China’s Energy Security Strategy in Central Asia

By Fakhmiddin Fazilov & Xiangming Chen

Parts of this article were adapted from the authors’ “China and Central Asia: A Significant New Energy Nexus” in The European Financial Review, April 30, 2013, accessible here.

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China’s trade and energy cooperation with Central Asia has been expanding over the last ten years. Photo by Sue Anne Tay

Over the past decade China has aggressively developed its energy cooperation with Central Asia, which has an abundance of oil and natural gas deposits, and relative political stability. Through its energy relationship with Central Asia, China not only diversifies its access to new energy sources but also gains greater flexibility in playing regional geopolitics that advances its broader national interests.

Energy is a major part of the fast growing bilateral trade between China and Central Asia, which rose to $45.94 billion in 2012, from $460 million in 1992. As part of this increasing energy interconnectivity, two main pipelines from Central Asia to China (the Central Asia-China gas pipeline and Kazakhstan-China oil pipeline) are already in operation. Since its official opening in 2006, the China-Kazakhstan oil pipeline, with a total length of over 1,200 km, has delivered over 50 million tons of crude oil to China. This pipeline transported 10.4 million tons of oil in 2012.

In April 2013, the annual gas transportation capacity of China-Central Asian natural gas pipeline reached 25 billion cubic meters (bcm), equivalent to 20.85 million tons of crude oil. With the two projects combined, the capacity reached 31.25 million tons of crude oil, which meant that a contract to import the remaining 34.75 million tons of crude oil could be made in recent years. In parallel to this, China plans to increase its gas imports from Central Asia to up to 55-60 bcm of gas per year.

Some experts estimate China controls over 15% of Kazakhstan’s total oil output. In fact, China’s demand for oil has resulted in significant investments by Chinese energy companies, supplanting Russian and Western competitors from the region’s energy sector. In particular, China National Рetroleum Сorporation (CNPC) has been active in Kazakhstan’s western region. acquiring 60.3% of Kazakh oil company Aktobemunaigaz , as well as a 20-year user license for the Zhanazhol gas site and the Kenkiyak oil site. In 2005, the CNPC launched its largest foreign acquisition, in the form of Petrokazakhstan (formerly Hurricane Hydrocarbons). China Investment Corporation (CIC) bought a 11% stake in KazMunaiGas subsidiary KazMunaiGas Exploration and Production, while CNPC bought a 49% share of Mangistaumunaigaz for $2.6 billion, in 2009. The discovery of Kazakhstan’s giant Kashagan oil field in 2000, considered “the largest oil discovery …in the past 20 years,”[1] boosted prospects for the Kazakhstan-China pipeline project. After an earlier failed attempt, in 2013 CNPC agreed to buy 8.3% of Kasahagan’s share for USD 5 billion. CNPC also part owns the pipeline that transports oil back to China. Following an accumulated USD 700 million in investments, the eastern oil pipeline, running 988 km from Atasu in Kazakhstan to Alashankou at the Chinese border (see Map 1A), was completed with the help of CNPC at the end of 2005 and began operating in May 2006.[2]

Map 1A

Map 1B

Astana and Beijing have, over the years, committed to cooperating in the construction of the Kazakhstan-China crude oil and natural gas pipelines, the development of oil and natural gas, the construction of new power facilities and the transmission of electricity to third country markets. Additionally, China imports uranium from Kazakhstan for its nuclear plants, and CNPC has formed a joint venture with Kazakhstan’s state-owned Kazatomprom to invest in uranium production in Kazakhstan.

Turkmenistan, home to the world’s fourth largest proven natural gas fields, is a major supplier for China via the Central Asia-China gas pipeline that ends on China’s east coast (see Map 1b). Both benefit from this arrangement as China gets much needed gas, while Turkmenistan’s exports to China provide a reliable and abundant source of income in contrast to its other main markets, Iran and Russia.

