Thursday, May 19, 2011

The New Silk Road: China’s Energy Strategy in the Greater Middle East

China Topics - China's Energy Silk Road.

The New Silk Road: China’s Energy Strategy in the Greater Middle East...

China on Edge....

“In a sense, to control oil and gas pipelines is more important than to possess oil and gas resources.”

May 2011

Credit: IEA & National Pipeline Research Society of Japan

Over the past decade, China has increased its energy foothold in the Greater Middle East, encompassing the mainly Islamic countries of Central Asia, the Caucasus, Southwest Asia, and parts of the Balkans and North Africa. Much of this activity has been rooted in China’s tendency to view energy security in geopolitical and strategic terms rather than purely economic terms. In particular, Beijing has been concerned about countering Western energy initiatives in the region. As one Chinese scholar argued, projects such as the Baku-Tbilisi-Ceyhan (BTC) oil pipeline—the first regional pipeline directly supported and controlled by Western countries—imply American motives of containing Russia and China.

Various energy experts have expressed similar views, regarding the BTC as a struggle over control of the Caucasus and Central Asia, and as a U.S. attempt to weaken Russian and Iranian control over Caspian energy resources. Another Chinese analyst described the situation aptly: “In a sense, to control oil and gas pipelines is more important than to possess oil and gas resources.”

In 2002, motivated by these and other considerations, China’s leaders decided that energy security was “too important to be left to market forces alone,” and Beijing has prioritized the issue as a matter of national security ever since. At the same time, as energy projects bring China closer to the European Union’s neighborhood, NATO allies have found themselves having to factor Chinese efforts into more and more aspects of their Eurasia policy.

In 2009, for example, the state-owned China National Petroleum Company completed a natural gas pipeline across Central Asia to Turkmenistan on the eastern shore of the Caspian Sea, even as an EU-backed consortium was working on the Nabucco pipeline to reach Turkmenian gas reserves from the west. In June 2010, Turkmenian president Gurbanguly Berdimuhamedov announced a $2 billion project to connect the eastern pipeline with China to Turkmenistan’s western resources, jeopardizing Nabucco’s viability.

Plans for energy development in NATO’s adjacent Afghanistan theater have faced competition from China as well. U.S. companies and the Asian Development Bank (ADB) have long advocated a gas pipeline from Turkmenistan through Afghanistan to consumers in Pakistan and India, culminating in the proposed Turkmenistan-Afghanistan-Pakistan-India (TAPI) project. TAPI is ostensibly about the transportation of Caspian energy reserves to world market, but it is also about the stabilization of Afghanistan. On December 11, 2010, an intergovernmental agreement was signed in Ashgabat to begin ADBfunded pipeline construction in 2012, with the goal of becoming operational in 2014. Yet the project will have to contend with a rival proposal for Pakistan and India to obtain gas through pipelines from Iran. In March 2009, Tehran and Islamabad closed a deal to build the IP portion of the Iran-Pakistan- India (IPI) pipeline, with the view of bringing either New Delhi or Beijing into the project.

Elsewhere in the region, China has entered the Iraqi energy scene and is now that country’s top oil and gas investor. Indeed, Iraq is viewed as a key new option for the Chinese oil industry, diversifying the imports China already receives from Iran and Saudi Arabia.

Through the lens of these and other energy developments in the Greater Middle East, this examines how China’s increasing footprint in the region impacts U.S. and allied interests.

Turkmenistan hails energy talks...
By Robert M Cutler

MONTREAL - Turkmenistan's President Gurbanguly Berdimuhamedow, on a visit last week to Romania, commented to the press that a formal agreement being negotiated between the European Union on the one hand and Azerbaijan and Turkmenistan on the other would be a very positive step in the direction of bilateral cooperation with Romania.

The statement represents the first public confirmation of such negotiations, which this site has long pointed out to be a step necessary to assure Turkmenistan of the EU's serious commitment to importing in significant quantities Caspian Sea basin natural gas. (See
Turkmenistan gas sets Ciceronian riddle, Asia Times Online, October 30, 2009.) Without such an expressed seriousness on the part of the EU, Berdimuhamedow
cannot take steps that risk disappointing his country's one-time energy partner, Russia.

