Central Asia’s chessboard

In the 20 years since the collapse of the Soviet Union, pipeline politics have become a unique and central feature in the survival strategies of its former satellite states in resource-rich Central Asia.

Its wealthier members, Kazakhstan, Azerbaijan, Turkmenistan and Uzbekistan, have long recognised that owning large reserves of oil and gas alone does not guarantee economic lift-off or the independence to stand up against political interference from their covetous neighbours in Russia, the US, Europe and China. They have seen ample evidence that the large untapped hydrocarbon reserves of the Middle East and Africa are more a magnet for deadly superpower rivalry and regional conflicts than a potential source of strength.

For over a decade now, the wily dictators of these once neglected but mostly poor and sparsely-populated former Soviet states have succeeded in encouraging the superpowers to compete for their resources through a drawn-out chess game of proposals and counter-proposals of pipeline projects. At least a dozen proposed extravagant projects to pipe the region’s oil and gas to markets in Europe, Russia and Asia are in play, each involving consortia whose confusing wide-ranging agenda include blocking their rivals’ plans, advancing their own commercial gains, gathering military intelligence or carrying out the political bidding of their host countries.

Central Asia’s success in keeping everyone focused on this intricate board game without yet the outbreak of serious violence on the scale of the Middle East or North Africa has been a little-recognised political achievement of its leaders since they broke free from Moscow in 1991.

Russia’s overreach and the pipelines boom
In an attempt to establish alternative supply routes from Central Asia to Europe, the Presidents of the European Council, the European Commission, Azerbaijan, Georgia and Turkey, and a representative of the Egyptian government met in Prague in May 2009 to formally create the Southern Gas Corridor (SGC) platform of pipeline networks. While Kazakhstan, Turkmenistan and Uzbekistan did not sign up for the platform for fear of offending Russia, they sent representatives to implicitly support its development.

With a combined capacity to deliver between 60 and 120 billion m³/yr, the SCG is backed by the EU and the US to enhance Europe’s energy security and undercut Russia’s supply grip.

The West is encouraging the SGC initiative that now counts at least six major pipeline projects, namely, Trans Anadolu, Nabucco, Trans Adriatic Pipeline (TAP), White Stream, South East European Pipeline (SEEP) and Interconnector-Turkey-Greece-Italy (ITGI).

Unveiling the latest proposal in November last year, Azerbaijan’s state-owned company SOCAR said it and Turkey were backing the two pipeline Trans Anadolu project to carry at least 16 billion m3/yr of natural gas. One of the pipelines will link the cities of Baku (Azerbaijan), Tbilisi (Georgia) and Ceyhan (Turkey), while the other will flow through Baku, Tbilisi and Erzurum (Turkey).

Conceived in 2002, Nabucco has proved unwieldy and ambitious as it calls for Europe’s consuming countries to co-operate with a large group of gas producers including Iraq, Azerbaijan, Turkmenistan and possibly Egypt. It made some headway in July 2009 when the governments of Turkey, Romania, Bulgaria, Hungary and Austria agreed to support its development to carry 31 billion m³/yr of gas starting 2017. Nabucco’s proposed route and design are still open to amendments. The promoters of the 10 billion m³/yr ITGI project said it is an ideal start-up as it can be scaled up when the Phase II development of Azerbaijan’s Shah Deniz field begins producing gas for Europe from late 2017. Harry Sachinis, Chairman and CEO of DEPA, an ITGI shareholder, is championing it as a foundation project for the SCG platform to supply Azeri gas to Southern Europe through the Greece-Bulgaria interconnector from 2013. The ITGI project will include upgrades, as well as new constructions to link pipeline infrastructure in the three countries to carry 11.8 billion m³/yr. The Turkey-Greece section has been in operation since 2007.

