Energy in Central Asia: Balance, Not a Great Game

A top Kazakh diplomat on the role of Russia and China.

China’s voracious appetite for energy continues unabated. China’s leaders want to quadruple GDP from its 2000 level by 2020. This intensity of demand is currently a major driver of global energy markets and offers enormous opportunities to China’s energy-rich neighbours in Eurasia, including Kazakhstan, Russia, Turkmenistan and Uzbekistan.

A commonly-held view in the West is that a new “Great Game” is underway in Central Asia as the major powers compete for the region’s abundant energy resources, and that China is moving fast and furiously to lock up resources and exclude other players.

Kazakhstan does not subscribe to this analysis. Instead, we see a “win-win” situation based on the vast opportunities for Central Asia and Russia to export energy to China on a larger scale and to cooperate more intensively in the process. Crucially, China also wants to satisfy its energy requirements in a balanced way that promotes stability on its periphery.

Over the past decade, China has accounted for nearly 50 percent of total growth in global crude oil consumption. Today, it is already the world’s largest oil importer. Spurred by a rapid growing urban transportation sector, China’s oil demand is likely to reach 550 million tonnes by 2015 and 650 million tonnes by 2020. The country remains the largest producer and consumer of coal, and consumption of natural gas is on the rise as electricity demand continues to grow rapidly.

The huge increase in oil demand has posed serious security of supply dilemmas for China’s leaders, since heavy reliance on supply from the Persian Gulf (almost 50 percent of imports in 2005) puts pressure on guaranteeing seaborne transit and using the Malacca Straits, the main shipping channel between the Atlantic Ocean and the Pacific. The security commitments by the US to some countries in the region with which China has existing or potential territorial disputes increases the risks of deliveries by sea.

China has conducted a successful strategy of diversifying its sources of oil imports as supplies from Asia-Pacific have come under greater pressure from regional economies. Africa is now a major supply source, delivering roughly 30 percent of China’s crude imports.

Kazakhstan is becoming an increasingly important energy player for China. It is already China’s eighth-largest crude oil supplier, delivering 50 million tonnes in 2012 along a 2,800 km pipeline connecting the two countries.

President Xi Jinping’s visit to Kazakhstan in September 2013 led to the signing of energy deals worth $30 billion, including CNPC’s acquisition of an 8.3 percent stake in Kashagan, the largest oilfield in the world outside the Middle East.

Crude export volumes to China will grow as Kazakhstan increases production over the next 15 years. Crude oil production is set to triple, and will make Kazakhstan one of the world’s top ten producers. Significant investments in coal, electricity, and gas exports are also underway that will diversify the energy relationship further.

Three approximately 1,880 kilometer-long gas pipelines connecting Turkmenistan with China’s Xinjiang province pass through Kazakhstan. They are part of Turkmenistan’s strategy to diversify supply routes for its gas production, which is set to increase rapidly. These pipelines have left the drawing board at considerable speed because of China’s ability to match demand with supply and put the required financing in place.

In Kazakhstan, we see these cross-border projects as examples of successful regional integration. From the outset, we have looked to use our energy resources to achieve balance in our relations with the major players in the Caspian: China, Russia and the West. President Nursultan Nazarbayev, the architect of this strategy, understood at an early stage that the young Kazakh state needed to preserve stability in its energy sector by developing energy cooperation with all the main interests in the broader region.

As a result, Kazakhstan welcomes the gravitational pull of China on Central Asia’s energy resources. We believe the triangular China-Kazakhstan-Russia energy relationship is a major source of stability in Central Asia and the Asia-Pacific region. We want China and Russia to have well-developed, diversified energy ties, and we are encouraged by the fact that they are close to finalizing a major deal on gas exports to China. Russian energy companies have recently signed a large number of agreements with China, including Rosneft’s $85 billion deal to deliver 100 million tons of crude oil to Sinopec over ten years. Russia currently supplies crude oil to China through the Kazakhstan-China pipeline, a perfect example of the three-way relationship in operation.

Despite the projections of rapid oil production growth in Kazakhstan over the next fifteen years, possibly by as much as three to four times, we see sufficient space in the Chinese market for both Kazakhstan and Russia, and we have no doubt that the close relationship between us will continue. The basis for this will be complementarity of interests in Central Asia where both Kazakhstan and Russia seek stability based on a balanced approach to China and other players in the region.

In our Central Asian neighbourhood, there is no alternative to pragmatism.

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