As reported in Turkmenistan's state media, Berdimuhamedow emphasized that an "important condition" for energy cooperation was that "the political will of the participating parties ... should be framed as an agreement [among] the EU, Turkmenistan, and Azerbaijan". It appears that not only practical documents on gas exports are involved, these being in addition to the bilateral Turkmenistan-Azerbaijan expert-level work on intergovernmental cooperation, including a political declaration.

The European Commission (EC), for its part, tersely confirmed that such negotiations are under way, without giving details about their content. In January, EC president Jose Manuel Barroso had made the explicit public statement that "the most attractive" way for Ashgabat's gas to reach European markets would be "to build a pipeline via the Caspian Sea".

This is the context in which, visiting Romania, Berdimuhamedow expressed interest in supplying gas for the Azerbaijan-Georgia-Romania Interconnector (AGRI) project for liquefied natural gas (LNG) exported from the Georgian to the Romanian Black Sea coast. A four-way protocol on realizing the AGRI project was signed in mid-February among Azerbaijan, Georgia, Hungary, and Romania. Hungary's participation confirms the intention to construct the Arad-Szeged interconnector between Romania and Hungary.

A "proof of concept" feasibility study last year was successful and arrived at a cost estimate of between 1.2 billion and 4.5 billion euros, according to three variants of the project for 2 billion cubic meters per year (bcm/y), 5 bcm/y, and 8 bcm/y. Specific feasibility studies with a view to implementation have yet to be completed, and support for them was one of the motives of the four-way protocol.

One currently preferred form of the AGRI project calls for the construction of a 300-kilometer pipeline from Georgia's Black Sea coast to its border with Azerbaijan. Most notably, it calls for the off-take of supply from the Nabucco pipeline planned to carry Caspian Sea basin gas to Europe. This would also decrease the cost of construction of the Nabucco pipeline through Turkey.

Although a Trans-Caspian Gas Pipeline (TCGP) is the most cost-effective way of transiting Turkmenistan's gas into the EU's Southern Gas Corridor, it is not the only way. There are also liquefaction, compression, and gas-to-liquids, and in the specific case of Turkmenistan-Azerbaijan cooperation the interconnection of already existing rigs in their respective Caspian Sea offshore sectors is not impossible even in the absence of a settlement of their territorial differences.

Indeed, it is significant here that Azerbaijan is not mentioned as a potential supplier, having last year concluded an LNG agreement with Ukraine for 5 bcm/y, later doubling to 10 bcm/y, as Ukraine plans construction of its first LNG terminal on the Black Sea. (See
Azerbaijan diversifies energy export partners, Asia Times Online, November 5, 2010.) This is only one aspect of increasing energy cooperation between the two countries.

As reported earlier, Azerbaijan's oil is planned soon to begin filling the Odessa-Brody Pipeline (OBP) from Ukraine's Black Sea coast to Poland, making construction of a long-planned pipeline to the Poland seacoast for international export finally feasible. The first experimental shipments of Azerbaijan's oil to Ukraine have also been successfully transited to Belarus for refinement there and planned export of products to Europe. (See
Baku spreads its links, Asia Times Online, December 3, 2010.

Thus there is the chance for Turkmenistan to enter more directly into the Black Sea energy stakes, using Romania as its "springboard" (the word is Berdimuhamedow's) to Europe. The legal framework for the countries' bilateral cooperation was laid during Berdimuhamedow's earlier visit to Romania in July 2008, and it was completed when a year later Romanian President Traian Basescu went to Ashgabat, where a joint statement was signed between them emphasizing cooperation in energy and economic fields.

Romanian experts from Constanta will assist in the modernization of the Turkmenbashi Sea Port on the Turkmenistan's Caspian coast. Romania will in addition host still more students from Turkmenistan in the field of practical energy-sector training, as several Turkmenistani universities and polytechnic institutes signed bilateral cooperation agreements with Romania's University for Oil and Gas of Ploiesti.

Also known as the Petroleum Gas University of Ploiesti, this institution specializes in theoretical development and practical training and engineering in the field. Established in 1948, well known in the region and having played a key role in the development of Romania's energy resources during the Cold War era, it has since then branched out and extended relations with countries of the South Caucasus and Central Asia, training engineers in various related fields from a number of countries in the region. It is this sort of under-the-radar cooperation that proves significant in the longer term.

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