Thursday, 10 March 2011
Turkmenistan to sell more gas to China
The deal will be formally signed later this year when Turkmenistan's President Gurbanguly Berdymukhamedov visits Beijing. There will certainly be a lot of details to discuss: whether Turkmenistan possesses the reserves to supply 50bcm to China, along with its other commitments; and what arrangements will be made to actually pipe the gas to Chinese soil.
Given Turkmenistan's opacity, exact figures for its natural gas reserves are hard to establish. Even if the country does contain sufficient gas for all its commitments (not to mention growing interest in sending gas west through European routes), the work required to bring gas fields on stream will make it difficult to supply all the contracted volumes on time.
Building the required infrastructure will be another complicating factor. Beijing's expertise and finance drove the remarkably rapid construction of the 1,833km Turkmenistan-China pipeline, which opened in 2009 and is due to carry around 40bcm, 10bcm of which would come from Kazakhstan along the way.
For this route to even reach full capacity (beyond the small volumes of around 5bcm which are currently being delivered) a second trunk line must be built. To supply yet another 20 billion cubic metres would require even more investment in infrastructure and it is unclear when or how this would be built. Although China reportedly agreed to supply Turkmenistan with loans during the March 4th meeting, this only addresses part of the issue: the Kazakh and Uzbek sections of the pipeline must also be funded and built.
Price is another complicating factor. Reports suggest that China is offering between $100 and $150 per thousand cubic metres, significantly below the Turkmen asking price of $250/ thousand cubic metres. Whether Beijing concedes on price will be largely a political decision. Negotiations with Russia's Gazprom over supplying gas to eastern China have repeatedly stalled: increasing imports from Turkmenistan would put pressure on Gazprom to make a deal on Chinese terms. But to play that hand, China must dedicate even more financial, technical and political resources to increasing the flow of Turkmen gas.
Sources: Stratfor, Oil and Gas Eurasia, Bloomberg
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