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China winning the race for Central Asia's energy riches

By John Daly - posted Thursday, 30 June 2011


Many western analysts have described the post-Soviet tussle for Caspain and Central Asian energy reserves as the new "Great Game, except this time around, Russia is facing the U.s. rather than the British empire.

To a dispassionate outside observer however, what is most striking about the prolonged wrangle between Moscow and Washington for hydrocarbons, military bases and influence is the emergence of an understated sly newcomer who has managed to bag many of the region's assets - China.

There are many reasons for this, despite the fact that both Russia and the U.S. both seemed to hold winning hands.

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For Moscow, quite aside from its colonialist legacy was the fact that it controlled the Truboprovodnaiia sistema Sredniaia Aziia-Tsentr (the Central Asia-Center, or SATS, pipeline system.) Russia's natural gas monopoly Gazprom controls the SATS complex of pipelines, which run from Turkmenistan via Uzbekistan and Kazakhstan to Russia. The SATS eastern branch consists of SATS-1, 2, 4 and 5 pipelines, which were built between 1960 and 1988. Construction began after the discovery of Turkmenistan's Dzharkak field, with the first SATS section coming online in 1960, while SATS-4 was commissioned in 1973. Simply put, after the 1991 collapse of the USSR, Central Asia's only opportunity for energy exports was controlled by Russia, which was determined to obey its new-found capitalist mantra of "buy cheap and sell dear."

And where did Gazprom sell its Central Asian natural gas?

Europe, or course.

In 2008 Gazprom's sales to the European Union were nearly 170 billion cubic meters (bcm) out of a production of 550 bcm. Gazprom's share in the global and Russian natural gas production is 17.3 percent and 85 percent, respectively. Turkmen exports represent a quarter of Gazprom's EU exports, but the company also buys 15 bcm of Kazakh gas and 7 bcm of Uzbek gas.

The boulder in Gazprom's shoe is that the Russian domestic market, which is heavily subsidized, now accounts for about 70 percent of the company's production, with domestic consumption rising by more than 3 bcm a year. Accordingly, to free up as much indigenous production as possible for export, one-third of Russian internal gas usage has to be supplied from non-Gazprom sources.

And the Americans?

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Well, after 1991 they showed up, checkbooks and democracy and human rights lectures in hand, determined as much as Moscow to buy local assets at fire-sale prices. Unlike oil, natural gas can only be pipelined or, in an expensive procedure, liquefied for transport.

Which left the Central Asians irritated at both parties.

Enter Beijing - cash to hand and no annoying lectures about political systems or human rights.

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This article was first published at OilPrice.com



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About the Author

Dr. John C.K. Daly writes for OilPrice.com.

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