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China Winning the Race for Central Asia’s Energy Riches

By John Daly | Thu, 23 June 2011 12:50 | 6

Many western analysts have described the post-Soviet tussle for Caspain and Central Asian energy reserves as the new “Great Game, except this time around, Russia is facing the U.S. rather than the British empire.

To a dispassionate outside observer however, what is most striking about the prolonged wrangle between Moscow and Washington for hydrocarbons, military bases and influence is the emergence of an understated sly newcomer who has managed to bag many of the region’s assets – China.

There are many reasons for this, despite the fact that both Russia and the U.S. both seemed to hold winning hands.

For Moscow, quite aside from its colonialist legacy was the fact that it controlled the Truboprovodnaiia sistema Sredniaia Aziia-Tsentr (the Central Asia-Center, or SATS, pipeline system.) Russia’s natural gas monopoly Gazprom controls the SATS complex of pipelines, which run from Turkmenistan via Uzbekistan and Kazakhstan to Russia. The SATS eastern branch consists of SATS-1, 2, 4 and 5 pipelines, which were built between 1960 and 1988. Construction began after the discovery of Turkmenistan's Dzharkak field, with the first SATS section coming online in 1960, while SATS-4 was commissioned in 1973. Simply put, after the 1991 collapse of the USSR, Central Asia’s only opportunity for energy exports was controlled by Russia, which was determined to obey its new-found capitalist mantra of “buy cheap and sell dear.”

And where did Gazprom sell its Central Asian natural gas?

Europe, or course.

In 2008 Gazprom's sales to the European Union were nearly 170 billion cubic meters (bcm) out of a production of 550 bcm. Gazprom's share in the global and Russian natural gas production is 17.3 percent and 85 percent, respectively. Turkmen exports represent a quarter of Gazprom's EU exports, but the company also buys 15 bcm of Kazakh gas and 7 bcm of Uzbek gas.

The boulder in Gazprom's shoe is that the Russian domestic market, which is heavily subsidized, now accounts for about 70 percent of the company's production, with domestic consumption rising by more than 3 bcm a year. Accordingly, to free up as much indigenous production as possible for export, one-third of Russian internal gas usage has to be supplied from non-Gazprom sources.

And the Americans?

Well, after 1991 they showed up, checkbooks and democracy and human rights lectures in hand, determined as much as Moscow to buy local assets at fire-sale prices. Unlike oil, natural gas can only be pipelined or, in an expensive procedure, liquefied for transport.

Which left the Central Asians irritated at both parties.

Enter Beijing – cash to hand and no annoying lectures about political systems or human rights.

On 14 December 2009 China and Turkmenistan formally opened the first section of a 1,139 mile-long, 40 bcm per year natural gas pipeline, financed by China National Petroleum Corporation (CNPC), China's largest oil and gas producer and supplier. The Turkmenistan-China pipeline has since been expanded to carry Uzbek and Kazakh natural gas.

More pipelines flowing eastwards from Central Asia are under construction.

The moral of this story seems clear – those who simply show up with cash and sign mutually beneficial contracts are likely to prevail over Kremlin denizens expecting gratitude for a century of servitude, much less Yankee Wall St wizards seeking to screw the locals whilst prattling on about free markets and democracy. The final race for Central Asian energy is far from over, but at the moment, Beijing’s mandarins are winning.

By. John Daly for OilPrice.com

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  • Anonymous on June 24 2011 said:
    there is a difference between dispassionate and ignorant. If Mr Daly was as well versed in history of Russian involvement in central Asia as he is in the politics of energy, he would know more about how Russians play this kind the game. As it is he does not seem to know this, therefore his understanding of the Russians in central Asia is faulty at best and misleading at worst. I would advise you Mr Daly to go read the report on China and Russian energy at Stratfor.com so as to better your understanding of the internal history and politics of the situation.
  • Anonymous on June 29 2011 said:
    Mr. Andrewswhat do YOU know about Russia and Central Asia? I am sure you know nothing but a foolish historical facts that aren't even proved.If you're really good at history then you wouldn't say so in your comments.The article is well written and it is telling the truth actually. Today we have different Asia then before.And i think this tells everything already.
  • Anonymous on June 29 2011 said:
    Mr. AndrewsBased on your comment the only thing i can say is: You know Nothing about Asia (esp. Central Asia)How about Russia? I wonder if you do know anything Russia and I am sure you know nothing but a foolish historical facts that aren't even proved.If you're really good at history then you wouldn't say so in your comments.The article is well written and it is telling the truth actually. Today we have different Asia then before.And i think this tells everything already.
  • Anonymous on June 29 2011 said:
    Alex, I think you mean that John Daly is telling the truth as far as he knows it, but unfortunately he doesn't know it any better than Ronald Reagan or George W. Bush, which means that he is totally and completely lost.Don't misunderstand me however. The people who run economics here in Sweden are morons (and you have my permission to contact them and supply them with my opinion of their capabilities), because otherwise I would be teaching people like Daly, and turning them into reasonable energy economics. Instead I have to waste my time cycling, playing tennis, giving lectures in places like Paris and ___, waiting to proof read my book, listening to jazz, and doing a little swimming.
  • Anonymous on June 30 2011 said:
    thank you Fred... :-)
  • Tanner on May 15 2012 said:
    The prospects for nceluar energy in Europe making net gains are grim, to say the least, and quite frankly its only marginally better in North America. However the announcement of major uranium reserves found in India, may be a game changer for nceluar in the Third-World.While these deposits are not going to yield high grade ore and are going to be relativity expensive to mine, they will be under the control of India. This will give them the ability to guarantee fuel to potential buyers of their PHWR export units, a major stumbling block to sales up to now.While the West keeps burning carbon due to the machinations of large suppliers, poorer countries may surpass us in supplying cheap energy for their populations. Reply

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