The People’s Republic

of China’s Pursuit of

Energy Security in

Central Asia

Sun Hwak Kwon

PSC192W- Oil and Politics

Prof. Reich

5/5/11

TABLE OF CONTENTS I. INTRODUCTION

II. WHICH CENTRAL ASIAN COUNTRIES MATTER TO CHINA IN

TERMS OF ITS OWN ENERGY SECURITY?

III. HOW DOES CHINA GO ABOUT NEGOTIATING FOR CONTOL

AND PURCHASING THE VAST OIL FIELDS AND NATURAL GAS

FIELDS IN CENTRAL ASIA? WHAT ARE ITS STRATEGIES?

IV. PIPELINE POLITICS OF CENTRAL ASIA: COSTS AND BENEFITS,

CURRENT AND POTENTIAL SECURITY ISSUES, AND

GEOPOLITICAL TENSIONS

a. Scenario #1

b. Scenario #2

V. SHANGHAI COOPERATION ORGANIZATION (SCO): WHAT

ROLE DOES THE SCO PLAY IN THE ENERGY POLITICS OF

CENTRAL ASIA?

VI. HOW DOES BEIJING VIEW THE SCO ENERGY CLUB? HOW

COULD BEIJING USE THE SCO ENERGY CLUB TO FURTHER

PROMOTE ITS ‘ENERGY DIPLOMACY’ AGENDA?

VII. CONCLUSION: THE FUTURE OF CHINA’S ENERGY SECURITY

Kwon, 1

I. INTRODUCTION

Obtaining sources of energy, primarily oil and natural gas, for the purposes of energy

security is high on the agenda list for the People’s Republic of China. In today’s global political

and economic climate, energy sources have become essential for any state’s security and survival

because these energy sources fuel economies, militaries, and societies. With that in mind, it is

important to note that the global energy market is unpredictable and at times, volatile. Because of

these reasons, China is seeking out ways to secure sources of energy outside of its own borders

to fuel its burgeoning economy, military, and society. To meet increasing energy needs, Beijing

has implemented a foreign policy strategy that can be referred to as ‘energy diplomacy’ to secure

its goals in relation to obtaining and securing oil and natural gas outside of China’s borders.

Beijing’s ‘energy diplomacy’ seeks “to secure external oil and gas supplies through state-to-state

negotiation as well as cooperation within multilateral organizations.”1 China’s main source of

energy for now is coal, which it has plenty reserves of and accounts for approximately 60% of

China’s energy uses. “Despite China’s sizeable coal reserves, estimated at about 114.5 billion

metric tonnes with another 11 trillion cubic metres of coal-bed methane, reserves may be

exhausted in half a century.”2 Add to this, the environmental consequences that are usually

associated with the use of coal as an energy source, there is more of an incentive for China to

seek out alternative routes in securing energy sources (oil and natural gas) from foreign

                                                                                                                         1  Lanteigne,  Marc.  "China,  Energy  Security  and  Central  Asian  Diplomacy:  Bilateral  and  Multilateral  Approaches."  Caspian  Energy  Politics:  Azerbaijan,  Kazakhstan  and  Turkmenistan.  New  York,  NY:  Routledge,  2010.  Print.  (Pg.101)  2  Lanteigne, Marc. "China, Energy Security and Central Asian Diplomacy: Bilateral and Multilateral Approaches." Caspian Energy Politics: Azerbaijan, Kazakhstan and Turkmenistan. New York, NY: Routledge, 2010. Print. (Pg.104)

 

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countries. To secure ample amounts of oil and natural gas, China has turned its attentions to its

western neighbors in Central Asia. “Energy resources in Central Asia have made the region an

important foreign policy focus for China’s government. By the numbers, the importance of the

Caspian region in the global energy equation (its oil accounts for only 2-3 percent of the world’s

known reserves) is quite small. However, its proximity to China’s market and the tightness of the

world oil market make this 2 percent potentially critical. As China’s energy demand skyrockets,

it seeks reliable supplies closer to home, and Central Asia can become an important source of

energy.”3

II. WHICH CENTRAL ASIAN COUNTRIES MATTER TO CHINA IN TERMS OF ITS

OWN ENERGY SECURITY?

Beijing has a tendency to view energy security in more than just purely economic terms.

For the Beijing leadership, energy security is not just about securing more oil and natural gas to

drive and fuel its burgeoning economy, but a geopolitical and strategic game of tactics and

negotiations that have implications far beyond just obtaining oil and natural gas from Central

Asia. “In particular, Beijing has been concerned about countering Western energy initiatives in

the region. As one Chinese scholar argued, projects such as the Baku-Tbilisi-Ceyhan (BTC) oil

                                                                                                                         3  Garrison,  Jean  A.  "The  "Great  Game"  in  Central  Asia."  China  and  the  Energy  Equation  in  Asia:  The  Determinants  of  Policy  Choice.  London,  UK:  FirstForumPress,  2009.  Print.  

