Chinese Demand for Central Asian Energy

In December 2009, the Central Asia-China (Turkmenistan to China) natural gas pipeline opened. This gave China the ability to import natural gas from Turkmenistan, Uzbekistan and Kazakstan. The new natural gas pipline connects with the Chinese West-East pipeline, meaning Turkmen gas can reach Pacific coastal cities such as Shanghai and Hong Kong. To give the reader an idea of scale, the CA-C cost $7.3 billion to construct, and is 1,833 km (1100 miles) long. The West-East pipeline is over 4,500 km (2,800 miles) long, making the combined network the longest in the world. The CA-C line was partially financed by the China Development Bank, who invest $6.7 billion to build the portion of the line that transversed Kazakhstan (Hurriyet Daily News, 28 December 2009). Predictions are that the CA-C will reach its full capacity of 40 billion cubic meters by 2012-2013 (Reuters, March 11, 2010). Turkmen President Gurbanguly Berdymukhammedov is requesting that China increase its $3 billion loan for the development of the South Yolotan gas field (oilprice.com, 24 August 2010), which would favor the gas flowing East to China rather than to Europe.

This is part of a longterm Chinese strategy to lock up energy sources around the globe. As the second largest energy consumer behind the United States, China needs to be certain it will have the energy to continue its breakneck economic growth. This has led to deals with Angola, Sudan, Iran, Venezuela, etc. It has also led to some strange bedfellows: earlier in 2009 China loaned Russian oil firms $25 billion in return for a 20 year supply of crude oil (Hurriyet Daily News, 21 December 2009). Russia is also building a $25 billion link across East Siberia to bring oil to China (The St. Petersburg Times, 24 August 2010). Russian Premier Vladmir Putin has officially launched the Russian section of the Eastern Siberia-Pacific Ocean pipeline. "The implementation of this project is a crucial task for Russia and our Chinese friends," he said. "It means stabilization of supplies and energy balance for China, and for us it creats entry to new challenging markets, in this particular case, to the growing market of China." Putin promised to deliver 30 million tons of oil to China, and (in case of expansion to the Asia-Pacific region) 50 million tons. Despite Putin's optimistic projections, only 15 million tons of crude have been delivered through the pipeline this year. (Oil & Gas Eurasia No. 7, July-August 2010).

Over 100 Chinese state-owned companies operate in Iran, and many of the contracts are in the oil and gas sector. According to Christina Lin of the Jamestown Foundation, In 2008 the China National Petroleum Corporation (CNPC) and the National Iranian Oil Corporation (NIOC) signed a $1.76 billion deal to develop the North Azadegan oil field, $8.2 billion deals in 2009 to develop the South Pars Gas field, a $3 billion deal to expand refineries, and a $4 billion deal to expand Iranian oil production. China is also selling gasoline to Iran, despite US sanctions against the country ("The Caspian Sea: China's Silk Road Strategy Converges with Damascus," www.jamestown.org , 19 August 2010 =).

Dr. James J. Coyle is available to speak to your organization or at your event. Please contact him at jimcoyle@verizon.net.

Eurasian Energy Moving East

While this blog has covered Eurasian energy movements to Europe, one cannot forget that Asia also needs oil and gas from Russia, the Caucasus and Central Asian Countries. Platts reports that Chinese oil demand for the first six months of 2010 was 210.81 metric tons, an average of 8.54 million barrels per day. This represents a 13% jump in demand over the same time period in 2009. Demand in natural gas also continues to rise.
To meet China's demands, Kazakhstan opened in July 2009 the first phase of its oil pipeline to China. As for natural gas, in December 2009 Chinese president Hu Jintao met with Turkmen president to inaugerate a Trans Asian gas pipeline. The Washington Post reports the pipeline will cost $6.7 billion to build, and will link with China's West-East gas pipeline. The pipeline is designed to meet half of China's gas needs. Russia has promised to meet the other half of China's gas needs, with two new pipelines from Siberia. In addition, Russian Premier Vladimir Putin recently relaunched the proposed Eastern Siberia-Pacific Ocean oil pipeline.
Not all reports demonstrate increased Chinese demand for energy, however. Eurasia Oil and Gas reports that China's imports of Iranian crude oil fell by almost a third in the first half of 2010.

Dr. James J. Coyle is available to speak to your organization or at your event. Please contact him at jimcoyle@verizon.net.

NABUCCO Gains Support

In this week's installment of the Nabucco v. South Stream sweepstakes, it appears that the Nabucco pipeline has taken a slight lead. The Russian newspaper Kommersant reports that the European Union has worked out a plan that will allow Turkmenistan to join the Nabucco pipeline without the legal status of the Caspian Sea being finalized. The EU has created a draft document that could be used as a model for an agreement to authorize construction of a gas pipeline between Azerbaijan and Turkmenistan.
The Turkmen feed is necessary for Nabucco to be a commercial success, as Azerbaijan by itself lacks the natural gas reserves to fill the pipeline. According to Gunter Oettinger, the EU Energy Commissioner, Azerbaijan can supply most, but not all, of the gas. Azerbaijan needs gas to meet its own domestic gas demand, and to meet contracts it has signed with neighboring countries.
Turkmenistan is interested in joining with Nabucco after Russia cut its purchases of Turkmen gas, and refused to help fund construction of the Turkmenistan East-West Pipeline, according to Eurasia Oil and Gas magazine. Turkmenistan is financing construction of the pipeline itself, pledging $2 billion of its own funds. By paying for the pipeline itself, however, Turkmenistan is free to sell its gas to Nabucco instead of to Russia's rival South Stream project.
Bulgaria's Minster of Economics Traicho Traikov announced that construction of Nabucco will begin next year with the construction of a gas pipeline uniting the Bulgarian and Turkish natural gas networks. This section of the Nabucco pipeline will cost 200 million euros.
Nabucco supporters continue to look for additional sources of gas for the project. The Jamestown Foundation's Vladimir Socor reports that German Chancellor Angela Merkel and US Special Envoy for Eurasian Energy Affairs Richard Morningstar have raised with Kazakh officials the possibility of Kazakhstan becoming a gas supplier. Reportedly, Kazakhstan President Nursultan Nazarbayev told Chancellor Merkel tha Kazakhstan is ready to join the Nabucco pipeline project. According to Eurasia Oil and Gas, Nazarbayev said he had not committed to Nabucco previously because of sluggishness within the European Union. For Kazakhstan to join the project, Nazarbayev insists a pipeline must be built across the Caspian Sea, and a gas liquification plant must be built in Kazakhstan.

Dr. James J. Coyle is available to speak to your organization or at your event. Please contact him at jimcoyle@verizon.net.