2012-11-30 by Richard Weitz
China’s growing energy needs represent another force driving its increased interest and involvement in Central Asia.
A combination of a booming economy and declining domestic energy production has resulted in China importing an increasingly large percentage of its oil and natural gas. Although China still acquires the bulk of its oil imports from the Persian Gulf and Africa, Chinese policy makers have sought to enhance their access to energy resources from Central Asia as well as from Russia.
Oil and gas from these regions can travel overland to China and obviate the need for Beijing to rely on vulnerable sea-lanes susceptible to interception by the U.S. or other navies.
In addition, the Chinese appreciate the risks that terrorism, military conflicts, and other instability in the Middle East could abruptly disrupt energy exports from the Gulf region. The Chinese government has therefore been promoting the development of land-based oil and gas pipelines that would direct Central Asian energy resources eastwards toward China.
The Central Role of Kazakhstan
Much of China’s interest in developing Central Asia’s energy resources has centered on Kazakhstan, its main trading partner in the region.
The volume of Kazakhstan’s trade with China now exceeds that with Russia, for the first time in centuries. China has been Kazakhstan’s second-largest trade partner since 2009 and its biggest export destination since 2010. Bilateral economic ties should expand further given that both countries regularly enjoy some of the world’s fastest growth rates and China’s growing demand for Kazakhstani’s rising exports of oil and gas.
One impediment to the development of Sino-Kazakhstani energy ties has been that Central Asian’s Soviet-era energy pipelines either flow westwards towards Europe or north to Russia. Until recently, China has had to import oil from Kazakhstan by railways passing through Russian territory.
For this reason, PRC officials have been encouraging Chinese energy companies to purchase Central Asian energy assets and invest in the transportation and other regional infrastructure required to move these resources to China.
Another initial barrier to China-Kazakhstani energy relations, also now overcome, was that Western firms were initially able to block the efforts by Chinese energy companies to join Kazakhstan’s largest oil and gas projects. But energy cooperation has accelerated in recent years after the Kazakhstani government fully committed to directing a share of its energy exports eastward to China. Sinopec, CNPC, and other Chinese energy firms have invested billions of dollars in oil projects in Kazakhstan and aims to increase that total, including by helping develop oil fields in the Caspian region. The breakthrough came in 2005, when CNCP purchased Petrokazakhstan, a leading Kazakhistani energy firm.
In July 2005, President Hu Jintao signed a declaration of strategic partnership with Nazarbayev that, among other things, provided for expedited development of the 1,300-km Atasu-Alashankou pipeline to transport at least ten million tons of oil annually from Kazakhstan’s Caspian coast to China’s Xinjiang province.
This 50-50 joint venture between the Chinese National Petroleum Corporation (CNCP) and Kazakhstan’s national oil and gas company, KazMunaiGaz, began operating on a limited basis in December 2005, marking the first eastward flow of Central Asian oil and China’s first import of oil by pipeline.
During Nazarbayev’s visit to Beijing on December 20, 2006, the two sides launched a multi-phase project to construct multiple oil pipelines—beginning first with an extension of the Atasu-Alashankou pipeline to the city of Kenkiyak in the Kazakhstani sector of the Caspian Sea—linking the two countries and financed by both.
When President Hu Jintao visited Kazakhstan en route to returning to China following the August 2007 SCO summit in Bishkek, he and President Nazarbayev oversaw the signing of several energy agreements. The most important was a deal between the CNPC and KazMunaiGaz that extended the existing Atasu-Alashankou pipeline that carries oil from central Kazakhstan to Xinjiang 700km westward, allowing the transportation of oil from fields in Kazakhstan’s Caspian Sea region directly to western China. This pipeline now transports 10-20 million tons of oil annually and has allowed Kazakhstan to diversify its oil exports, diluting Russian control of Kazakhstan’s energy policy.
China provided about $13 billion in investments and loans to Kazakhstan’s energy sector in 2009.
