Pipelineistan’s New Silk Road
[..last year Saudi Arabia – now (re)arming to the teeth, courtesy of Washington, and little short of paranoid about the Iranian nuclear program – offered to supply the Chinese with the same amount of oil the country currently imports from Iran at a much cheaper price. But Beijing, for whom Iran is a key long-term strategic ally, scotched the deal...]
Back before e-mail, a world traveler who wanted to keep in touch and couldn’t just pop into the nearest Internet café might drop you a series of postcards from one exotic locale after another. Pepe Escobar, that edgy, peripatetic globe-trotting reporter for one of my favorite on-line publications, Asia Times, has been doing just that for TomDispatch readers as he explores the geography that undergirds our civilization, the pipelines that crisscross Eurasia through which flow energy – and trouble. This, then, is his fourth “postcard” from what he likes to call Pipelineistan. The first in March 2009 began laying out a great, ongoing energy struggle across Eurasia and the Great Game of business, diplomacy, and proxy war between Russia and the U.S. that went with it. In May of that year, he plunged eastward into tumultuous Central and South Asia and the expanding battleground that, in Washington, goes by the neologism Af-Pak (for the Afghanistan-Pakistan theater of operations). Next, in October, he headed west toward Europe and another developing struggle, which he dubbed “Pipelineistan’s Ultimate Opera,” over just how natural gas from the Caspian Sea would reach Europe. Now, in his first stop of 2010, he heads where, it seems, anyone interested in energy – maybe anyone interested in anything at all – more or less has to head these days: China and the new Silk Road of pipelines that offer the former Middle Kingdom a partial shot at future energy security and Washington future anxieties of all sorts. Future historians may well agree that the 21st century Silk Road first opened for business on Dec. 14, 2009. That was the day a crucial stretch of pipeline officially went into operation linking the fabulously energy-rich state of Turkmenistan (via Kazakhstan and Uzbekistan) to Xinjiang province in China’s far west. Hyperbole did not deter the spectacularly named Gurbanguly Berdymukhamedov, Turkmenistan’s president, from bragging, “This project has not only commercial or economic value. It is also political. China, through its wise and farsighted policy, has become one of the key guarantors of global security.”
The bottom line is that, by 2013, Shanghai, Guangzhou, and Hong Kong will be cruising to ever more dizzying economic heights courtesy of natural gas supplied by the 1,833-kilometer-long Central Asia Pipeline, then projected to be operating at full capacity. And to think that, in a few more years, China’s big cities will undoubtedly also be getting a taste of Iraq’s fabulous, barely tapped oil reserves, conservatively estimated at 115 billion barrels, but possibly closer to 143 billion barrels, which would put it ahead of Iran. When the Bush administration’s armchair generals launched their Global War on Terror, this was not exactly what they had in mind. China’s economy is thirsty, and so it’s drinking deeper and planning deeper yet. It craves Iraq’s oil and Turkmenistan’s natural gas, as well as oil from Kazakhstan. Yet instead of spending more than a trillion dollars on an illegal war in Iraq or setting up military bases all over the Greater Middle East and Central Asia, China used its state oil companies to get some of the energy it needed simply by bidding for it in a perfectly legal Iraqi oil auction.
Meanwhile, in the New Great Game in Eurasia, China had the good sense not to send a soldier anywhere or get bogged down in an infinite quagmire in Afghanistan. Instead, the Chinese simply made a direct commercial deal with Turkmenistan and, profiting from that country’s disagreements with Moscow, built itself a pipeline which will provide much of the natural gas it needs.No wonder the Obama administration’s Eurasian energy czar Richard Morningstar was forced to admit at a congressional hearing that the U.S. simply cannot compete with China when it comes to Central Asia’s energy wealth. If only he had delivered the same message to the Pentagon.
That Iranian Equation
In Beijing, they take the matter of diversifying oil supplies very, very seriously. When oil reached $150 a barrel in 2008 – before the U.S.-unleashed global financial meltdown hit – Chinese state media had taken to calling foreign Big Oil “international petroleum crocodiles,” with the implication that the West’s hidden agenda was ultimately to stop China’s relentless development dead in its tracks.
Twenty-eight percent of what’s left of the world’s proven oil reserves are in the Arab world. China could easily gobble it all up. Few may know that China itself is actually the world’s fifth largest oil producer, at 3.7 million barrels per day (bpd), just below Iran and slightly above Mexico. In 1980, China consumed only 3 percent of the world’s oil. Now, its take is around 10 percent, making it the planet’s second largest consumer. It has already surpassed Japan in that category, even if it’s still way behind the U.S., which eats up 27 percent of global oil each year. According to the International Energy Agency (IEA), China will account for over 40 percent of the increase in global oil demand until 2030. And that’s assuming China will grow at “only” a 6 percent annual rate which, based on present growth, seems unlikely. Saudi Arabia controls 13 percent of world oil production. At the moment, it is the only swing producer – one, that is, that can move the amount of oil being pumped up or down at will – capable of substantially increasing output. It’s no accident, then, that, pumping 500,000 bpd, it has become one of Beijing’s major oil suppliers. The top three, according to China’s Ministry of Commerce, are Saudi Arabia, Iran, and Angola. By 2013-2014, if all goes well, the Chinese expect to add Iraq to that list in a big way, but first that troubled country’s oil production needs to start cranking up. In the meantime, it’s the Iranian part of the Eurasian energy equation that’s really nerve-racking for China’s leaders.
