Wednesday, 20 January 2010

CHINA, TURKMENISTAN, KAZAKHSTAN AND UZBEKISTAN LAUNCH TURKMENISTAN-CHINA GAS PIPELINE

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By Chemen Durdiyeva (1/20/2010 issue of the CACI Analyst)

On December 14, 2009, the presidents of China, Kazakhstan, Uzbekistan and Turkmenistan officially launched the Turkmenistan-China gas pipeline, which will pump five billion cubic meters (bcm) of blue fuel annually with a planned increase of up to 40 bcm by 2012. While the Russian gas giant Gazprom has been reluctant to reach a price agreement with Ashgabat, China is overtaking a large portion of the energy market in Central Asia and breaking Russia’s monopoly over Turkmenistan’s gas export routes. This 7,000 kilometer (4,349 miles) long gas pipeline taking Turkmen gas to China’s Xinjiang Province through the territory of Uzbekistan and Kazakhstan was initiated by Turkmenistan’s past president Saparmurat Niyazov in 2006.
On December 14, 2009, the presidents of China, Kazakhstan, Uzbekistan and Turkmenistan officially launched the Turkmenistan-China gas pipeline, which will pump five billion cubic meters (bcm) of blue fuel annually with a planned increase of up to 40 bcm by 2012. While the Russian gas giant Gazprom has been reluctant to reach a price agreement with Ashgabat, China is overtaking a large portion of the energy market in Central Asia and breaking Russia’s monopoly over Turkmenistan’s gas export routes. This 7,000 kilometer (4,349 miles) long gas pipeline taking Turkmen gas to China’s Xinjiang Province through the territory of Uzbekistan and Kazakhstan was initiated by Turkmenistan’s past president Saparmurat Niyazov in 2006. According to the initial agreement, Turkmenistan would deliver an annual 30 bcm of gas to China for 30 years. Since the official start of the project in 2007, the China National Petroleum Corporation (CNPC), the main contractor with the Turkmen government, completed the construction of the pipeline in three Central Asian countries within two years. On December 14, the arrival of presidents Hu Jintao, Nursultan Nazarbayev, Islam Karimov and Gurbanguly Berdimuhammedov in the city of Turkmenabat was accompanied by unprecedented security measures. One day prior to the summit of these four presidents, firefighters took extreme precautionary measures by warning the city residents not to create any type of smoke during the day of the summit. In addition to massive police enforcements, security was also monitored by air through military helicopters. Road traffic on the main highways from the only city airport to Saman Depe (the starting point of the pipeline) was been closed from early morning until late afternoon. A live corridor of school students and public sector workers lining up and waving flags accompanied the roughly 85 kilometers (52 miles) from the airport to Saman Depe from morning till late afternoon. According to CNPC officials in Saman Depe, currently one Gas Treatment Plant (GTP) is in full operation, capable of pumping 5 bcm per year. The construction of the second and third GTPs is underway and will be finalized next year. This will increase the pumping capacity to 40 bcm by 2012 as stated by Turkmen authorities. In order to reach 40 bcm per year, Turkmenistan has also allowed the CNPC to carry out the exploration and development of gas deposits in the major South-Yoloten-Osman field, which contains an estimated 14 trillion cubic meters of gas and is ranked as the world’s fourth largest gas deposit as confirmed by the British firm Gaffney Cline’s independent audit in 2008. Turkmenistan’s decision to increase the export of gas from 30 bcm as initially agreed to 40 bcm per annum came following the price dispute with Russia’s Gazprom over Turkmenistan’s gas exports to Russia. Turkmenistan halted the delivery of gas to Russia after an explosion along the Central Asia-Center-4 pipeline on April 9, 2009. The Turkmen authorities accused Gazprom for the pipeline blast along the lines of a price dispute, but Gazprom executives have denied the charges and did not accept any responsibility in this regard. Turkmenistan had been delivering up to 40 bcm to Russia annually until the incident caused a major rift in trade relations. However, Turkmenistan appears to have struck a new lucrative deal with Russia upon President Dmitri Medvedev’s visit to Ashgabat on December 22, 2009. After bilateral talks in Ashgabat over the gas price dispute, the sides finally reached an agreement under which gas export was to resume starting from January 2010, and Russia will purchase 30 bcm a year on the basis of a formula that matches the gas price in the European market. In November, Gazprom and Ashgabat were reportedly contemplating an agreement for the delivery of only 10 bcm per year. However, the rapid expansion of China’s investment in Turkmenistan’s energy sector and the launch of the Turkmenistan-China pipeline seem to have expedited the new deal with Russia. In addition, President Medvedev spoke about the construction of the Trans-Caspian pipeline, the future of which was left uncertain due to the halt of gas deliveries to Russia since April 2009. The significance of the Turkmenistan-China pipeline lies in the fact that this is the first high-volume gas export route for Turkmenistan beyond its main transit routes through Russia. The launch of the pipeline also boosts cooperation among these Central Asian countries as Kazakhstan and Uzbekistan collect transit fees. Accordingly, the construction of the pipeline as well as the Gas Treatment Plants (GTP) created new jobs, especially in the eastern regions of Turkmenistan, plagued by high unemployment. On the other hand, the Turkmenistan-China pipeline provides China with a secure and cost-efficient delivery of energy sources from Central Asia. As opposed to China’s main energy imports from West Africa and the Middle East via maritime transport, transporting energy through land routes such as the Turkmenistan-China pipeline enables China to diversify its imports through secure means of transportation.
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