Translated material
New gas reality
Turkmenistan launches a pipeline to China
Today in Turkmenistan there will be a ceremonial launch of a gas pipeline to China - a pipeline that should qualitatively change the situation around Central Asian gas resources and the geopolitical situation in the region as a whole. The events on this occasion will be attended by the leaders of all four countries participating in the project. Just yesterday, the presidents of Uzbekistan and Kazakhstan, acting as transit countries, Islam Karimov and Nursultan Nazarbayev, as well as Chinese President Hu Jintao, arrived in Ashgabat. First, they will go to the Samandepe field, which, under a production sharing agreement on the right bank of the Amu Darya, is being developed by the Chinese CNPC (the only foreign participant in the Turkmen onshore gas project), and then they will start gas supplies.It should be noted that the Chinese leader arrived in Turkmenistan through Astana, where Mr. Nazarbayev did not deny himself the pleasure of offering him the preventive launch of the Kazakh section of the gas pipeline. For the two main participants in the project - the supplier and the consumer - this is another reminder that without the goodwill of the transit countries nothing will work out.
However, this unfortunate incident should not spoil the mood of the host of today's celebrations - Turkmen President Gurbanguly Berdimuhamedov. Today he must feel like a winner. In the context of the cessation of purchases of Turkmen fuel by the Russian Gazprom, which provided the main foreign exchange earnings to the treasury of this country, Ashgabat received a large alternative client, thereby reducing its export dependence on Russia.
Until now, 90% of external supplies of Turkmen gas (about 44 billion cubic meters per year) came from Gazprom. Another 5 billion cubic meters were purchased by Iran, to which Ashgabat is also planning to expand supplies. To do this, a new pipe with a capacity of up to 12 billion cubic meters per year must be put into operation. But this route cannot be compared with the Chinese route in terms of strategic importance, especially since Beijing announced ambitious plans to increase gas consumption from 80 billion cubic meters (according to last year’s results) to 300 billion cubic meters by 2020.
On the other hand, the act of diversifying buyers from a purely commercial point of view did not come cheap for Turkmenistan. Last year, Gazprom agreed to buy Central Asian gas at European prices (minus transportation costs). This led to the fact that Turmengaz received $375 per thousand cubic meters from the Russian concern in the first quarter and earned over $4 billion in three months. Taking into account the worsening conditions in the EU, Ashgabat could count on at least 8-9 billion dollars from sales to Gazprom. As is known, supplies were stopped in April due to the reluctance of the Turkmen side to reduce the price from $375 to a level corresponding to market realities (in Europe, Russian gas was sold for an average of $280 in the past year).
In the Chinese direction, with all its capacity, one can only dream of such conditions. According to Vremya Novostei, the price formula between Turkmenistan and China has not yet been agreed upon, although deliveries of 5-6 billion cubic meters are planned for next year. China expects to buy gas at a very low price. During the negotiations, figures from 100 to 130 dollars on the Turkmen-Uzbek border surfaced - significantly less than Gazprom paid. Buyers' expectations can be understood - the main consumption regions are located 6,000 km away, in the coastal provinces of the Celestial Empire, although formally the Chinese border is only 1,700 km away. Transportation costs will be significantly higher than to Ukraine or even Central Europe.
Nevertheless, Beijing's negotiating position is now very strong. In the summer, at the most difficult moment of lack of money for Ashgabat, China signed an agreement to provide a loan of $4 billion, of which, according to unofficial data, $1 billion was to be used to stabilize the country’s budget, and the remaining $3 billion was associated with purchases by Turkmenistan Chinese goods and services for the development of gas fields (including South Yolotani).
In addition, it will not be easy for Mr. Berdymukhamedov to raise the price from a political point of view - liberation from the Russian procurement monopoly was presented as too desirable and long-awaited. The fact that in the context of Russia’s likely refusal of Turkmen gas (or at least a significant reduction in volumes) due to poor conditions in the sales markets, China itself may turn into an exclusive client for Turkmenistan is an additional risk for Ashgabat. True, this will not happen soon. The pipeline is planned to reach its design capacity of up to 40 billion cubic meters only in 2012. Approximately 13 billion cubic meters of this volume should be supplied from areas transferred to CNPC for use, and the rest from the Malay field (developed by Turkmengaz).
Beijing also risks investments in the construction of the pipeline in the territories of Uzbekistan and Kazakhstan (they were laid by joint ventures of CNPC with Uztransgaz and Kazmunaigas, respectively, the Turkmen section was implemented by Stroytransgaz at the request of Turkmengaz), as well as investments in expanding the system to its territory. But we should not forget that China has simultaneously intensified negotiations with Russia on possible fuel supplies. One of the options - Altai - provides for the delivery of Russian gas from the Yamalo-Nenets Autonomous Okrug precisely to the western part of the PRC (that is, approximately to the same point where Turkmen gas should arrive).
Next week, during Dmitry Medvedev’s trip to Ashgabat, the parties will have to determine the contours of cooperation in the new gas pipeline reality. So far, attempts to agree on the conditions for resuming gas cooperation have not led to a positive result, although personal contact at the level of the presidents of the two countries seems to have been established. The Russian leader traveled to Turkmenistan in September, hosted Mr. Berdymukhamedov at his country residence in an informal setting a couple of weeks ago, and now has another meeting. Moscow has long come to terms with the emergence of the Chinese route, concentrating its diplomatic efforts on ensuring that the project does not become a precedent for Turkmenistan joining projects to supply Caspian gas to Europe, bypassing Russia. And the bargaining on this matter, despite the December cold, is expected to be very hot.