Chinese companies have invested a staggering $120 billion in Iran’s energy sector over the past five years. Already Iran is China’s number two oil supplier, accounting for up to 14 percent of its imports; and the Chinese energy giant Sinopec has committed an additional $6.5 billion to building oil refineries there. Due to harsh U.N.-imposed and American sanctions and years of economic mismanagement, however, the country lacks the high-tech know-how to provide for itself, and its industrial structure is in a shambles. The head of the National Iranian Oil Company, Ahmad Ghalebani, has publicly admitted that machinery and parts used in Iran’s oil production still have to be imported from China. Sanctions can be a killer, slowing investment, increasing the cost of trade by over 20 percent, and severely constricting Tehran’s ability to borrow in global markets. Nonetheless, trade between China and Iran grew by 35 percent in 2009 to $27 billion. So while the West has been slamming Iran with sanctions, embargoes, and blockades, Iran has been slowly evolving as a crucial trade corridor for China – as well as Russia and energy-poor India. Unlike the West, they are all investing like crazy there because it’s easy to get concessions from the government; it’s easy and relatively cheap to build infrastructure; and being on the inside when it comes to Iranian energy reserves is a necessity for any country that wants to be a crucial player in Pipelineistan, that contested chessboard of crucial energy pipelines over which much of the New Great Game in Eurasia takes place. Undoubtedly, the leaders of all three countries are offering thanks to whatever gods they care to worship that Washington continues to make it so easy (and lucrative) for them.
Few in the U.S. may know that last year Saudi Arabia – now (re)arming to the teeth, courtesy of Washington, and little short of paranoid about the Iranian nuclear program – offered to supply the Chinese with the same amount of oil the country currently imports from Iran at a much cheaper price. But Beijing, for whom Iran is a key long-term strategic ally, scotched the deal.
As if Iran’s structural problems weren’t enough, the country has done little to diversify its economy beyond oil and natural gas exports in the past 30 years; inflation’s running at more than 20 percent; unemployment at more than 20 percent; and young, well-educated people are fleeing abroad, a major brain drain for that embattled land. And don’t think that’s the end of its litany of problems. It would like to be a full member of the Shanghai Cooperation Organization (SCO) – the multi-layered economic/military cooperation union that is a sort of Asian response to NATO – but is only an official SCO observer because the group does not admit any country under U.N. sanctions. Tehran, in other words, would like some great power protection against the possibility of an attack from the U.S. or Israel. As much as Iran may be on the verge of becoming a far more influential player in the Central Asian energy game thanks to Russian and Chinese investment, it’s extremely unlikely that either of those countries would actually risk war against the U.S. to “save” the Iranian regime.
The Great Escape
From Beijing’s point of view, the title of the movie version of the intractable U.S. vs. Iran conflict and a simmering U.S. vs. China strategic competition in Pipelineistan could be Escape From Hormuz and Malacca. The Strait of Hormuz is the definition of a potential strategic bottleneck. It is, after all, the only entryway to the Persian Gulf and through it now flow roughly 20 percent of China’s oil imports. At its narrowest, it is only 36 kilometers wide, with Iran to the north and Oman to the south. China’s leaders fret about the constant presence of U.S. aircraft carrier battle groups on station and patrolling nearby. With Singapore to the North and Indonesia to the south, the Strait of Malacca is another potential bottleneck if ever there was one – and through it flow as much as 80 percent of China’s oil imports. At its narrowest, it is only 54 kilometers wide and like the Strait of Hormuz, its security is also of the made-in-USA variety. In a future face-off with Washington, both straits could quickly be closed or controlled by the U.S. Navy.
Hence, China’s increasing emphasis on developing a land-based Central Asian energy strategy could be summed up as: Bye-bye, Hormuz! Bye-bye, Malacca! And a hearty welcome to a pipeline-driven new Silk Road from the Caspian Sea to China’s Far West in Xinjiang. Kazakhstan has 3 percent of the world’s proven oil reserves, but its largest oil fields are not far from the Chinese border. China sees that country as a key alternative oil supplier via future pipelines that would link the Kazakh oil fields to Chinese oil refineries in its far west. In fact, China’s first transnational Pipelineistan adventure is already in place: the 2005 China-Kazakhstan oil project, financed by Chinese energy giant CNPC.
Much more is to come, and Chinese leaders expect energy-rich Russia to play a significant part in China’s escape-hatch planning as well. Strategically, this represents a crucial step in regional energy integration, tightening the Russia/China partnership inside the SCO as well as at the U.N. Security Council.
When it comes to oil, the name of the game is the immense Eastern Siberia-Pacific Ocean (ESPO) pipeline. Last August, a 4,000-kilometer-long Russian section from Taishet in eastern Siberia to Nakhodka, still inside Russian territory, was begun. Russian Premier Vladimir Putin hailed ESPO as “a really comprehensive project that has strengthened our energy cooperation.” And in late September, the Russians and the Chinese inaugurated a 999-kilometer-long pipeline from Skovorodino in Russia’s Amur region to the petrochemical hub Daqing in northeast China.
Russia is currently delivering up to 130 million tons of Russian oil a year to Europe. Soon, no less than 50 million tons may be heading to China and the Pacific region as well.
There are, however, hidden tensions between the Russians and the Chinese when it comes to energy matters. The Russian leadership is understandably wary of China’s startling strides in Central Asia, the former Soviet Union’s former “near abroad.” After all, as the Chinese have been doing in Africa in their search for energy, in Central Asia, too, the Chinese are building railways and introducing high-tech trains, among other modern wonders, in exchange for oil and gas concessions.
