No Hurrying Nabucco

 

Conduct some trade with Europe or conduct much more trade with Russia and China—seems like an easy choice, does it not?

 

Then it’s a no-brainer why natural-gas-rich Kazakhstan, Turkmenistan, and Uzbekistan would feel no compulsion to sign up for the Nabucco pipeline deal. Much to the chagrin of European Union leaders, who want them to step in as substitutes to Gazprom.

 

Whether they care to admit it or not, some EU officials recognize that whatever they can offer the three Caspian nations, it might be bested by what Beijing and Moscow can offer.

 

If we in Europe do not get these supplies of gas, then they will end up in Russia or China,” said a European Union diplomat anonymously to the Moscow Times today. 

 

EU leaders had hoped they could get the three to make concrete commitments to Nabucco at last Friday’s “New Silk Road” summit in Prague. A summit declaration, which leaders of Turkey and a number of interested European nations signed, pledged its signers to identify “non-committed natural gas and oil volumes … that can be dedicated specifically to the EU.” 

 

The hope is that said gas volumes might get shipped via Nabucco, which is supposed to pump 20-30 billion cubic meters a year from the Caspian Sea region to Europe starting 2013 or 2014.

  

Kazakhstan, Turkmenistan, and Uzbekistan all refrained from signing. In so doing, they towed Russia’s line, which is staunch opposition to the project, as it is to any project that might undercut Gazprom’s monopoly.

 Turn down the prospect of exporting 20-30 billion cubic meters of gas? That’s a lot of gas, isn’t it? Not really. The three nations have conduits of gas, some in operation now and some to be in operation soon, which match or even dwarf this amount. For starters, there is the Turkmenistan-China gas pipeline, which started pumping gas last January. Bagtyarlyk, a territory on the line, has enough natural gas to pump 30 billion cubic meters a year to China for the next 30 years. There is also the Central Asia Center gas pipeline, which will have a capacity of 80 billion cubic meters a year upon completion in 2012.

 

In addition, each nation has some very active natural-gas business of its own with Russia and China.

Kazakhstan: Russia has a virtual monopoly on Kazakh natural gas, more than 90% of which goes to or through Russian territory. If the percentages alone sound intimidating, consider the bulk amounts: Kazakhstan’s North Kumjol field, on which Kazakh company Petrokazakhstan and Russian company Lukoil are partnering, produces  18.3 million million cubic feet a day (189.14 million cubic meters a year). That’s on top of the the 4.5 million cubic feet a day (46.51 million cubic meters a year) coming from the North Buzachi field, courtesy of the Lukoil and China National Petroleum Corporation. Even more gas shipping is in store once Russia develops the Khvalinskoye field, which it is expected to do by 2014. There are a total 369 billion cubic meters of natural gas buried within.

Uzbekistan: Lukoil already beat the West to the punch here, too. Last January, the company confirmed plans to invest $5 billion this year in exploring and developing Uzbek gas deposits, with the aim of selling the extractions to Gazprom.  These plans follow two previous gas deals, worth $1.5 billion total, that Moscow and Tashkent reached in 2006.

Uzbek president Islam Karimov had such deals in mind when, last November, he rebuffed the very idea of Nabucco with the bold assertion that “Uzbekistan exports gas only to Russia, and then it exports gas wherever it wants.

And to China, apparently. The Uzbekistan-China pipeline, under construction as of last July, will ship 30 billion cubic meters a year–half of Uzbekistan’s gas supply–to Chinese buyers once most of its stations reach completion in 2012.

 

Turkmenistan: Turkmenistan and Russia exchange 50 billion cubic meters of natural gas annually. Turkmenistan could get by just fine without adding Western oil contracts to the mix. Though it may pretend to seek them just to win better terms from Russia. Policy-analysis firm STRATFOR concluded that Turkmen president Gurbanguly Berdimukhammedov took this very tack last month, when Russia sharply reduced its gas conumption without telling Turkmen officials, and the pipeline consequently overloaded and burst. The Turkmen government began publicly pursuing gas deals with Europe, including one with Germany’s RWE. It would be a stretch to say that this course of action endeared Moscow to the Turkmen government. As STRATFOR records further, Moscow responded to the RWE deal by threatening to pull back its weapons sales and the troops stationed within Turkmen borders. This was frightening to the Turkmen leadership, which fears military incursions from Uzbekistan and other rivals on its western flank.

“At the end of the day,” reads the STRATFOR report, “Turkmenistan is still stuck in balancing its desire to reach out to non-Russian foreign players and its fear that only Russia can protect the state from the West and other regional rivals.”  

Russia, and to a lesser extent China, clearly are the dominating presence in the Kazakh, Turkmen, and Uzbek economies: Russia because of its vast material and infrastructure support (which it can give and take away), and China because of its gargantuan hunger for natural resources to fuel its rapidly growing economy (which is an astronomically profitable market for fossil fuels). The economic power that Russia and China wield is tremendous, and will not be broken by a mere 30-billion-cubic-meter pipeline to Europe. Western nations, leaders, and private corporations will have to undertake far more investing in the Caspian region if challenging Russian and Chinese dominion there is their goal. They might achieve it, but over decades, not in months or years.

Turkish president Abdullah Gul held out some hope last week that the nations who didn’t sign the Silk Road accord might yet come around sooner: “It’s in their interest to find new markets, they are looking for new markets in order to have a better bargaining, in order to have a better price.

They may well be looking for new markets. But those markets need not be Western markets.

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