Difficulties Remain for a Turkmen-China Energy Deal
Turkmenistan and China are negotiating an expanded natural gas supply and loan agreement. Many crucial issues must be resolved before the two can finalize a deal. Ashgabat and Beijing have not yet agreed on a price for Turkmen natural gas exports to China, and any deal between the two will have to gain approval from the transit states of Kazakhstan and Uzbekistan and, ultimately, from Russia.
Turkmen Deputy Prime Minister Baymyrat Hojamuhammedov said March 3 that Turkmenistan and China are still negotiating an expansion of a natural gas supply and loan agreement. This follows reports of a deal that Hojamuhammedov and Chinese officials made during a March 1 meeting, under which Turkmenistan will increase its natural gas exports to China by 20 billion cubic meters (bcm) per year. As Hojamuhammedov’s comments indicate, the deal is not official. An intergovernmental framework agreement is scheduled to be signed in the second half of 2011, when Turkmen President Gurbanguly Berdimukhammedov is expected to visit China.
Any official agreement between Turkmenistan and China depends on several unresolved, crucial issues, including pricing, building new infrastructure, Central Asian regional matters, and a larger natural gas agreement between Russia and China. The results of the negotiations on these issues will significantly affect the future energy — and, by extension, political — landscape for Russia, China and Central Asia.
The agreement to boost supplies from Turkmenistan to China is a welcome one for Ashgabat. Turkmenistan, which holds the world’s fourth-largest natural gas reserves, is a major producer and exporter of natural gas and typically exported most of its supplies to Russia. However, these supply flows were halted in April 2009 due to a pipeline rupture
Since roughly half of Turkmenistan’s budget revenue relies on income from natural gas exports, and hundreds of natural gas wells were shut down because previous production levels were not needed, the change in Russia’s demand for Turkmen natural gas has been extremely disconcerting for Ashgabat. Following the pipeline disruption, Turkmenistan sought to speed up construction on alternative pipeline projects to other countries, completing a small pipeline to Iran
An Obstacle Course for Ashgabat and Beijing
Under the framework deal with China, Turkmenistan planned to export 5 bcm to China in 2010 using the first trunk of the Central Asia-China pipeline, and to then increase these exports to 40 bcm per year by 2012, when the second trunk line of the pipeline is to be completed. Beijing and Ashgabat reportedly agreed at the March 1 meeting to increase these total exports to 60 bcm per year. Turkmenistan exported roughly the stipulated levels this past year — according to the China National Petroleum Corp., Turkmenistan has exported 5.8 bcm through the pipeline from its debut in December 2009 to mid-February 2011. However, the target date to increase the exports to 40 bcm has been pushed back to 2015 because the construction of an additional pipeline has been delayed. No specific date has been reported for when Turkmenistan aims to have natural gas exports to China reach 60 bcm per year.
Besides infrastructure, several other issues must be settled before Turkmenistan and China can realize these agreements. The most important is the price China is willing to pay for Turkmenistan’s natural gas. According to STRATFOR sources, the Chinese are offering between $100 and $150 per thousand cubic meters (tcm) — far below the European market price of $250-$400 per tcm. (Turkmenistan is asking China to pay $250 per tcm.) Though China’s energy consumption is growing rapidly
Another issue is the role of Kazakhstan and Uzbekistan, transit states that play a key role in any future negotiations or projects. These countries have their own, albeit smaller, natural gas supplies to send to China and their own supply deals in place to fill the line Turkmenistan is currently negotiating. The original supply deal for the line was for each Central Asian state to contribute to supplies to China. But Kazakhstan and Uzbekistan are in the same pricing disagreement as Turkmenistan. The last thing Astana and Tashkent want to see is Ashgabat undercutting the price of natural gas they are negotiating with China. So even if Turkmenistan gives into the lesser price for natural gas, Kazakhstan and Uzbekistan could deny transit to prevent the Turkmen supplies from reaching China, in order to keep pressure on China in their own negotiations.
The Russia Factor
Finally, any future energy agreement will have to take into account the major external player in Central Asia: Russia. If Turkmenistan ends up sending 60 bcm a year to China, this will overtake Russian imports at their peak in 2008 of just under 50 bcm. This certainly would get Moscow’s attention as China plays up its presence in the Central Asian state, which Russia sees as within its sphere of influence
So while it is easy for Turkmenistan and China to strike a deal on increased natural gas supplies, a deal will not be finalized until a price is set that both parties can agree on and that will appease other players such as Kazakhstan, Uzbekistan and especially Russia. Ultimately, this is a long-term deal, and there are still many crucial details to be negotiated.
Latest from Turkmenistan
We would like to hear your opinion about the new site. Tell us what you like, and what you don't like in an email and send it to: email@example.com