Despite the simmering tensions between China, Russia, and the U.S., it’s too early to be sure just who is likely to emerge as the victor in the new Great Game in Central Asia, but one thing is clear enough. The Central Asian “stans” are becoming ever more powerful poker players in their own right as Russia tries not to lose its hegemony there, Washington places all its chips on pipelines meant to bypass Russia (including the Baku-Tbilisi-Ceyhan [BTC] pipeline that pumps oil from Azerbaijan to Turkey via Georgia) and China antes up big time for its Central Asian future. Whoever loses, this is a game that the “stans” cannot but profit from.
Recently, our man Gurbanguly, the Turkmen leader, chose China as his go-to country for an extra $4.18 billion loan for the development of South Yolotan, his country’s largest gas field. (The Chinese had already shelled out $3 billion to help develop it.) Energy bureaucrats in Brussels were devastated. With estimated reserves of up to 14 trillion cubic meters of natural gas, the field has the potential to flood the energy-starved European Union with gas for more than 20 years. Goodbye to all that?
In 2009, Turkmenistan’s proven gas reserves were estimated at a staggering 8.1 trillion cubic meters, fourth largest in the world after Russia, Iran, and Qatar. Not surprisingly, from the point of view of Ashgabat, the country’s capital, it invariably seems to be raining gas. Nonetheless, experts doubt that the landlocked, idiosyncratic Central Asian republic actually has enough blue gold to supply Russia (which absorbed 70 percent of Turkmenistan’s supply before the pipeline to China opened), China, Western Europe, and Iran all at the same time.
Currently, Turkmenistan sells its gas to: China via the world’s largest gas pipeline, 7,000 kilometers long and designed for a capacity of 40 billion cubic meters per year, Russia (10 billion cubic meters per year, down from 30 billion per year until 2008), and Iran (14 billion cubic meters per year). Iranian President Mahmoud Ahmadinejad always gets a red-carpet welcome from Gurbanguly, and the Russian energy giant Gazprom, thanks to an improved pricing policy, is treated as a preferred customer. At present, however, the Chinese are atop the heap, and more generally, whatever happens, there can be little question that Central Asia will be China’s major foreign supplier of natural gas. On the other hand, the fact that Turkmenistan has, in practice, committed its entire future gas exports to China, Russia, and Iran means the virtual death of various trans-Caspian Sea pipeline plans long favored by Washington and the European Union.
IPI vs. TAPI All Over Again
On the oil front, even if all the “stans” sold China every barrel of oil they currently pump, less than half of China’s daily import needs would be met. Ultimately, only the Middle East can quench China’s thirst for oil. According to the International Energy Agency, China’s overall oil needs will rise to 11.3 million barrels per day by 2015, even with domestic production peaking at 4.0 million bpd. Compare that to what some of China’s alternative suppliers are now producing: Angola, 1.4 million bpd; Kazakhstan, 1.4 million as well; and Sudan, 400,000.
On the other hand, Saudi Arabia produces 10.9 million bpd, Iran around 4.0 million, the United Arab Emirates (UAE) 3.0 million, Kuwait 2.7 million – and then there’s Iraq, presently at 2.5 million and likely to reach at least 4.0 million by 2015. Still, Beijing has yet to be fully convinced that this is a safe supply, especially given all those U.S. “forward operating sites” in the UAE, Bahrain, Kuwait, Qatar, and Oman, plus those roaming naval battle groups in the Persian Gulf.
On the gas front, China definitely counts on a South Asian game changer. Beijing has already spent $200 million on the first phase in the construction of a deepwater port at Gwadar in Pakistan’s Balochistan province. It wanted, and got from Islamabad, “sovereign guarantees to the port’s facilities.” Gwadar is only 400 kilometers from Hormuz. With Gwadar, the Chinese Navy would have a home port that would easily allow it to monitor traffic in the strait and someday perhaps even thwart the U.S. Navy’s expansionist designs in the Indian Ocean.
But Gwadar has another, infinitely juicier future role. It could prove the pivot in a competition between two long-discussed pipelines: TAPI and IPI. TAPI stands for the Turkmenistan-Afghanistan-Pakistan-India pipeline, which can never be built as long as U.S. and NATO occupation forces are fighting the resistance umbrella conveniently labeled “Taliban” in Afghanistan. IPI, however, is the Iran-Pakistan-India pipeline, also known as the “peace pipeline” (which, of course, would make TAPI the “war pipeline”). To Washington’s immeasurable distress, last June, Iran and Pakistan finally closed the deal to build the “IP” part of IPI, with Pakistan assuring Iran that either India or China could later be brought into the project.
Whether it’s IP, IPI, or IPC, Gwadar will be a key node. If, under pressure from Washington, which treats Tehran like the plague, India is forced to pull out of the project, China already has made it clear that it wants in. The Chinese would then build a Pipelineistan link from Gwadar along the Karakorum highway in Pakistan to China via the Khunjerab Pass – another overland corridor that would prove immune to U.S. interference. It would have the added benefit of radically cutting down the 20,000-kilometer-long tanker route around the southern rim of Asia.
Arguably, for the Indians it would be a strategically sound move to align with IPI, trumping a deep suspicion that the Chinese will move to outflank them in the search for foreign energy with a “string of pearls” strategy: the setting up of a series of “home ports” along its key oil supply routes from Pakistan to Myanmar. In that case, Gwadar would no longer simply be a “Chinese” port.