China is also cooperating with Uzbekistan to access some part of its estimated 65 trillion cubic feet (tcf) of proven natural gas reserves. Uzbekistan started to supply natural gas through the Uzbekistan-China gas pipeline in August 2012. The China-Central Asia pipeline, which runs from Turkmenistan to China, includes lines A and B. The construction of line C, with a length of 1,830 kilometers was launched in 2012. This third line of this gas pipeline is set to transfer up to 25 bcm of natural gas a year by late 2015. Of that amount, Turkmenistan will supply 10 bcm, Uzbekistan 10 bcm, and Kazakhstan 5 bcm. Route ‘D’, which would go through Uzbekistan as well, is currently being built, though there is some question over pricing of gas down the line. By late 2015, the annual volume of all of these China-Central Asia gas pipelines is expected to reach 55 bcm and by 2020 it may reach 65 bcm.

China has made other economic inroads into Uzbekistan with more than 380 ventures established, some involving CITIC Construction, CNPC and China National Machinery Industry Corporation (Sinomach). China Guangdong Nuclear Power Corporation has also established a joint venture to develop black-shale uranium in the Navoi Province of Uzbekistan.

As the world’s largest energy consumer, China has become more dependent on Central Asian energy sources, and as this need will grow, it will be even more aggressive in securing a larger share of its energy prize in Central Asia.

As China’s domestic “Go West” policy to develop its poorer interior regions enters its second decade, China is also pushing further across borders to intensify and diversify its Central Asian energy sources, seeking other opportunities and responding to new challenges as they arise.

The departure of the U.S. troops from Afghanistan by the end of 2014 will make it easier for China to build a more extensive and direct railroad line from Pakistan to Xinjiang. China’s efforts exploring natural resources in Afghanistan are also likely to increase. As the U.S. is transferring national security responsibilities to the national Afghan army and security forces, China is quietly positioning itself to fill the U.S./NATO vacuum in Afghanistan.[3] Beijing has called for U.S. and NATO troop withdrawal as a prerequisite for peace and stability in Afghanistan.[4] Peace and stability in Afghanistan is crucial for China’s bigger vision of securing Central Asian energy, because it provides a potential transport and pipeline connector between China and its strategic partner Iran.

The further development of China’s Central Asian energy pipeline projects will involve a line from China to the oil terminals of the Persian Gulf. These corridors will ultimately place China at the center of a “Pan-Asian global energy bridge,” which will link existing and potential suppliers (Persian Gulf countries, Central Asia and Russia) to the major energy consumers (China, Japan and Korea). If successful, it will not only improve the energy security of China, but also strengthen Beijing’s geo-political influence in the region.

Of the several challenges posed by the region, nothing is more critical to Beijing than the growing tension between the Chinese government and the Uyghur minority in Xinjiang. While this conflict may hamper China’s further cooperation with Central Asia due to the complications provided by security clashes in the region, it creates an imperative for China to find a balance between addressing its domestic concerns and their direct cross-border implications for its Central Asia strategy.

As China’s economic links with Central Asia move beyond energy into other areas such as communications, construction, and transport infrastructure, China’s role in the “New Great Game” where players vie for more energy, accessibility and influence, will no doubt be a leading one. At the moment, however, it is notable how central the energy relationship between China and the region remains.

 

Fakhmiddin Fazilov is a Research Scholar at New York University. He was previously a Visiting Assistant Professor of International Studies and a research associate at the Center for Urban and Global Studies at Trinity College in Hartford, Connecticut. He can be contacted at fakhmiddin.fazilov_at_gmail_dot_com.

Xiangming Chen is the founding Dean and Director of the Center for Urban and Global Studies and Paul Raether Distinguished Professor of Global Urban Studies and Sociology at Trinity College in Hartford, Connecticut and Distinguished Guest Professor in the School of Social Development and Public Policy at Fudan University in Shanghai, China. He can be contacted at Xiangming.Chen_at_trincoll_dot_edu.


[1] David B. Ottaway, “Vast Caspian oil field found”, Washington Post, May 16, 2000, p. A01; Kazakhstan Special Report, November 2003, p. 8.
[2] “Oil begins flowing through completed Kazakh-China pipeline”; “U.S. experts pressure to hinder opening of China-Kazakhstan oil pipeline,” BBC Monitoring – Energy, May 25 & June 21, 2006.
[3] Christina Lin, “China’s Silk Road Strategy in AfPak: The Shanghai Cooperation Organization”. ISPSW Publications, Institut für Strategie- Politik- Sicherheits- und Wirtschaftsberatung (ISPSW), Berlin, Germany, p.1.
[4] Li Qinggong, “Afghan peace needs a map”, China Daily, 28 September, 2009

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