Wednesday, 20 September 2006

TURKMEN-CHINESE ENERGY RELATIONS LIKELY TO CAUSE GROWING TENSION IN REGIONAL POLITICS

Published in Analytical Articles

By Hooman Peimani (9/20/2006 issue of the CACI Analyst)

BACKGROUND:Having the world’s fourth largest economy, China’s steady economic growth has gradually turned it into the world’s second largest fossil energy importer. Its seemingly unstoppable economic growth will further increase its energy requirements in the foreseeable future. As a consequence, the Chinese have been seeking multiple energy suppliers since the late 1990s.
BACKGROUND:Having the world’s fourth largest economy, China’s steady economic growth has gradually turned it into the world’s second largest fossil energy importer. Its seemingly unstoppable economic growth will further increase its energy requirements in the foreseeable future. As a consequence, the Chinese have been seeking multiple energy suppliers since the late 1990s. Being an energy-rich neighbor on good terms with China, Central Asia has increasingly become of interest to the Chinese as an energy supplier. For that matter, Beijing has particularly increased its activities in the Kazakh and Turkmen oil and gas industries, which has taken various forms such as purchasing the operating energy companies, pipeline construction, and oil and gas import contracts. As recent noteworthy examples in this regard, the Chinese in October 2005 acquired a major Canadian-owned oil company operating in Kazakhstan, PetroKazakhstan, with the commitment to expand its operations. This was a US$4.2 billion acquisition. Also, in May of this year, Kazakhstan started oil exports to China through the Atasu-Alashankou pipeline completed in November 2005. Being 962 kilometers long, the $700 million pipeline will provide China with 20 million tons of oil once it reaches its maximum capacity. Within this context, the significance of the mentioned Turkmen-Chinese gas pipeline should be analyzed.

IMPLICATIONS:The pipeline project was first discussed in April this year during President Niyazov’s official visit to China. Once constructed, Ashgabat will annually supply China with 30 billion cubic meters of gas through the pipeline for 30 years. The project is still at the planning stage, and thus requires addressing difficult issues such as agreeing on its route. This also requires the consent of Uzbekistan and Kazakhstan or only Kazakhstan, depending on the selected route. So far, Kazakhstan has shown interest in working with Turkmenistan on this matter as expressed by Kazakh Foreign Minister Qasymzhomart Toqaev during his August visit to Turkmenistan. If actual construction begins this year, the pipeline will be operational in 2009. The Turkmen-Chinese pipeline, if it becomes a reality, will be a major challenge to Russia, which has a strong interest in the growing Chinese energy market, including plans for large-scale gas exports to China by 2011. That market has the potential to increase substantially Russia’s oil and gas exports to a neighbouring country through its own pipelines, by which Moscow can also decrease its current heavy reliance on the European market for its fuel exports. Consequently, the Turkmen-Chinese pipeline will be a rival to Russia’s proposed pipeline to China. This factor has the potential to damage Turkmen-Russian relations for two reasons. First, Turkmenistan’s intention to take a large share of the Chinese gas market goes against Russia’s interests. Secondly, it provides the Turkmen with an export route and means other than the Russian ones through which they have exported the bulk of their gas exports since 1991. This reality has granted an almost complete monopoly to Russia over Turkmen gas exports, which Moscow seeks to keep at any cost. Being a sign of a growing Chinese interest in the Central Asian energy industry, the pipeline could also cause damage to Beijing’s relations with Moscow and Washington. As Russia has been working hard through its oil and gas companies, including Gazprom, to expand its presence in the Central Asian fossil energy industry, China’s evident effort to play a more prominent and expanding role in the industry to ensure uninterrupted supplies for its economy will inevitably make it a major rival to Russia. By the same token, the Chinese growing presence in that industry will also turn it into a major competitor to the United States whose energy companies have sought since 1991 to secure a lion share of the Central Asian oil and gas industry. The Americans and the Chinese both require an increasing amount of imported oil and gas to rank them as the world’s first and second largest fuel importers, respectively. Thanks to its rapidly growing economy, which will be the world’s third largest after America and Japan by 2009, China is competing neck to neck with the U.S. to secure the largest imports of energy in the near future. As Washington considers Central Asia as a supplier for energy security, Beijing’s pursuit of the same goal will create a clash of interest between the two countries at some point in the future.

CONCLUSIONS:While it is yet to become a reality, the Turkmen-Chinese gas pipeline is important for its impact on the Turkmen gas exports and for helping China secure gas suppliers. Yet, the pipeline is more important for its symbolic value. It therefore serves as an indicator of how China’s bid to increase its share of the Central Asian oil and gas industry and, in particular, regional fuel exports, will inevitably put China on a collision track with Russia and the United States, pursuing the same objectives. If the current trend continues, and there is no indication to suggest otherwise, conflicting energy interests will damage the Chinese relations with Russia and America alike. Needless to say, various factors, including the state of bilateral relations between the Chinese and the latter and the significance on the global scale of those relations for the Chinese, will determine how their rivalry with the Americans and the Russians will develop, while determining the form and the extent of damage of the rivalry on those bilateral relations. As for the effect of the Chinese energy moves on Central Asia, there is no uncertainty on its long-term damaging impact on Moscow’s relations with two major regional fuel exporters, Kazakhstan and Turkmenistan, for their rivaling Russia as an energy supplier to China.

AUTHOR’S BIO:Dr. Hooman Peimani is an Associate Senior Research Fellow at the Centre for International Cooperation and Security (CICS), Department of Peace Studies, University of Bradford, UK.

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The Central Asia-Caucasus Analyst is a biweekly publication of the Central Asia-Caucasus Institute & Silk Road Studies Program, a Joint Transatlantic Research and Policy Center affiliated with the American Foreign Policy Council, Washington DC., and the Institute for Security and Development Policy, Stockholm. For 15 years, the Analyst has brought cutting edge analysis of the region geared toward a practitioner audience.

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