Before the 1991 Soviet collapse, Russia dominated the economies of the other 14 republics. In the decade and a half since, Western companies have been angling to acquire a piece of the former Soviet Union's energy assets. In the last few years, however, China has become an increasingly important regional player, and in a nasty Christmas present for both Washington and Moscow, on Dec. 28 China National Petroleum Corp.'s subsidiary PetroChina 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. 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. 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. At the time, many analysts assumed the agreement was merely a negotiating tactic used by Turkmenistan's new President Gurbanguly Berdymukhammedov in his ongoing discussions with Russia's Gazprom for increased prices.
CNOGEDC is hardly a startup company lacking expertise; specializing in international oil and gas exploration and production, it operations are worldwide and include a presence in Algeria, Kazakhstan, Oman, Niger, Chad, Canada, Azerbaijan, Ecuador, Peru, Venezuela, China and Indonesia.
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 agreement means that, despite a year of intense negotiation following the December 2006 death of Turkmen President Saparmurat Niyazov, Washington has essentially lost the race to gain a major foothold in the dormant but massive Turkmen natural gas sector, whose reserves are estimated to be the world's fourth or fifth largest.
The effect on Russia's Gazprom, which initially seemed to have cornered Turkmenistan's gas supplies, is less clear. Last September, Gazprom and Turkmenistan reached an agreement on gas prices and the amount of supplies for 2007-2009. The agreement allowed Gazprom to buy 50 billion cubic meters of Turkmen gas a year at $100 per 1,000 cubic meters, up from the previous price of $65. In November, subsequent agreements raised the price to $130 for January-June 2008, rising to $150 in the second half of the year.
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.
While few further details of the agreement were released, China enters the Turkmen market with two major advantages over its competitors. Turkmenistan well remembers Russian dominance of its territory, which began in the 1860s and continued through the brutal socialist experiments of the Soviet era, where Turkmenistan was effectively reduced to the status of a conquered colony. China is free of any such imperial baggage.
As for the U.S. interest in developing Turkmen energy resources, proposals were frequently accompanied by hectoring lectures on both developing a free-market economy and human rights, both topics on which China maintained a diplomatic silence.
Furthermore, the China offer will undoubtedly include substantive assistance beyond the economic agreements. A look at Chinese policy in Africa, where Beijing has also engaged in a persistent search for energy assets, is instructive. Since 1956, China has provided educational assistance to 50 African nations, bringing 18,000 Africans to study in China on scholarships, and Beijing has trained more than 6,000 African civil servants while sending more than 15,000 Chinese doctors to 34 African countries. Such policies, far beyond mere trade ties, mean that since 2002 Chinese-African trade has tripled.
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.