductor in making it happen. President Hu Jintao himself underlined the benefits of mutual collaboration through a win-win situation, stating "in line with the principle of mutual complementarity, mutual benefit, equality and win-win cooperation, the four countries have actively carried out energy cooperation and achieved fruitful results."
This said, regional cooperation is far from being a reality in Central Asia despite the well-recognized benefits of cross-border commercial activities. In the end, though Turkmenistan is definitely an important winner with this new pipeline, China can be seen as the ultimate winner by having not only secured a very valuable route for its gas supply, but also by having reinforced its image as a regional player that managed to get three Central Asian countries work towards a mutual beneficial goal, namely a new export route for their gas.
The additional bargaining power Turkmenistan, Uzbekistan and Kazakhstan gained from diversifying their energy export routes, thanks to the Chinese assistance, strengthens their political and economic independence and reinforces regional stability and security and that achievement deserves recognition.
This article was written by Philip H. de Leon for OilPrice.com who focus on Fossil Fuels, Alternative Energy, Metals, Oil Prices and Geopolitics.
To find out more visit their website at: http://www.oilprice.com
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Well, given the evidence supplied, I believe that the winner is the United States. Since Turk is 89% Muslim, and we are about to blow the poop out of Iran, the only place for radical Muslims to run is North. Soon, we will be killing people in Turk.
That gas line is secure as long as we decide it is.
Yep, the Central Asians are the real winners. Not only did they get the Chinese to pay for this huge pipeline but they've also locked in Gazprom at incredibly uneconomic rates for their gas prices: http://www.nytimes.com/2009/05/16/world/europe/16gazprom.html?pagewanted...
But the real winners in Central Asia have always been the Russians. The Central Asians fear and loath the Chinese, with their unlimited labor supplies and huge population.
And yes, anyone who is foolish enough from the West to invest into Central Asia better have someone like Bill Clinton to pull out of their back pocket: http://www.nytimes.com/2008/01/31/us/politics/31donor.html
And never, ever, invest into anything you cant sell with a mouse click at a moments notice: http://dealbreaker.com/2009/06/dont-drink-the-water.php
yes, there' s serious risk, that we could self destruct, before we get a chance to destroy more of the mid-east. we'd better hurry it up. where's those war mongering israelis when you need them? and those stans, who told them they could sell our gas to the chinese?
Yeah, but what about the Blecchistan angle?
http://www.theonion.com/content/node/27813
Waterdog,
With barely enough troops in Afganistan and Iraq, how the fuck are you going to blow up Iran? That kind of talk is for teenagers, grow up.
The sad part is, that this Administration is giving free reign to all the little despots in Central Asia and handing the power to China. China with its massive buying power is, of course seizing the opportunity quickly and bribing these power hungry -stan dictators with money and distribution routes. It will be interesting how this plays out with Russia, as it stands to lose some of its clout due to this new transportation route. I bet President, er, Prime-Minister Putin is quite unhappy with this development.
About Iran, there's enough dissent internally. Turn the heat up a little and the pieces may fall in more friendly places. But talking about US/Iran these days must include Venezuela (sided with Iran) and the oil supply lines in the Gulf of Mexico. Keep an eye in the Colombia-Venezuela border for clues if/when the US will attack Iran (they won't until Venezuela is "safe" or at least Chavez "knows his place").
How does this pipeline affect the plans for the TAPI--Turkmenistan/Afghanistan/Pakisatn/India pipeline.
TAPI is the $5 billion pipeline that a consortium led by Unocal has been trying to secure for over ten years. It is known that the stakes are high--Karzai had been the chief lobbyist for the consortium before becoming president, and the US is supposedly setting several of the 17 military bases in Afghanistan along the projected TAPI pipeline.
The U.S. military has been kept busy securing China's oil supplies in Iraq and M.E. If push ever came to military shove, protecting China's supply of natty in the "Stans" would simply be another opportunity for US to make good on our servitude to our most honorable creditor.
China knows it can always redeem the vouchers we issued them. We're obligated to cover their "six" if need be. Bingo. We have a winner.
You don't seriously think of US IOU's as 'credit', do you?
Big Heliben has the power to print the collateral to redeem the so called 'credit' as Timmy G. sees fit. Timmy can freely define the amount of 'credit' he creates and orders Ben to print. The China 'creditor' has paper IOU's with no physical guarantee attached, none whatsoever. Uncle S. can do as hee pleases, be it kick some asses in Afpak and/or build/blowup some pipelines, as the story continues...
The light, the heat, I am complete.
this deal is to the detriment of russia???
i think it is a stick in the wheels of the much wanted nabucco gas pipeline supported by the eu/us.
Scant mention to the obvious economic benefits internally with China. 4000 km of gas pipeline. At least they have the population to attend as necessary.
The race to secure access to the natural resource riches of the "Stans" has been the new Great Game of the late 20th and early 21st Century. The Western options were, via Russia, building on the existing networks; via Turkey (which was of huge importance for resource poor Turkey, and a big bargaining chip for Turkey joining the European Union); or via Afghanistan and Pakistan (the underdeveloped state of these nations game US interests more chance of maximizing profits.) So option 3, while more complicated was the preferred choice for dark players like Unocal and the first two options were preferable to Europe, less so for the US.
The trouble is, as before, the local people saw the dishonesty of the west - the US, the Russians, Turks and Europeans playing against each other, plotting, bad mouthing each other in private but pretending to be allies in public.
Add to this the financing offered by the West has been expensive, has come with unexpected strings attached, in the form of toxic structured products and the bickering and the disasters in Iraq and Afghanistan have delayed projects and the financial crisis caused lending to simply stop, point blank.
