ALMATY, Kazakhstan — Chinese state oil and gas companies have roamed as far as Venezuela and Sudan in search of new supplies. These days though, many are looking closer to home in Central Asia.
Work is underway to raise the capacity of a 1,833km pipeline network linking Turkmenistan’s Galkynysh gas field, one of the world’s largest, to China’s northwest region of Xinjiang.
The China National Petroleum Corp. network can now carry around 55 billion cu. meters per year and supply around one-third of Chinese natural gas demand, but another 30 billion cu. meters of capacity is due to come online by 2020. The China Development Bank is largely financing the $8.5 billion that Turkmenistan needs to develop Galkynysh; the Chinese groups stepped in as talks with Russia on a gas supply deal dragged on for years.
A Chinese-financed oil pipeline, with a capacity of 10 million tons per year, runs from Kazakhstan’s rich western oil fields to the Chinese border; volumes there are soon to be doubled.
“The region features as one of the main pillars of China’s energy strategy because it allows Beijing to have more stable and reliable hydrocarbons supplies,” said Janet Xuanli Liao, senior lecturer in international relations and energy security at the University of Dundee in the U.K.
While the U.S. and other regional powers are loath to see China strengthen its grip on the region’s resources, their ability to compete for influence there is limited. Even Russia, Central Asia’s former imperial overlord, appears increasingly resigned to Chinese economic dominance over the region.
China’s total trade volume with the five Central Asian republics reached $50.2 billion in 2013, from only $1.5 billion in 2001, according to China’s National Bureau of Statistics. In 2013, Russia’s trade volume with the region was $32 billion, compared with $39.1 billion for Europe and $3.5 billion for the U.S.
China goes shopping
“I work for the Chinese, he works for the Chinese, we all work for the Chinese,” said Yakub, a cart-puller in the Dordoi Bazaar in Bishkek, the Kyrgyz capital, pointing to his colleagues.
In Kazakhstan, Western oil companies retain the lion’s share of the country’s oil production, with U.S. giants Chevron and Exxon Mobil owning a combined 75% interest in Tengiz, the country’s largest active field. Italy’s Eni leads the trouble-plagued development of the Kashagan field, considered the largest oil discovery outside of the Middle East.
The drastic fall in oil prices over the last year has caused some apprehension about the lengthy and costly investments in Kazakhstan. Some players are pulling back altogether, creating an opening for Chinese buyers. Russia’s Lukoil sold a 50% stake in a Kazakh oil producer to China Petroleum & Chemical for $1.09 billion in August, citing falling production and growing costs.
Sergei Smirnov, an independent oil expert in Almaty, said China was acquiring stakes in Kazakh oil and gas companies “at prices that were 1.5 to two times higher than their real value.”
Politically, Central Asian rulers are embracing Chinese investments in energy and infrastructure because they serve to loosen Moscow’s grip, as was the case with the first oil deals with Western oil companies in the early 1990s.
Other major Asian powerhouses are also keen to share in the region’s vast natural resources. The leaders of India, Japan and South Korea have each visited the region since 2014, and have pledged to invest billions of dollars in upstream and downstream operations. But they still have a long way to catch up with China in terms of not only the economics involved but also the politics.
Diplomacy at work
In typical Chinese fashion, most projects are agreed on a political level. When Central Asian leaders met with Chinese President Xi Jinping on the sidelines of a military parade in Beijing in September, a new round of bilateral agreements worth billions was reached.
After agreeing on a historic $400 billion 30-year gas supply deal with China in May 2014, Moscow also seems open to aligning the Eurasian Economic Union, a common market between Russia, Kazakhstan, Kyrgyzstan, Belarus and Armenia, with Chinese interests.
Russian President Vladimir Putin and Xi signed a joint declaration in May to integrate the EEU with Xi’s Silk Road Economic Belt, which may improve the prospects of the common market, whose trade has been badly hit by the economic crisis in Russia and Kazakhstan.
“In the current situation, there is no other way for the Kremlin except for intensifying cooperation with China,” said Ivan Zuenko, a senior lecturer at Far Eastern Federal University in Vladivostok. “Russia gives its priority to having a strong geopolitical partner even with the risks of losing some economic profits in Central Asia.”
China and Russia appear willing to strengthen cooperation in Central Asia, but the road ahead remains bumpy. Given their history of conflict and tension, both will have to tread softly not to compromise the fragile equilibrium emerging in Central Asia. At the same time, Central Asian elites will at some point have to deal with the popular suspicion that meets growing Chinese influence.
From this perspective, Russia still has an edge, as seven decades of Soviet dominance left a deep impression on Central Asian societies. In the words of Azamat Razhapov, an administrator at the Dordoi Bazaar in Bishkek, “We look Chinese, but after 70 years of Soviet rule we think like Russians.”