In October, the supporters of the 800 km TAP hosted the first South Eastern Europe Gas Forum in Brussels to deliver natural gas from Shah Deniz Phase II and the Caspian Sea to Western Europe through Greece, Albania and Italy. TAP’s shareholders, EGL of Switzerland (42.5%), Norway’s Statoil (42.5%) and E.ON Ruhrgas of Germany (15%), are proposing to build infrastructure to deliver 20 billion m³/yr of natural gas, including gas storage facilities in Albania.

Also known as the Georgia-Ukraine-EU gas pipeline, the White Stream line runs from the gas fields of Central Asia, Georgia to Romania and Ukraine through the seabed of the Black Sea to Central Europe. In September, UK major BP joined the bandwagon with its proposal to add 1300 km of new links to existing networks to form the SEEP. Starting with a 10 billion m³/yr capacity, BP intends SEEP to immediately meet Azerbaijan’s sales target to Europe with the option for expansion to exceed Nabucco’s capacity in the long run.

The SCG platform is a direct rival to the 900 km South Stream pipeline project proposed by Russia’s Gazprom and Italy’s ENI. Running across the Black Sea, the South Stream offshore section will connect the Russkaya compressor station on the Russian coast with the Bulgarian coast. While exploring possible routes along the Black Sea, Gazprom has said it favours one that crosses the exclusive economic zones of Russia, Turkey and Bulgaria. Within the SGC itself, the various consortia proposing the Nabucco, TAP, ITGI and SEEP lines are all competing to lay their own links to the Shah Deniz gas field.

The stakes are high and rising as the final pipelines will determine the future flow of Central Asia’s natural gas supply worth hundreds of billions of dollars, giving its owners both political and economic power over their neighbours.

Russia’s growing opposition
Predictably, Russia is stepping up its opposition to these numerous proposed pipeline projects, but it is swimming against the tide. Already, China has made significant progress in gaining access to oil and gas reserves in Turkmenistan, Kazakhstan and Uzbekistan by underwriting multi-billion dollar pipeline investments and guaranteeing supply off-takes.

Unable to stop the Chinese tide or perhaps because it feels less threatened, Russia appears to be focusing its energy on opposing Central Asia’s proposed pipelines to Europe. In October, the Russian Security Council began drafting proposals to check the Nabucco project and the Trans-Caspian Gas Pipeline (TCGP) that runs across the Caspian Sea bed to Azerbaijan. Moscow is weighing up diplomatic and political steps, with the occasional hint of the use of military force, to block the EU’s plans to build a pipeline to tap Turkmenistan’s gas reserves.

China’s role
To be sure, both Russia and the West have been watching with concern China’s growing role in developing Central Asia’s oil and gas resources to feed its ravenous appetite for energy. Since the start-up of the Central Asia Gas Pipeline in December 2009, China has successfully tapped into the gas reserves of Kazakhstan, Turkmenistan and Uzbekistan.

On 15th December, Uzbekistan began building Line C of the Central Asian Gas Pipeline (CAGP) at Gazli, 110 km northwest of Bukhara city, as part of a wider programme to deepen energy ties with China. The CAGP project is China’s first major onshore pipeline to import natural gas, with lines A and B already in operation to tap the fields of Turkmenistan, Uzbekistan and Kazakhstan. Pipelines A and B have supplied a total of 19.5 billion m³/yr of natural gas to China since Turkmenistan began exporting gas to its Asian neighbour in December 2009.

By June 2012, the CAGP’s transmission capacity will reach 30 billion m³/yr, up from the current rate of 17 billion m³/yr, said CNPC. Running alongside Lines A and B, the 1840 km Line C will enable Uzbekistan to reduce dependence on Russia and diversify its natural gas exports to China. About 529 km of Pipeline C will fall within Uzbek soil when it starts up in January 2014 with a transmission capacity of 25 billion m³/yr.

This is an abridged version of the full article from Ng Weng Hoong, which was published in the February 2012 issue of World Pipelines, available for subscribers to download now.

Read the article online at: https://www.worldpipelines.com/business-news/27012012/central_asias_chessboard/