Page 1 of 3 China resets terms of engagement in Central Asia
By M K Bhadrakumar
Nursultan Nazarbayev has a way of drawing lines in the sand. The president of
Kazakhstan recently told global oil and metal majors that new laws would allow
only those foreign investors that cooperate with his industrialization program
to tap his nation's mineral resources.
"We will work only with those who propose projects helping diversification of
the economy," he said at a December 4 investment conference in Astana, the
Kazakh capital, which was attended by ArcelorMittal, Chevron, Total, ENRC and
other investors. To any unwilling to collaborate, he said: "We will look
for new partners, offer them favorable conditions and resources to fulfill
projects."
For good measure, he added that Beijing has asked Kazakhstan - a country the
size of Europe but with just 16 million people - to allow Chinese farmers to
use one million hectares of Kazakh land to cultivate crops such as soya and
rape seed.
Pro-Western elements in Kazakh politics have since taken to the streets. On
December 17, addressing a rally in Almaty, Bolat Abilov, co-chairman of the
opposition party Azat [United Social Democratic Party] drew an apocalyptic
scenario: "If we tomorrow give, or distribute, one million hectares of land, it
would mean 15 people working per hectare. That means 15 million people would be
brought from China. If one of those 15 people were to give birth each year,
that would be the end. In 50 years, there would be 50 million Chinese [in
Kazakhstan]."
A rally was held outside the Chinese consulate in Almaty with placards reading,
"Mr Hu Jintao, we will not give up Kazakh land!"
A pipeline to the heart of Asia ...
Nazarbayev's message was direct: Western investors could keep their money if
interested only in exploiting Kazakhstan's mineral wealth. The president was
speaking as a momentous event in the history and politics of Central Asia was
resetting the terms of engagement for foreigners in the region: the development
of an ambitious 7,000 kilometer pipeline to link the region's gas fields to
cities on China's eastern seaboard.
Ten days after Nazarbayev spoke, Hu arrived on a Central Asian tour for the
formal commissioning of the 1,833-kilometer pipeline connecting gas fields in
Turkmenistan, Uzbekistan and Kazakhstan (and possibly Russia) to China's
Xinjiang Autonomous Region.
Turkmenistan says it alone can supply 40 billion cubic meters (bcm) of gas a
year through the pipeline for three decades once it reaches full capacity. That
is about half China's current annual consumption.
Uzbekistan signed an agreement with China in November last year to export up to
10 bcm gas a year. (A 2006 estimate put Uzbekistan's gas reserves at 1.8
trillion cubic meters.) A branch line of the Turkmen-China trunk pipeline
passes through the town of Gazli, in the Bukhara region, where the Uzbek gas
can be fed into it. China has invested in the Uzbek gas fields in the region.
The Uzbek reserves are primarily concentrated in the Qashqadaryo province and
near Bukhara alongside which the Chinese pipeline passes.
Kazakhstan is set to export another 10 bcm gas through another branch pipeline
connection. China, which is preparing for a massive increase in consumption,
wants natural gas to account for 10% of its energy mix by 2020, from 3% in
2005. China consumed 77.8 bcm of natural gas last year, a little more than its
domestic output of 77.5 bcm. However, the nation faces a natural gas shortage
of 70-110 bcm by 2020, according to the 2009 Energy Development Report
published by the Chinese Academy of Social Science, an official think-tank. All
China's gas imports are currently in the form of LNG and it is separately
raising its LNG import capacity to 15 million to 18 million tons by the end of
next year.
There was widespread skepticism among observers whether the Central Asia
pipeline project would see the light of day. Indeed, China pushed ahead against
Western views that last year's renewed unrest in Xinjiang put it at risk.
"China is putting a lot of eggs in one basket,'' one British expert said. "An
awful lot of oil and gas is coming through a small region. Looking now at
trends in Xinjiang, you could ask whether a route from Central Asia is actually
more secure than routes through Southeast Asia or the South China Sea."
The implication was obvious: that China's Central Asian pipeline could become a
sitting duck for terrorists. As Robert Ebel, at the Center for Strategic and
International Studies in Washington, put it, security could be impossible if
the pipelines become targets as they pass through vast stretches of sparsely
populated areas in Central Asia and Xinjiang. "There is no way you can protect
a pipeline along its entire length. It just can't be done", Ebel, a security
expert, maintained. Unrest in Xinjiang, particularly, threatens the Central
Asian pipeline, he added. "I'm sure it's causing grey hairs on the people in
Beijing," he said.