As for Washington, it still believes that if TAPI is built, it will help keep India from fully breaking the U.S.-enforced embargo on Iran. Energy-starved Pakistan obviously prefers its “all-weather” ally China, which might commit itself to building all sorts of energy infrastructure within that flood-devastated country. In a nutshell, if the unprecedented energy cooperation between Iran, Pakistan, and China goes forward, it will signal a major defeat for Washington in the New Great Game in Eurasia, with enormous geopolitical and geo-economic repercussions.
For the moment, Beijing’s strategic priority has been to carefully develop a remarkably diverse set of energy-suppliers – a flow of energy that covers Russia, the South China Sea, Central Asia, the East China Sea, the Middle East, Africa, and South America. (China’s forays into Africa and South America will be dealt with in a future installment of our TomDispatch tour of the globe’s energy hotspots.) If China has so far proven masterly in the way it has played its cards in its Pipelineistan “war”, the U.S. hand – bypass Russia, elbow out China, isolate Iran – may soon be called for what it is: a bluff. http://www.antiwar.com
|Geo-Economics in Central Asia and the ‘Great Game’ of Natural Resources: Water, Oil, Gas, Uranium and Transportation Corridors (WP)|
|Miguel Á. Pérez Martín|
WP 59/2009 (Translated from Spanish) - 19/4/2010
This Working Paper describes and analyses Central Asia from the standpoint of geo-economics, focusing especially on key questions in the region such as water, logistics, the direction of trade flows, hydrocarbons (oil and gas) and uranium. Its purpose is to estimate the involvement of the great powers and multinational companies in connection with these issues, assessing which countries or companies have the greatest presence or influence and showing how some of these players, especially Russia, play a dominant role in what some analysts have called the new ‘Great Game’.
For almost 200 years Central Asia was subjected to the plans and designs of Russia in its two versions of domination: the Tsars and the Soviets. In 1991, the dissolution of the USSR marked a new turning point in the political and economic life of the various peoples inhabiting Central Asia. The former Soviet republics became independent States and were no longer under the political, economic and military umbrella of the USSR. This situation seemed ideal for the new Central Asian countries to make their own way on the international stage and to decide their own priorities and goals. For Central Asia, the breakdown of the USSR was a time of economic, political and social crisis, but also of new opportunities, including the chance to seek new partners and allies. The US, Turkey, Iran, India, Pakistan, China and Russia itself were quick to establish relations with the new countries. The starting point is what is now known as the famous ‘New Great Game’, which is none other than a modern version of the traditional power plays in the region by the major empires (although the present game is rendered much more complex by the larger number of players involved). The renewed ‘Great Game’ is due to the increasing importance of Central Asia, stemming from the existence in the region of vast reserves of hydrocarbons (oil and gas) and minerals like uranium, and because of its age-old strategic position as a link between major markets (Europe and Asia).
Central Asia is an area offering certain geo-economics advantages to countries or multinational corporations that have particular regional or global aspirations, due either to their own interests or to the need to neutralise other nations or companies which they see as rivals.
The aim of this document is not to detail the strategies and interests of each player in the region, but to evaluate their presence. In other words, it aims to describe and analyse the degree of influence or implication of countries or companies in regard to some strategic sectors both regionally (water and logistics) and internationally (oil, gas, uranium) and their importance in regional or global geo-economics.
Water is an essential resource for the economy and for social stability in Central Asia: 60% of the population of the former Soviet republics in Central Asia live in rural areas and 45% of the workforce is employed in agriculture. The only country that appears to be less dependent upon this sector is Kazakhstan. Just 8% of its GDP comes from agriculture, although this 8% employs no less than 33% of the country’s active population. More than 80% of the cultivated land in Turkmenistan, Tajikistan, Kyrgyzstan and Uzbekistan is productive thanks to irrigation; the exception is Kazakhstan, where only 7% of cultivable land is irrigated.
Cotton farming is the economic activity that generates most jobs in the region, and in some cases, as in Uzbekistan, it is also the main source of foreign currency for its government, accounting for 60% of the total.
Water is therefore the main input in the economy of Central Asia and south Kazakhstan. However, the distribution of water resources in the region is not uniform, and this situation is decisively influencing interregional relations, which are determined by the different capacities of each country to access water, and the varying degrees of priority they afford to water’s different uses. As a result of this situation, countries in the region may be classified into two groups
In view of the lack of technological and economic resources to undertake new projects, Tajikistan and Kyrgyzstan have sought foreign help and, as shown in Table 1, the main financiers of these projects are Russia, Iran and China.
Table 1. Hydroelectric power projects
Russia is the country with the largest presence in the new Tajik and Kyrgyz projects, with China and Iran clearly occupying a secondary position. However, some of these projects planned by Russian companies may be under threat, especially those to be executed in Tajik territory, since Uzbekistan, one of the main opponents of the construction of new dams, appears to have reached agreements with Russia to limit the impact of Tajik hydroelectric projects by imposing conditions on their construction.
In January 2009, at a meeting held in Tashkent between the Presidents of Uzbekistan and Russia, the Russian President Dimitry Medvedev told the press that the construction of hydroelectric power plants in Central Asia would have to take into account the interests of all the States, and in the event of not reaching a common agreement, Russia would pull out. Medvedev’s visit to Tashkent concluded with a joint Russian-Uzbek communiqué stating: ‘The parties have agreed with the need to consider the interests of all states located on trans-boundary water currents of the Central Asian region in implementing projects for building hydroelectric power structures on them, guided by generally accepted standards of international law’.
The remarks by the Russian President in Tashkent would therefore appear to support the Turkmen and Uzbek plans to impose certain conditions on the construction of hydroelectric facilities and shift away from its former position in which it appeared to unreservedly back the Tajik and Kyrgyz projects.
