Publication: Eurasia Daily Monitor Volume: 2 Issue: 152

Turkmenistan has been keen to expand the export markets for its abundant natural gas resources. Not surprisingly, Turkmen authorities have been eyeing China’s lucrative energy markets, although pipelines to funnel Turkmen gas to China are still at the planning stage.

Last month, Turkmen President Saparmurat Niyazov reiterated official pledges to boost cooperation with China. At a meeting with Chinese Deputy Prime Minister Wu Yi, the Turkmen leader thanked China for joint work in the oil and gas sector toward reviving depleted wells. Niyazov reportedly suggested Chinese involvement in upgrading the Seidin refinery in Turkmenistan.

Wu Yi hailed bilateral efforts in the energy sector. “Cooperation in the oil and gas industry appears to be one of the most promising areas,” Wu declared at a 70-minute meeting with Niyazov in Ashgabat. Wu also noted that Niyazov’s planned visit to China in early 2006 would provide further opportunities for dialogue (Interfax, July 20).

During the meeting, Turkmenistan and China signed agreements on technical and economic cooperation, as well as loan agreements and a cooperation deal between the Turkmen Ministry of Oil and Gas and the Chinese National Oil and Gas Corporation.

Apart from discussing practical issues of bilateral ties, Niyazov reportedly hailed what he described as “Chinese experience.” Speaking of the former Chinese president, Niyazov said, “I have met Jiang Zemin twice, and I learned a lot during my two visits. I have gained from your experience,” Niyazov said.

Turkmenistan and China maintain regular top-level contacts. Niyazov traveled to China in November 1992 and September 1998, while Jiang Zemin visited Turkmenistan in July 2000. Long before assuming Chinese top leadership, President Hu Jintao also traveled to Ashgabat in October 1995, heading a Chinese delegation.

In the meantime, bilateral economic ties have been growing fast, but they began at a very low level. Bilateral trade was up from $14 million in 1996 to around $100 million a year now. In January-June 2005, bilateral trade reached about $80 million (Turkmenistan.ru, July 20). Between 1998 and 2003, China extended preferential loans to Turkmenistan totaling some 100 million renminbi ($123,400).

Beijing appears to prioritize the energy sector in its economic cooperation with Turkmenistan. There are a total of 37 Chinese investment projects in Turkmenistan totaling $383 million, including 17 projects worth $221 million in oil and gas sector.

Since the mid-1990s, experts from the China Petroleum Engineering Construction Corporation have been reviving oil wells in western Turkmenistan with a total output of 2.3 million tons a year. Meanwhile, the China Petrochemical Corporation has been upgrading gas wells in the Shatlyk field with a total annual capacity of 3 billion cubic meters.

Turkmenistan is the largest natural-gas producer in Central Asia. Its gas reserves are estimated at some 5.5 trillion cubic meters of gas. Not surprisingly, Turkmenistan has been mulling a number of alternative options to export its natural gas to Asian destinations, including China.

For example, a pipeline through Kazakhstan has been discussed for quite some time. During talks between Kazakh President Nursultan Nazarbayev and his Chinese counterpart Hu Jintao in Astana in early July 2005, Nazarbayev said that constructing a Turkmenistan-China pipeline through Kazakh territory would be beneficial for all three countries.

Turkmenistan can also export gas to China via a pipeline through Afghanistan and Tajikistan, as well as by using the proposed Trans-Afghan Pipeline. In December 2002, leaders of Afghanistan, Pakistan, and Turkmenistan met in Ashgabat and signed an agreement to build the 1,400-kilometer Trans-Afghan Pipeline, which will carry natural gas from Turkmenistan to Pakistan. The $3 billion pipeline, which will transport gas from the Dauletabad field near the Iranian border, could also be extended to India. The Trans-Afghan Pipeline is projected to carry 20 billion cubic meters per year.

However, there simply may not be enough gas to export from the Dauletabad field. The steering committee for the Turkmenistan-Afghanistan-Pakistan (TAP) gas pipeline project was due to meet in the Turkmenistan capital on July 27-29. However, the meeting was put off due to Turkmenistan’s failure to provide a detailed report on the reserves of its Dauletabad gas field.

For Turkmenistan, an export route to China would reduce its dependence on Russia. Dauletabad, as well as other Turkmen gas fields, is still hooked up to the old Soviet pipeline network, now controlled by Russia. State-controlled gas giant Gazprom still can take gas from there into Russia.

In April 2003, Turkmenistan and the Russian natural gas monopoly Gazprom signed a framework agreement on gas cooperation as well as a 25-year contract on Turkmen gas supplies to Russia. Turkmenistan pledged to supply up to 100 billion cubic meters of gas per annum to Russia from 2010 onward or a total of 2 trillion cubic meters in 25 years. Russia would pay Turkmenistan $44 per thousand cubic meters, 50% of the payment in barter and 50% in cash.

In December 2004, Turkmenistan halted gas supplies to Russia and reportedly demanded $60 per 1,000 cubic meters (35,300 cubic feet). Turkmenistan presumably expected that the perceived inability of Gazprom to meet its export and domestic commitments without Turkmen gas volumes would force the Russian giant to offer better terms. However, Turkmenistan failed to force Russia to pay more for Turkmen gas, as Gazprom passed through the 2005 winter season of peak demand for natural gas without Turkmen supplies. Subsequently, in April 2005 Russia and Turkmenistan agreed that Gazprom would make all payments in cash instead of the earlier barter arrangements, yet the price remained the same: $44 per 1,000 cubic meters.

By clinching the deal to buy virtually all of Turkmen gas, Moscow was seen as outmaneuvering the Trans-Afghan Pipeline plan. However, Ashgabat has insisted that the construction of the gas pipeline to Pakistan via Afghanistan is due to start in 2006.