China boosts gas imports from Turkmenistan
By Vladimir Socor
Russia's stoppage since April 9 of gas imports from Turkmenistan,
ostensibly due to a pipeline accident, can only strengthen Turkmenistan's
motivation to start exports to China on schedule in early 2010. With Russia
demonstrating its unreliability as a gas importer (let alone supplier to
others), Beijing is using this opportunity to increase the volume of its future
imports of Turkmen gas beyond the volumes already agreed.
On June 24-25, Chinese Deputy Prime Minister Li Keqiang led a governmental
delegation to Turkmenistan for discussions on gas and related projects. Turkmen
President Gurbanguly Berdimuhamedov reaffirmed the commitment to put the
Turkmenistan-China pipeline into operation by December 2009 on
Turkmen territory, with the first gas to flow at the beginning of 2010.
Agreements entered into by Berdimuhamedov's predecessor, Saparmurat Niyazov, in
2006 envisaged deliveries of 30 billion cubic meters (bcm) of Turkmen gas per
year to China, starting in 2010 for a 30-year period.
The Chinese delegation, moreover, signed agreements to increase Turkmen gas
deliveries from the existing contract area and possibly to dedicate new Turkmen
gas fields to supplying China. Under the additional sale-and-purchase agreement
just signed, Turkmengaz shall deliver another 10 bcm per year to the China
National Petroleum Corporation (CNPC) during the same 30-year period, on top of
the annual 30 bcm previously agreed. The 40 bcm annual figure comes close to
Russia's import of Turkmen gas and is not the final target for China. CNPC is
the first foreign company to develop major onshore fields under license in
Turkmenistan.
During this visit, China's State Development Bank opened a US$4 billion credit
line on soft terms to Turkmengaz through an intergovernmental agreement (the
sides in May had tentatively agreed on $3 billion). This credit is expected to
finance exploration and development in the new, supergiant gas fields South
Yolotan and Osman and possibly elsewhere in Turkmenistan. Thus, China's intake
of Turkmen gas may surpass Russia's in the years ahead, if these projects are
completed.
Under another agreement signed on the same occasion, China's Petrochina
International and Turkmenistan's Agency for Development of Natural Resources
will expand the extraction of gas and condensate in the onshore Bagtyarlik
contract area and other gas fields on the right bank of the Amu Darya River.
That area in eastern Turkmenistan is the main supply source for the pipeline
being built to China.
The 7,000 kilometer pipeline is projected to run from Turkmenistan via the
territories of Uzbekistan and Kazakhstan to China's Xinjiang region. From
there, a continuation West-East Pipeline is planned to carry the Turkmen gas to
cities in China's interior and eventually the eastern coast.
A separate Chinese credit worth $300 million will finance construction of a
nitrate-based fertilizer factory in Turkmenistan, mainly for the needs of
Chinese agriculture. A few other light-industry projects are also in this
package. Fertilizer production being intensively gas-consuming, it is
cost-effective for China to locate such a plant at the source of gas in
Turkmenistan. According to Li Keqiang, China's national goal to increase grain
production explains its rapidly growing demand for fertilizers. With
potassium-based fertilizer in short supply, China is creating a basis for
nitrate-based fertilizer production in Turkmenistan.
Beijing seems anxious to avoid delays in the implementation of these ambitious
projects. "The Chinese side is very hopeful that all accords we have reached
will be implemented as soon as possible," Li declared. Addressing the Chinese
work force at the PetroChina Turkmenistan Amu Darya Corporation, Li urged them
to "defy hardship and fight continuous battles [to] achieve the set goal of
completing the project on schedule, in the long-term interests of the two
countries".
The Chinese are offering Turkmenistan additional incentives, unrelated to the
gas project as such but intended to advance overall cooperation and China's own
presence in the country. The delegation offered financing for a glass factory
in Turkmenistan; a gift of computers (in the framework of a non-reimbursable
assistance grant arranged last year); and an increase in the number of Turkmen
student scholarships in China to 90 per year. Implementation agreements were
also signed on these issues.
Beijing assumes that "China and Turkmenistan have highly complementary
economies," according to the delegation in Ashgabat. This assessment may be
read as reflecting a Chinese policy goal for the years ahead. It could become
reality if China becomes a second-to-none export destination for Turkmen gas
and continues to generate collateral projects in the country.
From Turkmenistan's perspective as a gas-exporting country, "security of
demand" looks clearly more promising in China compared with Russia. This is the
case both at present and for the foreseeable future, given the strong durable
growth in Chinese demand for gas. Ironically, it was Russia's Gazprom and the
Kremlin that were insisting recently on "security of demand" as a condition to
long-term gas supply contracts with European countries.
As it turns out, however, Russia itself failed again (as on several past
occasions) to provide security of demand for Turkmenistan. This time, moreover,
Moscow needed the April 9 "accident" as an excuse for halting imports of
Turkmen gas entirely and demanding revision of the signed contracts.
Politically, on this visit as on other occasions, the Chinese side pledged
support to "strengthening Turkmenistan's international positions and upholding
its policy of permanent neutrality". Berdimuhamedov in turn underscored "the
continuation of the practice of regular contacts on the state and government
levels" with China.
A state-driven policy enables Beijing (as it enables Moscow in many other
cases) to offer multifaceted package deals for access to mineral resources
abroad. In Turkmenistan's case, China is financing the gas project up-front,
guarantees demand, creates spin-off projects in the country, carefully
cultivates political relations with the country's leadership, opens access to
the country and its resources ahead of the West, and is now successfully
competing with Russia, which had been there ahead of China.
Vladimir Socor is a senior fellow and long-time senior analyst with the
Jamestown Foundation. He was formerly a senior research analyst with Radio Free
Europe/Radio Liberty in Munich, and is a specialist in the non-Russian former
republics of the USSR, CIS affairs and ethnic conflicts.
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