Afghanistan has what China wants

By Alexandros Petersen

First published by Foreign Policy’s AfPak Channel on April 18, 2013

As we near the date of withdrawal for U.S. combat forces in Afghanistan, the debate about the country’s largest neighbor has shifted. No longer are American analysts worried about Chinese investments free-riding on U.S. and NATO stability efforts. Now, the hope is that China’s massive state-owned enterprises (SOEs) will pour more funds into Afghanistan in the hope that foreign direct investment will shore up a centralized government and provide opportunities for all to make money instead of war. But, Chinese companies face many of the same uncertainties that U.S. forces and contractors have contended with for a decade.

Much has been written about the controversies and delays at the site of China’s largest investment in the country: the gargantuan copper mine at Mes Aynak. Both company officials and local observers indicate that the SOE leading the project, China Metallurgical Group Corporation, is biding its time, waiting to assess the post-withdrawal security situation.

What could be far more significant in the long run, however, are Chinese plans for oil and gas investment in the north of the country. These have the potential to link Afghanistan into China’s growing pipeline network in Central Asia, providing the infrastructure-led regional integrationthat U.S. officials have been touting for years. Nearby Turkmenistan and Kazakhstan have grown wealthy and centralized partly due to Chinese energy investment. Could the same be true for Afghanistan in the future?

First, the oil has to come out of the ground. Afghan Minister of Mines Wahidullah Shahraniannounced at last month’s Mines and Money conference in Hong Kong that Beijing’s flagship China National Petroleum Corporation (CNPC) will very soon start oil production at its three concessions in northern Sar-e-Pul province. But, back in October, Shahrani announced the very same news. On the ground observers, independent consultants and this Reuters articleconfirmed that extraction actually began in the Fall and was ramped up in January. Perhaps this is just a question of wording. There could also be some confusion amongst journalists about what constitutes “extraction” and “commercial production”.

However, there seems to be lack of clarity on exactly how much crude is coming out of the ground, where it will be refined and what sort of reserves CNPC is sitting on. Back in October Shahrani mentioned a production rate of 1950 barrels per day (bpd), whereas his latest comments indicate initial output of 5000 bpd, with plans for 25,000 bpd by the end of the year. This is a significant discrepancy. Last year, CNPC officials were discussing estimates closer to 2000 bpd, a figure corroborated by representatives of Watan Oil and Gas, CNPC’s Afghan partner in the project.

It also seems that there is now some uncertainty about which of Afghanistan’s northern neighbors will refine the oil, which according to CNPC and the Ministry is to be re-imported in the form of various petroleum products, such as gasoline and kerosene, for Afghan consumption. That said, CNPC has confirmed on numerous occasions that the crude is already being trucked in convoys across the border with Turkmenistan to be refined there. As Erica Downs mentions in her excellent, in-depth report on China’s investments in Afghanistan, CNPC’s oil extraction project in Sar-e-Pul is an extension of its mammoth operations in eastern Turkmenistan, from where the Central Asia-China natural gas pipeline extends all the way to Beijing, Shanghai and China’s other east coast urban centers.

The three concessions that CNPC received in Afghanistan: the Kashkari, Bazarkhami and Zamarudsa oil blocks are part of the vast Amu Darya basin, the oil and natural gas reserves of which are thought to stretch from southeastern Turkmenistan to southern Tajikistan and across northern Afghanistan. In fact, this is the very same territory through which CNPC is planning to build a new natural gas pipeline to bring Turkmen resources to Xinjiang through northern Afghanistan and Tajikistan. The TATC project, as it has been labeled, would serve as an alternative route to the Central Asia-China pipeline, so that Chinese consumers are not dependent on Uzbekistan and Kazakhstan as transit countries. Given CNPC’s plans for a massive 65 billion cubic meters of gas annually to be imported from Turkmenistan, there will almost certainly be a need for another line.

In the past, CNPC has discussed the possibility of pipelines from Iran or other parts of the Gulf connecting to its Central Asian network, potentially through northern Afghanistan. CNPC recently abandoned its plans to develop part of Iran’s gigantic South Pars gas field, but it is actively looking for new extractive opportunities in the country, despite international sanctions. If it already has infrastructure threaded through northern Afghanistan, it would be logical for CNPC to use the same provinces in which it is extracting oil as a thoroughfare for Gulf gas going to China.

In the face of these wide-ranging plans, Afghanistan’s Ministry of Mines may be trying to keep its options open. Philadelphia-based chemical company FMC Corporation announced an agreement in late December to build a refinery in Jowzjan province, not far from CNPC’s operations. FMC’s plans call for processing oil extracted not only by CNPC, but also that expected to be produced in another section of the Amu Darya basin by a consortium made up of Dubai-based Dragon Oil, Kuwait Energy and Turkish Petroleum. Their blocks, Sanduqli and Mazer-e-Sharif, were only awarded in December and consortium representatives say that negotiations with the Ministry are ongoing. Afghan press reports claim a three year deal has been signed between CNPC and FMC, but no CNPC representatives were able to confirm that. So far, plans call for refining 60 bpd, so either way, CNPC will almost certainly continue to use its Turkmen connection to bring the crude to market.

The Afghan government consistently casts China’s energy development plans as part of the post-withdrawal economic development strategy, and even the U.S. embassy in Kabul has partneredwith the Chinese on low-key capacity-building projects. In the specific Afghan context, this may very well be the case, but when one zooms out to see that CNPC’s operations in Afghanistan are just one piece of an immense energy network being developed by Chinese firms across Eurasia, it becomes clear that China’s energy plans for Afghanistan ought to be monitored much more closely in the years to come. If the Central Asian experience provides any lessons, Chinese energy investment might provide medium-term prosperity at the expense of long-term sovereignty.

Dr. Alexandros Petersen is author of The World Island: Eurasian Geopolitics and the Fate of the West, and Advisor to the European Energy Security Initiative at the Woodrow Wilson International Center for Scholars. His current research is available at www.chinaincentralasia.com.

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