MONTREAL - Turkmenistan has agreed to increase future natural gas exports to China from the already planned 40 billion cubic meters per year (bcm/y) to 65 bcm/y, or more than half of China's total consumption of natural gas.
President Gurbanguly Berdimuhamedow of Turkmenistan is in Beijing this week to sign over a dozen agreements with his Chinese counterpart, Hu Jintao, including several that will provide also for increased Chinese investment and sales of drilling equipment in the energy sector, and loans for those purchases.
The agreements that Berdimuhamedow signed in Beijing provide for further Chinese investment in the South Yolotan gas field, which is the world's second-largest, with estimated reserves between 13 trillion and 21 trillion cubic meters. Other agreements
will cover such areas as police training, and counterterrorism. Berdimuhamedow will also hold meetings with Premier Wen Jiabao and chairman of the People's National Congress Standing Committee Wu Bangguo.
On Thursday, Berdimuhamedow will attend ceremonies marking the inauguration of a US$22 billion pipeline that will carry his country's gas to southern China. This is the second West-East Gas Pipeline (WEGP). The first was completed in 2004 and, with a length of 4,000 kilometers, was at the time one of China's largest energy projects. Originally carrying 12 bcm/y from the Tarim Basin in Xinjiang to Shanghai on the eastern coast, its volume was increased to 17 bcm/y through the addition of more compressors and upgrading of the industrial plant.
When gas from Turkmenistan came on line via the Turkmenistan-Uzbekistan-Kazakhstan-China natural gas pipeline in 2009, it was put into the first WEGP. The gas that originally fed it, from Xinjiang's Tarim Basin and secondarily from Changqing (Shaanxi province), is now held in reserve for that purpose in case of emergency. The second WEGP's western segment has been operating for roughly two years. Berdimuhamedow's visit was timed for the ceremonial opening of the eastern segment, although it had been operating already for several months.
The second WEGP cost nearly four times as much as the $5.7 billion that the first one cost, partly due to increase expense for the raw materials required to manufacture the pipe. Its main line inside China runs 4,843 km from Khorgos in northwestern Xinjiang to Guangzhou, the capital of Guangdong province. If one begins measuring at the source of the gas in Turkmenistan, one gets an impressive length of 9,102 km, although the WEGP designates only the internal Chinese leg.
The second WEGP has a design capacity of 30 bcm/y, which may be upgraded to 40 bcm/y in order to receive gas contracted also from Kazakhstan, through which the pipeline runs. In the beginning, the Kazakhstani gas will come from Aqtobe in the west of the country, whence a feeder pipeline runs to Kyzl-Orda and then to Shymkent in the south.
The Chinese have been active in Aqtobe for well over a decade in anticipation of this opportunity, and the pipeline inside Kazakhstan will make the southern part of the country independent of imports (mainly from Uzbekistan) for the first time in its history. The pipeline will then turn east towards Almaty and the Chinese border.
Work on a third WEGP has begun. This pipeline will start in Xinjiang and take mainly Central Asian gas to the Yangtze and Pearl River deltas in Fujian province in the southeast. It looks to be roughly as long as the second WEGP. A fourth WEGP is on the drawing boards, and even a fifth is being talked up.
The Russian newspaper Kommersant quoted an unnamed Chinese diplomat as saying that "Beijing will do its best to make sure the Trans-Caspian [Gas] Pipeline project [from Turkmenistan to Azerbaijan] is not developed," because China does not want Turkmenistan to use European prices to bargain for an increase in prices to China.
Consequently, China will "contract more and more gas volumes in Turkmenistan" as the Chinese gas market expands, and as soon as possible, in order to draw supplies away from a possible Western direction for Turkmenistan's exports.
Russia already wishes to charge European prices to China for Siberian gas that has been under discussion between the two sides since 2004. The gas would have two routes, one in western Siberia (30 bcm/y) and one in the east (38 bcm/y). A Siberian contract could be worth as much as $1 trillion, but whereas China has preferred that the former route be developed first, Russia concentrated on the latter and opened the Sakhalin-Khabarovsk-Vladivostok pipeline two months ago.
Russia shares with China the wish to prevent Turkmenistan's gas from reaching Europe, so that Gazprom may maintain its already large market share, which is set to grow further if the capacity of the Nord Stream pipeline under the Baltic Sea to Germany is doubled, as has been bruited.
However, one result of the China's increasing purchase contracts with Turkmenistan may be a further diminution in Chinese interest in Russian gas from Siberia, which Kommersant cites sources as saying is offered by Moscow at $400 per thousand cubic meters (tcm). The price of Ashgabat's gas to Beijing, according to the newspaper, is about $250/tcm. A Chinese press leak a year ago had put the difference between the two sides in the range of $100/tcm.....
Turkmenistan and the European Commission envisage deliveries of 40 billion cubic meters of Turkmen gas annually, by the second part of this decade, through the trans-Caspian project and the Southern Corridor to Europe. The Kremlin, apparently, hopes to intimidate Turkmenistan directly, Kazakhstan and Azerbaijan indirectly, scare off the EU, and discourage Western investment in trans-Caspian pipelines.
Using semi-official channels to threaten the use of force is a tactic with limited deniability. It reflects both a sense of impunity and a calculated bluff by Russia's high-level authorities. It does not deserve a direct response at the public level; this would unnecessarily dignify the bluff.
The proper Western response at this stage is to make clear in Moscow that the trans-Caspian project is a shared Western interest; and to demonstrate this commitment to the Caspian partners.