Three Central Asian countries inaugurate gas export pipeline to China

Dec 15, 2009 01:00 AM

by Vladimir Socor

With Europe and the United States outside looking in (or away), Turkmenistan opened a gas floodgate to China on December 14. Presidents Hu Jintao of China, Gurbanguly Berdymukhamedov of Turkmenistan, Nursultan Nazarbayev of Kazakhstan, and Islam Karimov of Uzbekistan led the valve-opening ceremony at Samandepe in eastern Turkmenistan, the starting point of the Central Asia-China gas pipeline (Turkmen government website, December 13, 14).
The move released the first Turkmen gas flow to China. The pipeline consists of two parallel lines, one just commissioned and the other due for commissioning in 2010.

The planned total capacity is 40 bn cm annually, including 30 bn cm for Turkmen gas and 10 bn cm earmarked for Kazakhstani gas to China. The Central Asia-China pipeline is scheduled to carry at least 5 bn cm in 2010, at least 13 bn cm in 2011, and reach the design capacity of 30 bn cm per year by 2013 for China-bound Turkmen gas.
Additionally, a pipeline link from western Kazakhstan is scheduled for commissioning in 2011, bringing Kazakhstan's 10 bn cm annual input into the Central Asia-China pipeline (Xinhua, Kazakhstan Today, December 14).

The pipeline runs for more than 1,800 km from Turkmenistan's Bagtyarlik gas fields (on the right bank of the Amu Darya River, near the Uzbek border) via Uzbekistan and Kazakhstan to Horgos, the entry point to China's Xinjiang Region, where the Central Asia-China pipeline connects with China's internal supply network.
The Uzbek and Kazakh sections run for some 550 km and approximately 1,300 km, respectively (Interfax, December 11). The gas will then be pumped for another 7,000 to 8,000 km to cities on China's Pacific Coast, including Shanghai and Hong Kong (Xinhua, December 11-14).

China's National Petroleum Corporation (CNPC) is developing the Bagtyarlik area under a production sharing agreement with the Turkmengaz state company. The CNPC is the first and, thus far, the sole foreign company to have been licensed by Turkmenistan for exploration and production onshore. The contract area is said to contain 1.3 tcm of recoverable gas reserves, according to Turkmen and Chinese estimates. These are not independently confirmed, however.
The gas has high sulphur content, requiring extensive purification operations to prepare the gas for pumping into the export pipeline. The first purification plant was commissioned in November 2009 at Samandepe, the pipeline's starting point, for an initial processing capacity of 5 bn cm per year.

The pipeline project has been executed at an unusually fast tempo thus far, within a planning schedule that had seemed unrealistically ambitious. Initiated by Turkmenistan's late president Saparmurat Niyazov, the Turkmen-Chinese framework agreement on pipeline construction and gas deliveries was signed in 2006. One year later, the exploration and production agreement and the gas sale-and-purchase agreement for a 30-year period were signed.
Also in 2007, Kazakhstan and China signed the agreement on pipeline construction on Kazakhstan's territory. The December 2009 target date for the first gas flow has been met.

In a separate ceremony on December 13 in Kazakhstan's Zhambyl Region, Hu Jintao and Nazarbayev attended the commissioning ceremony for the Kazakhstani section of the Central Asia-China gas pipeline. Built within less than two years, that section uses some segments of a pre-existing pipeline corridor from Uzbekistan to Almaty.
As in Turkmenistan's case, the section just commissioned in Kazakhstan is the first of two parallel lines to comprise the Central Asia-China pipeline.

Construction of the other parallel line in Kazakhstan is scheduled to start in 2010, correlated with construction of the pipeline from western Kazakhstan that will connect with the China-bound pipeline. That link is planned to supply Kazakhstan's southern regions with gas (obviating the need for Uzbek gas in those Kazakhstani regions) as well as to add 10 bn cm of Kazakhstani gas annually into a pipeline to China. A memorandum of understanding on partial Chinese financing of this project was signed at the inaugural event (Kazakhstan Today, December 13).
No information is publicly available on pricing arrangements for Turkmen and Kazakhstani gas deliveries to China, or the transit fees for Turkmen gas on Uzbekistan's and Kazakhstan's territories.

The project entails substantial collateral advantages for the three Central Asian countries. The export pipelines run through some of their least developed areas, in central Uzbekistan and southern Kazakhstan. These areas are benefiting from the construction of motor ways, electricity lines, and new settlements along the pipeline route.
The Chinese side has offered attractive package deals in connection with the pipeline project. In Kazakhstan, China's Export-Import Bank is opening a credit line for the construction of a gas-processing complex near Atyrau, as part of a general crediting agreement in the fuel and energy sector.

In Turkmenistan, president Hu's delegation offered a number of projects outside the energy sector, including telecommunications, construction materials, and infrastructure development, with soft-term loans from China's Export-Import Bank.
Such package deals enable China to compete effectively against Russia over access to Central Asian natural resources.

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