China-Uzbekistan: Gas diplomacy

By Isabel Gorst

China has taken another step to loosen Russia’s stranglehold on central Asian gas supplies after winning an offer from Uzbekistan to double the amount of gas it has promised to supply.

Uzbekistan has already committed to delivering 10bcm a year of gas to China through a pan-central Asian pipeline that opened in 2009, ending Russia’s monopoly over gas export routes out of the landlocked region.

On an official visit to Beijing this week, Islam Karimov, the Uzbek president, agreed to build additional spur lines in Uzbekistan that will eventually allow exports to China to reach 25bcm a year, more than one third of the central Asian country’s current production.

China began making inroads into central Asian gas markets in late 2009 when it launched a 1,800km running from Turkmenistan through Uzbekistan and Kazakhstan to its north western frontier in Xinjiang.

Opened amid much fanfare at a ceremony at a Turkmen gas field, the pipeline was a double whammy for Russia, depriving Gazprom of its traditional monopoly over central Asian gas export routes and bringing a new source of gas into China where the Russian gas giant is struggling to win market share.

Gazprom has offered to sell China all the gas it needs as part of a strategy to globalise its gas business and diversify away from its core European markets. But the two sides have so far failed to agree on a price for the Siberian gas that the Russian company wants to begin supplying in 2015.

Speaking after attending a BRIC summit in south China last week, Dmitry Medvedev, the Russian president, said the gas deal was “the single most important economic issue between the two countries,” and should be resolved by the middle of this year.

China is importing increasing volumes of liquefied natural gas to terminals on its industrialized eastern coast where energy demand is concentrated. Large investments are needed in infrastructure and distribution networks before it will be ready to import a large amount of pipeline gas from Russia and central Asia.

“China is playing a very long game,” says Edward Chow, senior fellow at the Center for Strategic and International Studies “It costs nothing to say ‘I am happy to take your gas’.”

It is not clear whether Uzbekistan, which consumes most of its estimated 70bcm/y gas production domestically, will have a large enough gas surplus to honor its commitments to both Russia and China.

It could be that Mr Karimov, who offered extra gas this week as China offered to invest $5bn in the Uzbek economy, was simply trying to curry favor with his hosts in Beijing. Or he could be simply be playing Russia off against China to secure a better price for Uzbek gas.
 
 
FT
 
 
27.05.2011
 
 
 

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