Why might the Russian position have changed? The change in Russia’s position may be linked to another strategic resource in the region, namely gas. Ninety per cent of Central Asian gas exports use the Russian gas network, and its main supplier is Turkmenistan. The Russian government is interested in maintaining this significant flow of Turkmen gas (approximately 37.5 billion cubic metres –bcm– per year in 2007, more than the European Nabucco project’s capacity) and in trying to involve Gazprom significantly in the operation and transportation of the new Turkmen reserves discovered in the South Yolotan area (estimated to total between 4 trillion and 14 trillion cubic metres –tcm– and are considered among the five largest recently discovered). At the end of January 2009, the Presidents of Russia and Uzbekistan signed bilateral agreements whereby Russia secured an Uzbek gas supply for the next few years. The Uzbek President undertook to increase the country’s exports via Russia by 16 bcm, and Lukoil hopes to extract between 15 bcm and 31 bcm per annum from Uzbek fields currently in the exploration phase. The plan is to transport this gas by increasing the current capacity of the Central Asian gas pipeline network (CentGas) which runs through Turkmenistan, Uzbekistan, Kazakhstan and the Russian Federation. The gas business appears to take precedence over the Tajik and Kyrgyz hydroelectric resources, although the final outcome of this situation is not very clear.
There are a number of indicators that seem to suggest that Russia will indeed support Kyrgyzstan’s plans, despite this potentially unleashing a crisis in its relations with Uzbekistan. In early February 2009, President Kurmanbek Bakiyev of Kyrgyzstan announced the closure of the US air base in Manas. The announcement coincided with the approval by Russia of a financial aid package worth US$2 billion, which could perhaps be used to finance construction of new dams in Kyrgyzstan, which Uzbekistan strongly opposes.
Russia appears to be performing a complex balancing act as mediator in which it is trying to satisfy all stakeholders, and at the same time to maximise its own energy interests, obtaining new gas contracts and trying to convince Tajiks and Kyrgyz alike to adapt their hydroelectric power projects to the requirements of their neighbours downstream. If Russia manages to fulfil both objectives it will strengthen its global position as the world’s largest gas exporter and as the main export route for Central Asian gas, edging out possible rivals, and it will also participate in the construction of hydroelectric power plants that could supply power to China, Pakistan and Afghanistan. In short, Russia’s role as mediator in the region will be hugely reinforced, and from Central Asia Russia will be able to project its influence in the form of gas and electricity towards the Indian Ocean, as it currently does in Eastern Europe.
The execution of these projects would give a considerable boost to the Tajik and Kyrgyz economies, the most underdeveloped of all the former Soviet States, and hydroelectric power generation would become the industry with the best future outlook in these countries since, according to the World Hydroelectric Engineering Atlas, Tajikistan is the country with biggest hydro power potential in the world and Kyrgyzstan ranks the third, after the Russian Federation itself.
(3) Logistics and Trade
The geography and orography of Central Asia are as follows:
Map 1. Density of rail traffic
Source: Central Asia Regional Economic Cooperation.
Map 1 shows that the two routes with the highest density in rail traffic are those that connect the cities of the Ferghana Valley and its periphery with the Kazakh border towns of Oral and Pavlodar, and from there they connect to the Russian cities of Omsk and Samara to link up with the trans-Siberian corridor towards European Russia and Eastern Europe. The other three routes being used, although less so, are those running towards Urumqi (China) and linking Atyrau (Kazakhstan) with the Russian Federation or crossing the Caspian Sea by ferry towards the Azerbaijan-Georgian corridor. As for the Turkmenistan-Iran route, we do not have data from the CAREC or any other source.
Rail routes towards Russia are currently the cheapest compared to alternative routes, as shown by studies conducted by the World Bank.
Table 2. Rail routes and prices
Some corridors towards Iran, China and the Caucasus are not yet in a position to compete price-wise with the Russian corridor (see Table 2). The Russian rail network is the main export and supply route for countries in Central Asia, even though some neighbouring countries have opened corridors towards the oceanic periphery of Asia and some international infrastructure investment projects have been financed by ESCAP, TRACECA and the Asian Development Bank, aimed at diversifying access routes to Central Asia, especially on an east-west axis without running through Russian territory. However, these projects have not yet been sufficiently developed. They are currently less competitive than the Russian routes due to the slow pace of their construction, caused by a shortage of funds and by technical factors. The railway gauge via cross-border connections is variable, which prevents a continuous traffic of trains. Continuous train traffic is currently only possible towards the Russian Federation.
We will now analyse the direction of trade. Table 3 shows the main trade partners of Central Asian countries.
Table 3. Imports by country, 2007
The main markets supplying Central Asian countries, except Turkmenistan, are Russia and China: together they account for 79.9% of Kyrgyzstan’s imports, 57% of Kazakhstan’s imports, 43% of Tajikistan’s imports and 30.1% of Uzbekistan’s imports. Russia is the main commercial partner of Kazakhstan and Uzbekistan, while China is also a partner for both Kyrgyzstan and Tajikistan. Russia and China compete fiercely for trade in Central Asia.
China and Russia have positioned themselves as the main suppliers of Central Asian countries (except in the case of Turkmenistan); Germany, Turkey and South Korea also play a role, although secondary. Turkmenistan is the only Central Asian country whose main suppliers are neither Russia nor China. It has a highly diversified supplier portfolio, headed by the United Arab Emirates (14.8%) and Turkey (10.6%).
