Gazprom, a new competitor to Turkmenistan in China? History was made on the 21st May over the gas deal between Russia and China, and not simply because of the amount of money written into the contract: 400 Bn dollars, to deliver 38 bcm/y over 30 years. This deal is a breakthrough because it completes ten years of negotiations between Moscow and Beijing and marks the real beginning of Russia’s conquest of the Chinese and Asian gas market. It is not a historic moment because Russia will somehow switch immediately to the Chinese market and cease supplying Europe. Such a geopolitcal switch, motivated by Mr Putin’s standoff with the West and sanctions that could prove very uncomfortable for his regime, is far from becoming a reality and depends on several factors. The Shanghai May 21st gas deal could potentially be bad news for Turkmenistan. Until now, Moscow has never opposed Ashgabat’s sales of sizeable volumes of gas to China. It was even considered a positive arrangement for Gazprom, because the Central Asian Republic, which may hold the 4th largest natural gas reserves in the the world, does not compete with Russia for the EU. In 2013, for example, Gazprom generated 58% of its revenues from the EU and Turkey through the sale of only 37% of its volumes. Not surprisingly, Moscow in recent years has used as much political and economic leverage as it can to prevent Turkmenistan from becoming a competitor on such a lucrative market. But what of China? As Mikhail Krutikhin, a partner at the independent RusEnergy consulting agency recently wrote: “Putin has been urging Gazprom to accelerate its eastern projects since October 23, 2012, when he admitted during a session of the presidential energy commission that Russia was losing the race for a sizeable niche on the global gas market because of the shale revolution in the United States, gas trade liberalization in Europe, and the emergence of new producers of liquefied natural gas. Creating an Asian outlet for Russian gas became a geostrategic goal for the Russian president—especially in view of Moscow’s worsening relations with the west” (article posted on the Carnegie Moscow Center website). It’s unclear if the Shanghai deal will hurt Turkmenistan. On the one hand, “Turkmenistan gas contracts are more important to China than the May 21st one with Russia”, says Michal Meidan, a specialist on Chinese energy issues. Gazprom signed a contract for 38 bcm/y while Ashgabat has commitments to supply up to 65 bcm/y. Thus, Turkmenistan is for China the first source for imported gas, with 17.7 bcm last year. “Contrary to the agreement with Russia, as far as we know, the advantage of Turkmenistan is that it gave China access to upstream”, adds Meidan. But the main threat for Turkmenistan comes from the Altai gas pipeline, that Russia has been wanting to build for many years. Right after the Shanghai deal, Mr Putin and ___Miller, the Gazprom CEO, re-launched the idea. “There are no doubts that Russia did enormous concessions to China with this deal. Moscow needed this deal for geopolitical reasons, to show to Europe that it can switch its exports to East and no longer fear sanctions and isolation from the West. That’s why Mr Putin immediately mentioned the Altai pipeline. But China doesn’t want it”, asserts Krutikhin. China’s contracted volume from Central Asian republics is 100 bcm/y, of which 65 bcm/y from Turkmenistan, 25 bcm/y from Uzbekistan, and 10 bcm/y from Kazakhstan. “So far, China has constructed only one (West-East Pipeline 2) large diameter gas pipeline to handle the gas from Turkmenistan, and is in the final stage of constructing WEP 3, which will be completed in 2015. Both WEP 2 and 3 can transport 60 bcm/y of gas, 30 bcm/y each, from Central Asian Republics. China will construct WEP 4 & 5 ultimately, presumably by 2020. Russia aims at taking advantage of the WEP 4 or 5 construction as there could be a delay of pipeline gas supply from Uzbekistan and Kazakhstan. This is the reason why President Putin and Mr Miller had strongly indicated the Altai route export will be re-addressed right after the eastern route export to China”, says Keun-Wook Paik, senior research fellow at the Oxford Institute for Energy Studies (OIES) and author of the book Sino-Russian Oil and Gas Cooperation: The Reality and Implications (Oxford University Press, 2012). If Russia does manage to build the Altai gas pipeline, does it mean that Turkmenistan will face serious competition from Russia for its gas exports? That’s not certain, says Michal Meidan. “China needs a lot of gas and could need every gas available. Coal represents more than one third of its energy mix. That’s a big environment problem, and therefore a social and political one. This is why Chinese authorities decided to increase its gas consumption. But in the meantime, Beijing is very optimistic about the domestic production of shale gas.” But China is such an important player in the Eurasian region that Russia might not try to challenge it in Turkmenistan through unfair methods. “Instead of trying to prevent Turkmenistan gas supply to China, Gazprom will consider how effectively they can use their west Siberia’s gas supply for export to China. Considering that the distance from West Siberia’s existing gas fields to China’s Xinjiang border area is only 2.000 km, Gazprom could accelerate the gas pipeline passing through the Tomsk region, where a number of scattered gas fields are located along the Altai route. In my view, Russia will not openly try to block the gas export from Turkmenistan to China, but will try to compete against the gas supply from central Asian republics using the existing west Siberia’s gas fields”, explains Keun-Wook Paik. Beijing will probably be glad to observe regional gas producers competing to get access to its huge market. By Régis Genté, journalist
Posted on: Wed, 04 Jun 2014 16:01:49 +0000
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