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China Secures Gas Supply From Turkmenistan: Who's the True Winner?

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Nabucco, a natural gas pipeline bypassing Russia and endorsed by European countries and the United States, is the perfect example of the power struggle at play: by securing large gas volumes from Turkmenistan and Azerbaijan, the financial viability of Nabucco comes into doubt as it is not clear that there would be enough gas available to supply both Nabucco and the South Stream pipeline supported by Gazprom. Turkmenistan, bitterly annoyed by Gazprom running away from its contractual obligations, announced in July 2009 its willingness to supply Nabucco. Azerbaijan had also conveyed its willingness to supply both pipelines, though is recently playing harder to get in light of the recent Turkey-Armenia rapprochement.

China's steady approach to diversifying its suppliers for everything

China is very well aware that its economic growth and even domestic stability is conditioned upon securing supply chains through long-term agreements. One step at a time China is securing its supply of staple commodities, minerals and energy supplies. To further secure its position in the supply country, China offers loans and technical expertise in addition to gaining the management authority to run the local operations. China has become one of Africa's top three trading partners and several countries, no matter how unsavoury and corrupt they may be, became important trading partners like Sudan, which exports a majority of its oil to China, while others guarantee China's food supply. In November 2009, the China Metallurgical Group bought for US$3 billion a 30-year lease to exploit copper deposits in Afghanistan further demonstrating that no country, no matter how troubled it is, is off-limit.

Money helps shift the balance of power

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As Cicero's saying goes "nervi bellorum pecuniae" (money is the sinews of war) and in the commercial wars that are being fought, China has huge financial reserves that it can put in the balance, notably through its state-run financial institutions such as the China Development Bank (CDB). The CDB played a critical role in financing the construction of the US$6.7bn Kazakh section, the largest and most expensive chunk of the pipeline. The China National Petroleum Corporation (CNPC) acquired 50% of MangistauMunaiGas in April 2009 for US$2.6bn and the China Investment Corporation acquired about 11% of KazMunaiGas Exploration & Production in September 2009 for about US$939 million.

China has a financial advantage at a time of liquidity shortages: its ability to instruct it state-owned companies to work on specific projects and to coordinate the involvement of all possible Chinese players (finance providers, construction and management companies, etc.) enables China to strategically position itself at every level of the food chain. For instance in Central Asia, China acquired shares in companies that exploit gas fields (MangistauMunaiGas and KazMunaiGas E & P); China got the rights to exploit fields in Turkmenistan when other countries are still struggling to obtain such rights; China financed and helped in the construction of the pipelines running from the fields (CNPC, China Petroleum Pipeline Bureau and China Petroleum Engineering and Construction Corporation); and China purchases the gas production.

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China is at an advantage compared to its American or European competitors as the US has no state companies while Europe's few state companies are held to the same standards as private sector companies and cannot as easily be told what to do. Also, China's financial support has no string attached beyond a long-term commitment for guaranteed supply. The United States or members of the European Union often condition the granting of financing to the improvement of democracy and human rights which is seen by Central Asian countries as an intolerable mingling with domestic issues. Furthermore, China has a lot of state companies that the government can "instruct" to work on a project such as a pipeline. CNPC was the leading operator of the Central Asia-China pipeline project, working closely with each country towards its completion.

This conjunction of companies "ready-to-go" with guaranteed financing and full government endorsement and support gives China a competitive edge. However, moving away from Russia's arms into China's is not a love story but more a marriage of convenience. Concerns exist over China's growing influence and its lower environmental standards. Central Asian countries remain interested in American and European commercial involvement to see it have a balancing role. In addition US and European companies implement good business practices such as transparency, accountability, sanctity of contracts, rule of law, etc. that would greatly benefit Central Asia that is plagued by corruption.

One successful example of mutually beneficial regional collaboration

The fact that Turkmenistan, Uzbekistan and Kazakhstan managed to coordinate their efforts towards the common goal of building a pipeline that will serve them all is an achievement. China played an instrumental role as conductor in making it happen. President Hu Jintao himself underlined the benefits of mutual collaboration through a win-win situation, stating "in line with the principle of mutual complementarity, mutual benefit, equality and win-win cooperation, the four countries have actively carried out energy cooperation and achieved fruitful results."

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This said, regional cooperation is far from being a reality in Central Asia despite the well-recognized benefits of cross-border commercial activities. In the end, though Turkmenistan is definitely an important winner with this new pipeline, China can be seen as the ultimate winner by having not only secured a very valuable route for its gas supply, but also by having reinforced its image as a regional player that managed to get three Central Asian countries work towards a mutual beneficial goal, namely a new export route for their gas.

The additional bargaining power Turkmenistan, Uzbekistan and Kazakhstan gained from diversifying their energy export routes, thanks to the Chinese assistance, strengthens their political and economic independence and reinforces regional stability and security and that achievement deserves recognition.

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