Table 4. Exports by country, 2007
As Table 4 shows, the most salient characteristic is that European countries are the main destination for Central Asian exports. Switzerland is Kyrgyzstan’s main trade partner, Germany that of Kazakhstan, the Netherlands that of Tajikistan and Ukraine that of Turkmenistan; while Poland also ranks a notable second as a destination for Uzbekistan’s exports. Europe is a priority area for Central Asian exports, while Russia and China occupy a secondary position.
Consequently, we may conclude that trade in Central Asia is conducted mainly with China, Russia and Europe. China and Russia are basically supplier markets for Central Asia and Europe is an export market for Central Asian products (Turkey and Iran are smaller markets). The value of goods exported to Central Asia by EU countries totalled €7.5 billion in 2007, while the value of goods imported from Central Asia totalled €15.4 billion. Most of the income from sales of central Asian products in Europe (hydrocarbons, minerals and cotton) is invested in purchasing Chinese products (consumer goods, machinery, textiles, processed foods, shoes, electronic products, pharmaceuticals, automobiles, etc) or Russian products (hydrocarbons, ferrous and non-ferrous metals, machinery and equipment, chemical products and processed foods). At present, Russia and China have a trade surplus with Central Asia, whereas the EU has a trade deficit. The US, India and Pakistan have scant trade relations in the region.
As a final conclusion, it is safe to assert that the Russian corridors are the main export channels for Central Asian countries, not only because they are more competitive, but also because their exports are largely destined for Europe, and the proposed alternative routes are slower and more costly than the Russian route, for obvious reasons. The Iran-Turkey route to Central and Western Europe, which is where Central Asian export markets are located, is much longer than the Russian route and must cross many more countries than the Caspian route (Caspian Sea/Azerbaijan-Georgian corridor/Black Sea), requiring goods to be loaded and unloaded no less than eight times, making it extremely costly and slow.
Russia therefore appears to be the indispensable link between Central Asia and Europe, unless alternative corridors are created.
In the 1990s the media declared Central Asia a new El Dorado for crude oil. The estimates for reserves in the region varied widely, depending on the source publishing them. According to estimates by some major corporations established in the region, such as ENI, the region contained only 7.8 billion barrels; Unocal, meanwhile, estimated some 60 billion barrels, and Lukoil put the figure at 200 billion barrels. This range of different figures stemmed from fierce competition between the major oil companies which were probably increasing or diminishing the real amount of reserves depending on their own corporate interests. Some publications called the region a second Persian Gulf, although today the figures evidence a very different reality.
Table 5. Reserves, consumption, production and exports of oil in Central Asia
Proved crude oil reserves total around 40 billion barrels, a very far cry from the reserves in other regions. Based on the regional classification of the BP Statistical Review of World Energy 2009, the region ranks sixth in the world, with figures comparable to those of Asia-Pacific and well below other regions (see Table 6).
Table 6. Ranking of global crude oil reserves by region
Central Asian reserves rank sixth, and are comparable to reserves in the Asia-Pacific region. In export terms, the region markets 1,407,000 barrels (BP 2009) and Kazakhstan is the leading exporter with 1,325,000 barrels, Turkmenistan second with 82,000 barrels and Uzbekistan third, with just 2,000 barrels. Compared with the world’s major crude oil exporters, Kazakhstan ranks 14th, on a par with Mexico, and Turkmenistan 35th, on a par with Cameroon.
Based on the BP Statistical Review, Central Asian reserves currently account for 3.2% of total worldwide reserves and 1.2% of current global production. Overall, crude oil reserves and production in Central Asia are not very significant, and do not therefore play a pivotal role in international energy markets. However, crude oil reserves do have a significant geo-strategic value:
Table 7. Distribution of reserves among foreign companies in Kazakhstan
Overall, Euro-American companies control 65% of Kazakh oil reserves, with US companies leading the field (45.7%, 10.4 billion barrels). Russian companies come second with 22% (5.1 billion barrels) followed by China’s CNPC, which controls 5.5% (1.29 billion barrels). The presence of Western countries in the breakdown of oil reserves is overwhelmingly larger than that of Russia and China. The latter may raise its stakes if it manages to reach an agreement on the distribution of oil reserves at the Darkhan Field, which has some 11 billion barrels of proved crude oil reserves and where Spain’s Repsol also wants to gain a foothold.
The Transportation of Crude Oil in Central Asia
The table below shows the various oil pipelines that cross Central Asia:
Table 8. Working export lines (oil pipelines)
According to Table 8, 76.5% of Central Asian crude oil transported via oil pipeline goes through Russia; the remaining 23.45% is distributed between Kazakh-Iranian oil swaps, which account for 160,000 bbl/day and the Kazakh-Chinese line, with 200,000 bbl/day. It is via Russian territory that most Central Asian crude oil is transported to consumer markets, which are Europe, the Persian Gulf and China. The map below shows how most of the oil pipelines in the region cross Russian territory.
Map 2. Oil pipelines: current and future routes
We will now look at the prospects of this situation changing in accordance with future projects to build new oil pipelines in Central Asia.
Table 9. New pipeline projects
The projects facing most obstacles in the short term are the Iranian, Trans-Caspian and Afghan lines. The Iranian line is the cheapest and safest for exporting Central Asian crude oil, but it is blocked by US sanctions; the Trans-Caspian project, which consists of building a pipeline under the Caspian Sea, is opposed by Russia on the basis of environmental considerations; and the Afghan line towards the Indian Ocean has been halted by the conflict in Afghanistan.
The only project that looks viable in the short term is the CPC extension. Accordingly, in the short term Russia will further strengthen its position as an export route for Central Asian crude oil.