That year, Kazakhstan and China completed an oil pipeline from Kazakhstan’s port city of Atyrau to the Xinjiang region of China that initially carries 200,000 bpd to China. At the end of October 2008, China and Kazakhstan signed a framework agreement on constructing a gas pipeline from Beyneu, north of the Aral Sea, eastward to Shymkent, where it will connect with the Central Asian gas pipeline to China. The pipeline is planned initially to supply 176.6 bcf to southern Kazakhstan and 176.6 bcf to China. Plans call for pipeline construction to begin in 2011 and to be completed by 2015.
The two presidents also announced that Kazakhstan would allow a natural gas pipeline then planned for construction between Turkmenistan, which has one of the world’s largest natural gas reserves, and China to pass through Kazakhstan’s territory.
In December 2009, President Hu opened the valve of the new the Central Asia-China gas pipeline transporting Turkmenistan’s natural gas to Xinjiang. Its 1,833-km route originates on the Turkmen-Uzbek border, passes through central Uzbekistan and southern Kazakhstan, and then ends at the border town of Khorgos, which is part of the Xinjiang Autonomous Region in northwest China. PRC internal pipelines then move the gas to the industries and consumers located in eastern Chinese cities such as Shanghai. This pipeline is expected to deliver around 40 billion cubic meters (bcm) annually by 2015. Uzbekistan and Kazakhstan plan to construct branch pipelines that will allow them to send their own natural gas to the China.
http://www.youtube.com/watch?v=N97xosfoYew
In recent years, the Sino-Kazakhstan energy partnership has begun to extend into the realm of nuclear energy. The PRC government is committed to expanding the country’s use of nuclear energy, but its domestic reserves of uranium are declining. At the same time, neighboring Kazakhstan is seeking to become the world’s leading producer and exporter of natural uranium.
In 2006 and 2007, China Guangdong Nuclear Power Group Holdings (CGNPC) signed agreements with Kazatomprom, Kazakhstan’s state-owned nuclear energy company, on supplying uranium and fuel assemblies to the PRC and on investing in China’s growing nuclear energy sector.
The deal marked the first occasion that Beijing has permitted a foreign company to become a shareholder in the PRC’s domestic nuclear power industry.
Both the CGNPC and the China National Nuclear Corporation are also investing in uranium mines in Kazakhstan. In April 2009, KazAtomProm signed a preliminary memorandum of understanding with CGNPC to assess the feasibility of forming a joint venture that would specialize in constructing nuclear power reactors for use in China.
Furthermore, in February 2011, President Nazarbayev traveled to China and met with President Hu and other PRC leaders. Among other issues, they discussed lucrative uranium deals that could be worth billions of dollars. The talks indicated that Kazakhstan could supply China with up to 40% of its uranium imports, which could be worth more to Kazakhstan than both their oil and gas exports to the PRC combined. An energy deal of this magnitude, whereby China would rely heavily on Kazakhstan’s uranium for its growing nuclear-power demands, would further improve the overall relationship between these two countries.
The Roles of Uzbekistan and Turkmenistan
China has also been developing energy ties with Uzbekistan and Turkmenistan.
In July 2005, China’s Sinopec negotiated a memorandum on cooperation with Uzbekneftegaz, Uzbekistan’s state-owned energy company, that should see it invest over $100 million during the next five years in that country’s oil industry. In June 2006, China’s National Oil and Gas Exploration Development Corporation (CNODC) announced it would spend $210 million to find energy in Uzbekistan.
In April 2007, the Chinese and Uzbek governments released a statement announcing their intention to construct a 500-kilometer natural gas pipeline between their countries, with an annual capacity of 30 billion cubic meters (bcm) per year. This figure would amount to half of Uzbekistan’s annual gas production. Since China and Uzbekistan do not border each other, the pipeline would need to traverse another Central Asian country.
In April 2006, Chinese officials reached agreement with then President Saparmurat Niyazov of Turkmenistan to ship natural gas to China through a future pipeline. Current plans are to transport approximately 30 billion cubic meters of natural gas from Turkmenistan’s Bagtyyarlyk field to Chinese markets through a 4,350- mile (7,000 kilometer) pipeline for at least 30 years.
For some time, Turkmenistan had been seeking alternative energy export routes to reduce its overwhelming dependence on Russian-owned pipelines.
Credit for Graphic:
http://www.sras.org/geopolitics_of_oil_pipelines_in_central_asia
