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China's hunger for Central Asian
energy
By Mark Berniker
While
Russian, Middle Eastern, European and United States
interests are vying for stakes in emerging Central Asian
markets, it is China that is most keen to develop oil in
Eurasia in an effort to satisfy its massive
energy-import needs in coming years. China is turning a
keen eye to Azerbaijan and Kazakhstan, in particular,
but there are also signs the Chinese may be edged out by
multinational oil companies to harvest the riches off
the shores of the Caspian Sea.
Chinese energy
enterprises are competing with Western oil companies and
are having mixed success in making their way into a
variety of ventures in Russia, Kazakhstan and
Azerbaijan. China has made it clear that energy
development in Eurasia is a top priority, not only in
Kazakhstan, where a major deal was recently scuttled,
but in neighboring Azerbaijan as well.
Last
Wednesday, China's Sinopec inked its first major oil
deal with the State Oil Co of Azerbaijan Republic
(SOCAR), for the development of a small onshore US$140
million project. The Pirsagat oilfields are estimated to
have reserves of close to 50 million barrels. And
Sinopec is not alone working in Azerbaijan; the Chinese
National Petroleum Corp (CNPC), the parent of
PetroChina, already has onshore operations in
Azerbaijan. But none of the major Chinese oil companies
have sealed deals to assist in offshore development in
Azerbaijan. It is offshore in the Caspian where
Azerbaijan's great future riches may reside, but deals
have been stalled because of the lack of territorial
legal clarity for energy exploration rights in and along
the Caspian Sea. Russia, Kazakhstan, Azerbaijan,
Turkmenistan and Iran have differing views on the
borders of the sea that are complicating factor in
developing offshore deposits.
While Russia and
Kazakhstan have struck a deal agreeing on Caspian
offshore rights, and Iran and Turkmenistan have
conducted recent talks, wrangling over the offshore
territorial rights in the Caspian persists. But a
breakthrough may be on the near horizon as Kazakhstan is
expected to disclose details of a major energy
development plan in the Caspian this month. On
Wednesday, according to a Reuters report from Almaty,
President Nursultan Nazerbayev said he "has signed a
highly confidential Caspian Sea oil development program
and will present the plan in Canada in late June, a
government official said". Kazakhstan has been working
with several Canadian companies in the field of energy
development, including Hurricane Hydrocarbons, which
recently changed its name to PetroKazakhstan and says it
is "an independent, integrated, international energy
company, celebrating its sixth year of operations in the
Republic of Kazakhstan. It is engaged in the
acquisition, exploration, development and production of
oil and gas, refining of oil and the sale of oil and
refined products." It will be interesting to find out
details of Nazerbayev's Caspian energy plan, and why he
is going to Canada to deliver it. Nazerbayev is expected
to deliver an energy development plan that will spell
out close to 120 tenders for rights to explore off
Kazakhstan's coast.
And while the Canadians may
be making progress in Kazakhstan, the Chinese were
burned just last month when a major deal was scuttled at
the last minute. Sinopec and CNOOC, China's
third-largest oil firm, failed to purchase stakes from a
British Gas-led consortium in the giant offshore Caspian
project at Kashagan in Kazakhstan. It was reported that
several Western oil companies led to the blocking of
their Chinese rivals from being allowed to take stakes
in Kazakhstan's North Caspian Sea Production Sharing
Agreement. Britain's BG, Royal Dutch/Shell, France's
Total FinaElf and US-based ExxonMobil and ConocoPhillips
are among the Western members of the consortium, which
voted to retain the shares in the venture and prevented
the Chinese from gaining a stake in their consortium.
But China doesn't seem dissuaded by the episode,
and strategically it makes sense for the country to try
to invest and develop energy resources in Eurasia rather
than trying to turn to the Middle East for its immense
oil and gas needs. And China is not alone - the likes of
India and Japan are also trying to get involved with
Russian, Kazakh and Azeri oil and gas projects. But
Russia is firmly enmeshed in the web of energy trade in
the region and doesn't want to get edged out of
lucrative pipeline projects, as it is expected to be
with the construction of the Baku-Tbilisi-Ceyhan
pipeline across Azerbaijan through volatile Georgia and
on to Turkey.
Russia and China's mutual interest
in spurring energy trade is unquestionable. CNPC said
last month that it plans to import 700 million tonnes of
oil worth some $140 billion between 2005 and 2030 from
Russia via a pipeline from Western Siberia to Chinese
Daqing. Just as Kazakhstan sees itself as both a major
oil producer and key transit point to both East and
West, Russia is eager to develop pipelines that will
bring its energy exports to China, India and elsewhere
in import-hungry Asia.
But while Russian energy
exports to China are expected to be significant in the
coming years, China not only needs Russia, but wants to
diversify its interests in the region and continues to
work on striking deals in the energy-producing regions
of Azerbaijan and Kazakhstan. But the relationship is
not just about energy, the Chinese government is very
troubled by extremists in its northwestern region of
Xinjiang, home to millions of Uighurs and a relatively
small group of separatists aligned with the East
Turkestan Islamic Movement. ETIM has been branded a
terrorist organization by the United States, and China
does not want to see pockets of Islamic extremists
training near its borders, or even striking within its
massive territory.
Chinese President Hu Jintao
and Nazerbayev said at a joint press conference that
China and Kazakhstan will join forces to combat their
concerns about extremism and terrorism in the region.
Having said that, Kazakhstan has "temporarily" shut its
1,800-kilometer border because of concerns about the
potential spread of severe acute respiratory syndrome
into Central Asia. Hu's recent visit to Central Asia and
Russia came as the SARS crisis in China continued to
hang over his newly established presidency, and the
worldwide criticism of how his government has handled
what has turned into a global health scare.
China's policy designs in Central Asia, the
Caucasus and Russia came into focus with Hu's visit to
the region. His two-day state visit to Kazakhstan
coincided with a meeting in Moscow of the fledgling
Shanghai Cooperation Organization. The SCO said it is
setting up a regional anti-terrorist center in the
Kyrgyz capital, Bishkek, and that the six states' prime
ministers will meet again this year in Tashkent to
discuss the organization's budget. The SCO includes
China, Kazakhstan, Kyrgyzstan, Russia, Tajikistan and
Uzbekistan. The group has decided to base its
headquarters in Beijing, an odd choice given its name,
and the secretary general will be a Chinese official,
drawing into question the role Russia and the Central
Asian states will play in the group.
Meanwhile,
as the Organization of Petroleum Exporting Countries
tries to court Russia, Kazakhstan has said that it plans
to become one of the world's top five oil producers,
with the goal of increasing its output from just over 1
million barrels per day today to 3 million barrels per
day by 2015. While multinational oil companies based in
the US and Europe are expected to play a major role in
cultivating energy exports in Russia, Kazakhstan and
Azerbaijan, it is China that ultimately could be the
biggest importer of those supplies. China wants to take
equity stakes in Eurasian energy ventures so that it is
able to control its economic destiny, rather than
replicating the West's and Japan's dependency on the
Middle East for energy needs.
Mark
Berniker is a freelance journalist specializing in
Eurasian affairs.
(Copyright 2003 Asia Times
Online Co, Ltd. All rights reserved. Please contact content@atimes.com for
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