blog2008: Gas pipeline gigantism

Gas pipeline gigantism

By Robert M Cutler
Asia Times
Jul 17, 2008

MONTREAL - Ground was broken in Kazakhstan last week for construction of that country's segment of a natural gas pipeline from Turkmenistan to China, set to be the longest and most expensive such pipeline in the world - its length is usually given as 7,000 kilometers, and although this looks like a rounding-up of a distance exceeding 6,500 km it may when work is finished be a more accurate figure than the most recent construction estimate of US$26 billion.

Skeptics about this pipeline remained even after groundbreaking for the Turkmenistan segment in August last year. However, with the Kazakhstan ceremony following by a scant two weeks a similar groundbreaking in Uzbekistan, the conclusion seems unavoidable that this pipeline will be built.

The idea for the pipeline was first sketched on maps as early as 1993 when Western companies began to survey possibilities for energy development in Central Asia following the disintegration of the Soviet Union. However, the sheer scale of the project, together with the self-imposed isolation of Turkmenistan under its former president Saparmurat Niyazov, who died in December 2006, made it for a long time a non-starter.

Nevertheless, it was Niyazov who in April 2006 signed a framework cooperation agreement in Beijing with Chinese President Hu Jintao. By July last year, an agreement was signed between the Chinese National Petroleum Company (CNPC) and the responsible state agency of Turkmenistan, this time witnessed by Niyazov's successor, Gurbanguly Berdimuhammedov (sometimes spelt "Berdymukhammedov" in English-language media).

The Turkmenistani segment is projected to run 188 km from the Bagtiyarlyk cluster in the eastern part of the country, on the right bank of the Amu Darya River, to Malai on the border with Uzbekistan, then 525 km across Uzbekistan and another 1,293 km through Kazakhstan, before passing into China, where it will run "at least 4,500 km" to Shanghai and Guangdong province.

Inside China, this would almost certainly entail construction of a second West-East Pipeline, parallel to one opened several years ago from Xinjiang to Shanghai.

The contract between Turkmengaz and CNPC is not a public document, so the price agreed is not precisely known, nor are terms for its adjustment over time. However, well-connected foreign journalists in Ashgabat (neither Russian nor Chinese) have reported that this price is said to be "over $100" per thousand cubic meters.

According to press reports, the Chinese side will conduct the geological exploration and development of the gas fields that will supply the pipeline. Chinese experts have already told the press that the Bagtiyarlyk fields together hold 1.6 trillion cubic meters of gas. A first phase will be opened for up to 10 billion cubic meters per year (bcm/y) from the already-operating Bagtiyarlyk fields of Samantepe and Altyn Asyr, which are together expected to supply 13 bcm/y to the completed project.

After this quantity reaches 10 bcm/y, the second phase will be inaugurated, adding 17 bcm/y from deposits that the two countries will develop under the terms of the July 2007 production sharing agreement.

The precise pipeline route has not been made public, but the most reasonable scheme involves expanding the volume of the Bukhara-Tashkent pipeline within Uzbekistan then taking it through Almaty, Kazakhstan, to Alashankou on the border, where an existing Kazakhstan-China oil pipeline from Atasu also crosses into China.

This new gas pipeline, originally projected to carry 30 bcm/y, will be constructed to carry 40 bcm/y, if not still more in subsequent stages, although China is set to receive only 30 bcm/y. The other 10 bcm/y will be generated and at least partly consumed in Kazakhstan.

At first glance, this may look like a concession that Kazakhstan was able to extract in return for granting transit rights, but that is not the case. CNPC had earlier started negotiations to import gas from Kazakhstan with the country's national energy trust, KazMunaiGaz.

The first phase of that project was assigned the figure of 10 bcm/y, and the Turkmenistan pipeline is, formally speaking, an extension or add-on to the Kazakhstan-China negotiations. A second stage of the Kazakhstan-China pipeline was to have increased Kazakhstan's own exports to China to 30 bcm/y. Possibly some of this will now be consumed in the already populous and still-growing province of South Kazakhstan.

That is why Kazakhstani sources have been speaking of the possibility of China constructing feeder lines "from western Kazakhstan". The supplementary Kazakhstani gas could likely come either from the Karachaganak deposit, where production has been in thrall to Russian limitations on volumes receivable by the transborder Orenburg processing plant in southern Siberia; or it could come from the associated gas in the offshore Kashagan deposit, where China was rebuffed a few years ago when it tried to purchase a share of the Agip KCO consortium to be directly involved in Kashagan's development.

Most likely, at least in the beginning, it will come from Chelkar, in the Aktobe region in western Kazakhstan, where CNPC has been already active for nearly a decade. From there, a feeder pipeline would logically descend southwards to Kzyl-Orda and then to the major city of Shymkent (South Kazakhstan province), thereafter rejoining the extension of the Bukhara-Tashkent pipeline to Almaty and beyond.

Importantly, China has explicitly linked this geo-economic investment to its geopolitical aims, by eliciting from Turkmenistan the statement at the time of the 2007 signing that Chinese interests would not be threatened from its territory by third parties. This represents a promise that Ashgabat will think hard and long before allowing a US military presence in the country under the new Berdimuhammedov regime.

Robert M Cutler is senior research fellow, Institute of European, Russian and Eurasian Studies, Carleton University, Canada.

Posted by Arthur Caldicott on 02 Aug 2008