Euro-American oil companies have obtained control of most reserves in the superfields of Kazakhstan (Tengiz, Karachaganak and Kashagan), well ahead of Chinese and Russian companies. However, Russia is trying to close the gap by monopolising the transportation of Kazakh crude oil. It will achieve this aim if the proposed routes under the Caspian Sea or via Iran do not progress and if China does not implement its projects in the region, if no new alternatives are sought and if the planned projects are not carried out.
The distribution of reserves, production and exports among Central Asian countries is as follows:
Table 10. Distribution of production and exports of gas reserves
Regional gas reserves, according to BP’s figures, total 6.31 tcm, a figure that has increased in the last year due to new discoveries, mainly in Turkmenistan and Kazakhstan. The Turkmen field of South Yolotan has estimated reserves of 4-14 tcm and it is considered one of the richest four or five oil fields in the world, placing Turkmenistan among the top five in terms of reserves worldwide, while in Kazakhstan reserves are also increasing, but at a much more modest pace (1.9-2.83 tcm). Overall, newly-discovered gas reserves in the region total 11.21-21.21 tcm. Central Asia, compared with other regions (excluding the Russian Federation’s reserves, which total 44.65 tcm, since it cannot be defined as a region), is the second largest reserve in the world, behind the Persian Gulf (73.21 tcm) and ahead of North America (7.9 tcm). Furthermore, most publications assert that the chances of finding more reserves in the region are good, since much of it remains unexplored. Based on discovered reserves and their relative proximity to major consumption markets (Europe, China and India), Central Asian gas has become a considerable focus of attention for multinationals vying for a position in this lucrative business, and those major powers that, via their companies, aim to maximise their influence in gas transportation.
Let us look at how the reserves of Turkmenistan, which has the largest and is the biggest regional exporter, are currently broken down.
Table 11. Current distribution of Turkmenistan gas reserves
As Table 11 shows, most Turkmen gas reserves held by foreign companies belong to the Chinese state-owned oil and gas giant CNPC, which has a large stake in the South Yolotan field (1.7 tcm) in order to ensure supplies to the Turkmen-Chinese pipeline which is currently under construction and which will transport 30 bcm per annum.
The rest of reserves, very scant compared with China’s share, belong to Petronas (Malaysia) and Dragon Oil (UAE and UK). Turkmen exploration fields without defined quantities are quite evenly distributed between American, European, Asian and Russian companies, with no multinational enjoying a hegemonic position in this connection.
Kazakh Gas Reserves
The main Kazakh gas reserves are in the superfields of Karachaganak, Tengiz and Kashagan. Gas reserves at Karachaganak (1.35 tcm) are distributed among concessionaires as follows:
Table 12. Breakdown of gas reserves in the Karachaganak field
Gas reserves at Tengiz (0.3 tcm) are distributed among concession-holders as follows:
Table 13. Breakdown of gas reserves in the Tengiz field
Gas reserves at Kashagan (0.48 tcm) are distributed among concession-holders as follows:
Table 14. Breakdown of gas reserves in the Kashagan field
As the above tables show, Euro-American companies have gained control of gas reserves in the main Kazakh fields (Karachaganak and Tengiz), which account for 70% of the country’s production, and also at Kashagan, where gas exports are expected to begin in 2010.
Russia has only a marginal position in Kazakh concessions, with a 15% stake in the Karachaganak fields and no stake in Tengiz or Kashagan, while China is not present in the gas business in Kazakhstan.
Uzbek Gas Reserves
Reserves and exploration blocks in Uzbekistan are distributed between the following gas companies:
Table 15. Breakdown of gas reserves and concessions in Uzbekistan
Most reserves sold by Uzbekistan have been acquired by Russian companies and all of its operating fields have been awarded to cartels comprising Russian, Chinese and Korean companies.
The war for gas reserves in Central Asia is not over, indeed, it has only just begun, since there are many more blocks in operation and the battle looks set to focus on the distribution of reserves at the South Yolotan superfield, where China already leads the way with 1.7 tcm. However, it is worth recalling that this field has between 4 and 14 tcm and there are some projects, like Nabucco, that could pay their way by linking up to this field.
Eurasian Gas Pipelines
There follows an analysis of the routes of Eurasian gas towards the markets where it is consumed and the new projects to be undertaken in this sector.
The gas network in Central Asia uses the Russian pipelines as its main export route, as shown by the map below.
Map 3. Oil pipelines crossing Russia
Approximately 99% of Central Asian gas is exported through Russia for marketing, and only 8 bcm, ie, less than 1% of Central Asian gas, uses the alternative route, via Iran. The routes are as follows:
Table 16. Central Asian gas routes
The Central Asian gas pipeline system is not currently working at full capacity, since it is in a precarious state of conservation. The plans of Russia and the Central Asian countries are to expand it and increase its capacity to 100 bcm, in order to channel out the new reserves which are to be exploited in the region.
The Iranian route has very low capacity and will not rival the Russian route. Russia is currently almost the only way to export gas form Central Asia, although this could change in the next few years based on upcoming projects in the region (see Table 17).
Table 17. Projects under construction
Of these projects, two face obvious difficulties in the medium term: the Trans-Caspian route (30 bcm/year), which runs under the Caspian Sea floor, because of Russian opposition based on environmental issues, and the CentGas route (27 bcm/year), which crosses Afghanistan towards India and which is a very difficult prospect because of the conflict in Afghanistan. Of the two remaining projects with more chances of coming to fruition, one runs through Russia (Central Asia Center, 20 bcm) and the other towards China (Turkmenistan-China, 30 bcm). In short, even with the Chinese route, the Russian Federation will still be the main export route for Central Asian gas. Another possibility is to link up the Central Asian oil pipeline network with the Nabucco project (Map 4).