... sends shock waves to Washington
The American experts have drawn a doomsday scenario for the Chinese pipeline.
Writing in the Central Asia & Caucasus Institute Analyst of Johns Hopkins
University in October last year, Stephen Blank of the US War College branded
Xinjiang as a "pressure cooker" which Beijing is nowhere near controlling.
Growing nervousness in Washington about the Chinese pipeline was quite
palpable. The US Senate Foreign Relations Committee held a rare hearing in July
regarding China's geopolitical thrust into the Central Asian region. Testifying
at the hearing, Richard Morningstar, the US special envoy for energy,
underlined that the US needed to develop strategies to compete with China for
energy in Central Asia.
This was perhaps the first time that a senior US official has openly flagged
China as the US's rival in the energy politics of Central Asia. US experts
usually have focused attention on Russian dominance of the region's energy
scene and worked for diminishing the Russian presence in the post-Soviet space
by canvassing support for Trans-Caspian projects that bypassed Russian
territory. In fact, some American experts on the region even argued that China
was a potential US ally for isolating Russia.
Certainly, 2009 was a turning point in American discourses on Chinese policies
in Central Asia. As China's Turkmen gas pipeline got closer to completion, US
disquiet began to surface.
"China is having increasing and heavy influence in Central Asia,'' Morningstar
said. ``It is hard for us [the US] to compete with China in some of these
countries. It's easy for Turkmenistan to make a deal with China when China
comes in and says, 'Hey, we're going to write a check for X amount of money,
we're going to build a pipeline'. That's not a hard deal to accept, and we [US]
can't compete in that way."
Morningstar put forward two suggestions. One, "to develop a strategy to deal
with that [Chinese policy] and encourage the US companies to negotiate
creatively with Turkmenistan". Two, Washington should also think about whether
it makes sense for US companies to cooperate with China in such countries.
Scope for US-China cooperation over Central Asian energy resources is very
limited. In geopolitical terms, there is a conflict of interest between the two
countries. One principal objective of China is to lock in energy sources that
are not dependent on supply routes passing through the Malacca Straits, which
the US controls and could prove a choke point in the event of a US-China
confrontation.
Besides, Morningstar himself put his finger on the crux of the problem. While
it was good for China's energy-hungry economy to get "clean energy" such as
natural gas, the "gas that goes to China competes with gas that could go
westward".
Beijing raises the stakes ...
However, the US realizes that devising a counterstrategy to China's is easier
said than done. China's presence in the Central Asian energy scene was not a
single day's happening. Painstaking diplomacy spread over years went behind it.
It was back in 1997 that Kazakhstan and China agreed to build a 3,000 km crude
oil pipeline and would later double capacity to 20 million tonnes a year.
In 2005, CNPC International paid almost $4 billion for a 33% stake in
PetroKazakhstan. The following year China bought up Kazakh oil assets worth
nearly $2 billion in the Karazhanba oil and gas fields (which has proven
reserves of more than 340 million barrels), agreed to purchase 30 bcm gas from
Turkmenistan ((later increasing this to 40 bcm), and committed $210 million to
look for oil and gas in Uzbekistan over the next five years.
In 2008, Kazakhstan and China agreed on jointly developing oil and gas reserves
on the continental shelf of the Caspian Sea, while China's Guangdong Nuclear
Power Co and Kazakhstan's state nuclear firm Kazatomprom agreed on boosting
uranium output in their joint venture.
In April 2009, China made the mother of all energy deals by agreeing to lend
Kazakhstan $10 billion in an unprecedented "loan-for-oil" deal and also agreed
with state-owned KazMunaiGas to jointly buy oil producer MangistauMunaiGas for
$3.3 billion.
In 2009, China also agreed to issue a $3 billion loan for developing the
Central Asian state's largest gas field, South Iolotan, which is estimated to
contain anywhere between 4 trillion and 14 trillion cubic meters of gas,
according to Britain's Gaffney, Cline and Associates - making it one of the
world's five largest gas deposits.
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