Publication: Eurasia Daily Monitor Volume: 3 Issue: 69

Turkmen President Saparmurat Niyazov and Chinese President Hu Jintao signed a framework agreement on oil and gas cooperation in Beijing on April 3. Niyazov was in Beijing for a six-day visit to China. The trip underlined the growing ties between the two countries in culture, education, trade, and, in particular, energy.

Niyazov’s trip to China was rich in ceremonies, in line with Turkmenbashi’s eccentric tastes. When Chinese President Hu Jintao welcomed his Turkmen counterpart in Beijing’s Tiananmen Square, Niyazov presented a Turkmen Ahalteke horse to the Chinese president. Niyazov also invited Hu to visit Turkmenistan to lay the foundations for a future pipeline from Turkmenistan to China. The Chinese leader accepted the invitation with gratitude and said he would visit (Turkmenistan.ru, April 3).

A ceremonial presentation of a Chinese translation of the second part of Ruhnama, a collection of Niyazov’s writings, took place on April 3 at the People’s University of China. Chinese Culture Minister Sun Jiazheng hailed the philosophical importance of Ruhnama, describing it as a “truly unique book that will serve to strengthen the ties of friendship” between Turkmenistan and China (Turkmenistan.ru, April 3). At a meeting with Turkmen students studying in Shanghai, Niyazov urged them to study the spiritual experience of Chinese people, “their ancient culture, in other words, everything that helped contemporary China achieve such great results.” Turkmenbashi also presented each of the students with $1,000 (Turkmenistan.ru, April 7).

Economic ties between Turkmenistan and China have been growing fast but began at a very low level. In 2005, trade between Turkmenistan and China reached some $180 million, still up by 7.5 times over 2000. In January-March 2006, bilateral trade amounted to $60 million. So far, Chinese companies have launched 37 investment projects in Turkmenistan, totaling some $420 million.

But the new agreement on oil and gas cooperation is the major development to emerge from the trip. Article 2 of the agreement says China will purchase 30 billion cubic meters (bcm) of natural gas annually at the Turkmenistan border over 30 years, starting from the date the Turkmenistan-China gas pipeline is commissioned in 2009. Both sides also pledged to jointly explore and develop gas deposits on the right bank of the Amu Darya River under the terms of the production-sharing agreement (PSA) in order to fill the Turkmenistan-China gas pipeline. Both sides also pledged to set gas pipeline project terms and gas prices by December 2006.

Furthermore, Article 4 says, “The price for natural gas will be set at reasonable levels and on a fair basis, basing on the comparable international market price.” China also pledged to negotiate with the governments of transit countries in order to reach agreements “on mutually beneficial terms of transit of natural gas through their territories.” However, Article 9 offered a caveat by stating, “The present agreement does not affect the rights and obligations of the parties arising from other international agreements” (Neytralnyy Turkmenistan, April 4).

In an interview with the Chinese news agency Xinhua, Niyazov said that Turkmenistan “is ready to supply China with 30-40 bcm of gas, our gas deposits are known, and we have rich reserves.” He added, “Cooperation in the oil and gas field will be built up on the basis of setting up a joint venture or dividing the output” (Itar-Tass, April 3).

The Turkmen president said his country could deliver on its pledges due to “the enormous energy reserves of the country, which are estimated at 12 billion tons of oil and 22 trillion cubic meters of gas.” “We can realize these opportunities together, including the joint development of the Turkmen shelf in the Caspian, Niyazov said (Turkmen TV channel one, April 3).

In December 2005 the Turkmen president said that Kazakhstan and Uzbekistan were in talks to construct a pipeline from the Turkmen border to China. The president also said that gas reserves on the right bank of the Amu Darya River, near the border with Uzbekistan, would serve as a basis for future supplies of natural gas to China. When a Turkmen government delegation visited Beijing in late 2005, they reportedly discussed pricing Turkmen gas at $80/tcm.

During the April trip leaders of the two countries signed a joint declaration between Turkmenistan and China as well as a bilateral agreement on cooperation in fighting terrorism, separatism, and extremism. They also inked an agreement between the Turkmen Ministry of the Oil and Gas Industry and Mineral Resources and China National Petroleum Corporation on cooperation in the oil and gas sector and two framework loan agreements totaling 200 million Chinese yuan ($25 million) (Turkmenistan.ru, April 3).

The agreement on a Turkmenistan-China gas pipeline hardly came as a surprise. On January 18, Niyazov had met with the deputy head of the Chinese State Committee on Development and Reforms, Zhang Guobao. They reportedly discussed a draft bilateral agreement on Turkmen gas supplies to China. The Chinese officials reportedly expressed interest in projects in Turkmenistan, notably upgrading the Seidin refinery.

Niyazov’s agreements on Turkmen gas supplies followed similar agreements between China and Russia’s Gazprom giant signed on March 21. There are concerns whether Ashgabat will be able to honor its commitments. It is obvious that there will not be enough Turkmen gas for everyone, while the gas pipeline agreement with China is also aimed at putting some pressure on Russia in the discussion on future prices for Turkmen gas (RIA-Novosti, April 7).

In April 2003, Russia and Turkmenistan signed a framework agreement on gas cooperation and a 25-year contract on gas supplies to Russia. Niyazov pledged to supply up 100 bcm/year of gas to Russia from 2010 onward or a total of 2 trillion cubic meters in 25 years at $44/tcm. Coupled with Niyazov’s earlier promises to supply 8-10 bcm of gas to Iran, Turkmenistan would need to double its current gas output to deliver on all its pledges.

Russia has been keen to boost energy cooperation with Turkmenistan. “I strongly support your suggestion to broaden our interaction in energy production and transportation,” Russian President Vladimir Putin told Niyazov at a meeting in the Kremlin on January 24. In response, Niyazov pledged to cooperate with Russia in gas transit projects to funnel natural gas both to Europe and eastward.

However, Russia and Turkmenistan have disagreed over gas prices. In January 2006, the Russian media reported that Turkmenistan was planning to raise the price for its gas deliveries to Gazprom to $85 per 1,000 cubic meters (tcm, equal to or 35,300 cubic feet) from July on, up from the $65 level agreed to for the first half of this year. The mention of “fair prices” on gas in the Turkmen-Chinese agreement is hardly a coincidence, as Niyazov has previously accused Russia of insisting on unfair prices for Turkmen gas.

In the wake of the visit, Niyazov described his talks in China as “a complete success.” He also hailed the agreement on a Turkmenistan-China gas pipeline as “a document of particular importance” and noted “promising prospects for a long-term partnership” between the two countries (Turkmen TV channel one, April 7).