Map 4. The Nabucco project
The Nabucco gas pipeline would be 3,300 km long and would transport between 25 bcm and 30 bcm of gas supplied by Egypt, Iraq, Iran, Central Asia and Russia, which would converge in Turkey and from there be transported to Central Europe. However, the connection of Central Asian gas pipelines to Nabucco is not without problems, since the connection would have to go through Iran or under the Caspian Sea. Both alternatives pose difficulties, for the reasons we have overviewed for other routes. The Iranian route does not appear to have US backing for now, and the undersea route is blocked by Russia.
There is no doubt that in the next few decades for the EU Central Asian gas may become a real alternative to Russian gas, thereby reducing Europe’s dependence on Russia, but for this to happen a number of issues must first be resolved:
Uranium is a strategically important metal since it is an irreplaceable fuel in the nuclear-powered electricity generation. At present, nuclear-powered electricity consumption accounts for 30% of the total in Europe and Japan and 20% in the US. The instability of oil prices and the need to limit greenhouse gas emissions have led countries worldwide to consider the possibility of building new nuclear plants. According to the Nuclear Energy Agency, the global capacity to produce nuclear-powered electricity will increase from the current 372 gigawatts (2007) to somewhere between 509 and 663 gigawatts in 2030, an increase of between 38% and 80%. At the same time, uranium mining capacity will also have to increase by between 9,400 and 122,000 tonnes per year.
There is a growing market for uranium, not only in the near future but also in the present, since in 2006 just 62% of demand for uranium was met by the producers of this metal, and the rest came from recycling using disused nuclear weaponry.
If the estimates are correct, the uranium market in the next few years will clearly grow, and electric power generation using uranium as the base mineral will become even more strategically important. Kazakhstan and Uzbekistan are major producers of uranium: together they produce 20% of the world’s uranium ore (see Chart 1).
Chart 1. Worldwide uranium production (%)
Source: British Biological Survey, http://www.bgs.ac.uk/mineralsuk/free_downloads/home.html#WMP.
Kazakhstan is the world’s second-largest producer, accounting for 14% of the total, and Uzbekistan is the eighth, with 6%. According to Table 18, Kazakhstan holds the world’s second-largest uranium reserves and Uzbekistan ranks 12th.
Table 18. Proved uranium reserves by country, 2008
Kazakhstan and Uzbekistan play an important role in this sector and this is likely to be increasingly true, especially in the case of Kazakhstan. The Kazakh government plans to almost double its production in the short term, from the current 8,500 tonnes to 15,400 tonnes in 2010, thereby becoming the world’s leading uranium exporter. Consequently, Kazakhstan has become the country with most projects and new mine openings, pushing ahead of countries like Russia, Australia, Canada and South Africa, which also have sizeable uranium reserves (see Table 19).
Table 19. New uranium mining projects
This increase in Kazakhstan’s production capacity is due mainly to capital investment and technological assistance by companies from other countries in the state-owned KazAtomProm, in charge of exploration, mining, management and export of uranium and by-products. Its main partners are listed in Table 20.
Table 20. Foreign investment in uranium mines in Kazakhstan
Companies from Canada, Russia, China, Japan and France are most involved in the Kazakh uranium business.
Uzbekistan, albeit with much less output and with smaller reserves, also plans to increase its production by 50% in around 2012. With this purpose, the State Committee of the Republic of Uzbekistan on Geology and Mineral Resources announced that the state-owned company in charge of exploiting uranium mines, the so-called Navoi Mining and Metallurgy Combine, planned to open seven new mines in around 2010, for which purpose it required new partners. At the same time, the Committee on Geology and Mineral Resources has signed a series of Memoranda of Cooperation with Japanese companies (Mitsui & Coina and Sojitz), French firms (Areva), and North American (Uranium Ltd) and Korean companies (Korea Resources Corporation General) to prospect for new mines, and it has also signed a uranium supply agreement with South Korea.
Kazakhstan and Uzbekistan are trying to diversify their investor and partner portfolio in order to commence a technological renewal and launch a process to find new mines to boost their operating performance and lead this market, thereby ending their traditional technological dependence on Russia. The major powers, including China and India, are vying for involvement in this increasingly strategic and restricted market (80% of the world’s uranium reserves are controlled by just eight companies: Cameco, Río Tinto, Areva, KazAtomProm, TVEL, BHP Billiton, Navoi and Uranium One). Against this backdrop, exploitation of new mines in Kazakhstan has become pivotal, especially for China and India, which have significant nuclear projects. China has 11 nuclear reactors in operation, is building another 16 and plans another 25. India has 17 nuclear reactors in operation, is building another 6 and plans another 23. Neither country has sufficient uranium reserves and to meet their own demand they have both signed major agreements with Kazakhstan. KazAtomProm unveiled the Irkol, Semizbay and Zhalpak deposits in compliance with strategic agreements signed with the state-owned enterprises China National Nuclear Corporation (CNNC) and China Guangdong Nuclear Power Corporation (CGNPC) in 2008; India and Kazakhstan have signed a Memorandum of Understanding that envisages cooperation in ‘the joint extraction of natural uranium in Kazakhstan’, as well as the delivery of fuel for India’s plants.
The analysis and comparison of the various sectors we have looked at herein enables us to reach a series of conclusions.
Universidad Autónoma de Madrid