The Chinese have been waiting in the wings. They have been more straight with their needs. They say, we want to secure gas supplies to develop our nation, we will pay a fair price, we will lend you cheap money to build the pipelines, if you give contracts to our companies. We will not publicly criticize your leaders if they have to crack down on dissenters, this is none of our business.
Several years ago, I was told by a high ranking Kazak official that their ambitions were simple - upgrade facilities to be able to export their natural resources without being a vassal state. They preferred to do business with the west as they saw the west as their model for how to develop their society, with the better potential for learning technology and how to run private businesses. However, they had something that other nations need and they wanted a fair price for it. The Chinese have always been there, always waiting and always willing to lend more for less.
It seems to me that the game is now over and the west has lost. These nations will increasing look to China as their principal export market and trading partner. Europe will remain reliant on Russia and Turkey for supplies and they will not be cut out, but prices will rise.
In my personal opinion, a huge motivation for Cheney cabal pushing the Afghan adventure was to secure transportation links to get resources out of the 'Stans. I think they believed the economic benefit to the US and US corporations such as Unocal, would provide compensation for the military operations. This has been a chronic failure.
However, the other enormous change that has occurred in the last 10 years is the extraction techniques for shale gas and the developments in LNG. As it stands, the US may be self-sufficient in natgas for decades to come. Perhaps those powerful, shadowy figures who really control the US and who think military actions the solution to all problems should remember that sometimes the solution to problems can be found closer to home.
I agree as AMWOQ pertains to China's approach. The Chinese come in & say. "Ok fair price, we will build roads & schools and support your iffy regime (Sudan, Burma, N. Korea etc.) no questions asked"...sound like the US 50 years ago?
Not to be preachy, but we can't compete on a playing field that we (have recently become) too noble to "lower ourselves too"
This is an epic fail for the west as well as a serious indictment of the energy companies practices re contracts and resource extraction.Who would want to deal with such criminal scum?It hurts Russia as well.
And China did not even have to invade...amazing!
Central Asia NG to China.
China liquifies. China ships to US.
An LNG/CNG proponent's wet dream.
A domestic NG'ers nightmare.
Question, what does China have greater need of, more Dollars or more natural gas?
Given we have Qatar and Indonesia investing billions in LNG facilities, but the US lacks sufficient re-gasification plants to deal with it all and what looks like decades worth of shale gas, why on earth would the Chinese be so dumb to take something they have an urgent need for and on-sell to the US?
Mercantilists undercut. They have plenty
of domestic coal and can sell us the LNG.
Jobs and export economy is everything to
them.
While the US and the rest of the western world is examining it's economic naval for lint and other residue, China is thinking 20, 30 even 50 years out and preparing.
Oh, look what I found. Now how did that get in there?
China has been earnestly setting up stragetic partnerships with Russia.
An enhanced China-Russia strategic partnership of coordination has greatly boosted bilateral trade and economic cooperation, with the two-way trade volume soaring to 56.8 billion U.S. dollars last year from barely several billion dollars in early 1990s.
However, bilateral trade was hit hard by the international financial crisis. The regular meeting between prime ministers agreed that the two countries would use tough measures to jointly handle the economic downturn and ensure the general trend of constantly broadening and deepening trade and economic ties.
During the visit, Putin was accompanied by a group of Russian business people, who signed with their Chinese counterparts deals worth 4 billion U.S. dollars. The two countries clinched an array of cooperation documents, including agreements and memorandums on natural gas, oil, an express railway, the space industry and nuclear energy.
http://english.sina.com/china/2009/1015/277874.html
China has used the US TBill's it holds as collateral for buisness and trade agreements.
China has used the US treasury holdings as collateral for loans to acquire hard assets such as oil, copper, soybean, gold or others which are strategic to China's long-term growth. Perhaps, the Thai central bank should start to look in this direction, as shown by the Chinese, to manage its foreign exchange reserves.
http://www.nationmultimedia.com/2009/06/22/opinion/opinion_30105721.php
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Meanwhile, earlier this year, the China Development Bank lent US$25 billion at relatively low interest to Russian companies Rosneft and Transneft as part of a deal involving Russian export to China of a minimum of 300,000 barrels of oil per day at a very favorable price and agreement on construction of a spur from off the East Siberia-Pacific Ocean (ESPO) pipeline for that purpose (see China on buying and lending spree, Asia Times Online, March 5, 2009).
China is building Nuclear Power plants to power its future
The country has another 22 nuclear reactors under construction and 20 of them apply CPR-1000, the China-developed second-generation technology.
"China has made major breakthroughs in the research and development of some key nuclear power equipment," said Zhang. "The country can fully rely on its own technologies to support nuclear power development in the next two to three decades."
The third-generation technology, which uses light water reactors, is the latest and is considered safer and more efficient than previous designs.
Four nuclear power reactors in China, whose construction is scheduled to begin in 2009 and 2010, will use the third-generation technology designed by the US firm Westinghouse.
China has highlighted technological innovation as a way of improving its industrial competitiveness and boosting the economy in the face of the global financial crisis.
The State Council, or the Cabinet, unveiled a support plan for machinery manufacturing industries early this month, encouraging the use of self-developed key technologies and equipment in major projects.
Zhang told the meeting that developing nuclear power is crucial to adjusting China's energy structure, saying advancing the development and use of independent technologies will significantly serve that purpose.
http://www.chinadaily.com.cn/bizchina/2009-02/18/content_7490584.htm
Meanwhile in The USA we are frozen with the greatest finacial fraud in history, spending ourselves into oblivion and contemplating going back to the dark ages powering our future with windmills and solar grids.
Perhaps it is time for the the USA to build a stronger Pacific oriented partership and ditch the seemingly regresive UN Euro-whack partership