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pipeline- the first regional pipeline directly supported an controlled by Western countries- imply

American motives of containing Russia and China.”4 This could also imply that Western powers,

particularly the United States, are attempting to undermine the Russians, Iranians, or Chinese

from gaining dominance in the ‘energy game’ in Central Asia and the Caspian Sea region. For

the leadership of Beijing particularly, and especially for those involved in the ‘energy

diplomacy’ initiative, possessing oil and natural gas resources to fuel the economy, military, and

society is one thing, but controlling the oil and natural gas resources in Central Asian territory is

of higher importance because control over the vast oil fields and natural gas fields in Central

Asia will guarantee steady and consistent flow of large quantities of oil and natural gas that will

effectively secure China’s energy needs for the foreseeable future and beyond that as well. With

control over the energy sources, Beijing has a free hand, meaning it may choose to use them for

domestic consumption or re-export it other markets around the world. The unique location and

its abundant energy sources gives Central Asia a geostrategic importance and this has provided a

platform for rather intense rivalries for influence and control in this region. For Chinese leaders,

securing China’s energy future is a matter of national security and China’s leaders “have decided

that energy security was too important to be left to market forces alone, and Beijing has

prioritized the issue as a matter of national security.”5

                                                                                                                         4  Lin, Christina. "The New Silk Road: China's Energy Strategy in the Greater Middle East." The Washington Institute for Near East Policy (2011). Http://washingtoninstitute.org/pubPDFs/PolicyFocus109.pdf. Apr. 2011. Web. Apr. 2011. (Pg. 15)  5  Lin, Christina. "The New Silk Road: China's Energy Strategy in the Greater Middle East." The Washington Institute for Near East Policy (2011). Http://washingtoninstitute.org/pubPDFs/PolicyFocus109.pdf. Apr. 2011. Web. Apr. 2011. (Pg. 15)    

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China’s involvement in Kazakhstan also confirms that the Beijing leadership’s ‘energy

diplomacy’ initiative places Central Asia as a vital source of energy for China. For analysis sake,

it can be said that Beijing chose to establish close relations with Kazakhstan for a variety of

reasons. First, Kazakhstan is the only major oil producer in Central Asia aside from Azerbaijan,

holding about estimated 40 billion barrels of proven oil reserves in its four major oil fields (on-

shore and off-shore): Uzen, Karachaganak, Tengiz, and Kashagan). Out of those four oil fields,

the recently discovered Kashagan oil fields has been deemed by analysts as the most significant

discovery of a proven oil reserve in the last 30 years after preliminary drilling and exploration.

Also, the Karachaganak oil fields are estimated to hold approximately 2.4 billion barrels of oil

reserves and 16 trillion cubic feet of natural gas, which can be recovered in the next 40 years.

Although Azerbaijan holds substantial amounts of oil in its oil fields, transporting Azerbaijani oil

to China is a potentially complicated and contentious issue, which will require various stages of

negotiations, be it multi-lateral or bi-lateral, with many different countries regarding transfer

fees. Second, Kazakhstan and China share a common border, so thus they have geographical

proximity with each other. This geographical proximity is important for the Beijing leadership

because of the issue of transporting oil or natural gas. Thus, for China, Kazakh oil is

geopolitically desirable because Kazakhstan is the only country in the Central Asia region where

oil imports can directly go overland into China without passing through Russia first, eliminating

the need for separate bi-lateral negotiations with Russia over transit fees.

At present, China’s oil imports are dominated by the Middle East, especially from Saudi

Arabia, Oman, Yemen, and Iran. To transport oil from the Middle East to China, oil tankers must

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travel through international waters, which require navigating through several straits and passages

known as ‘oil choke points.’ Oil choke points are narrow straits on international waters that pose

certain security risks such as terrorist or pirate attacks for ships seeking to pass through them.

Examples of such choke points on international waterways include the Strait of Hormuz, which

is a narrow waterway between the Gulf of Oman in the southeast and the Persian Gulf in the

southwest, and the Strait of Malacca, which lies between Malaysia and Singapore and connects

the Indian Ocean with the South China Sea and the Pacific Ocean. The risk here for China is it

does not yet possess naval forces neither sophisticated nor strong enough for safeguarding

China’s maritime oil transports from the Middle East. If China’s naval forces were sophisticated

enough, China would seek to use its naval forces to protect its oil interests in the Middle

East/Gulf region, but again, this is not the case. “At the closing of a Chinese Communist Party

November 2003 economic work conference, Chinese President Hu Jintao used the term ‘Malacca

Dilemma’ to describe the risks of China’s increasing dependence upon oil imports that require

transport by sea.”6 For these complex reasons, the emerging states of Central Asia are being

viewed as promising energy trade partners, especially Kazakhstan in this case. Kazakhstan and

China have already struck deals to build pipelines that will transport large quantities of oil to

China, which effectively gives China a legitimate secondary alternative to Middle Eastern oil.

Although oil pipelines originating from Kazakhstan going into western China (Xinjiang Province

to be precise) present several issues of its own (which will be discussed later on), compared to

                                                                                                                         6  Lanteigne, Marc. "China, Energy Security and Central Asian Diplomacy: Bilateral and Multilateral Approaches." Caspian Energy Politics: Azerbaijan, Kazakhstan and Turkmenistan. New York, NY: Routledge, 2010. Print. (Page 104)

 

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transporting oil through international waters, oil pipelines present a real opportunity for China to

secure its energy future, as the risks and issues involved with maritime transportation won’t be

resolved anytime in the near future.

“Significant natural gas reserves are more broadly dispersed across Central Asia.

Uzbekistan leads the way in the region in terms of natural gas production, followed by

Turkmenistan and Kazakhstan, but Turkmenistan leads the way in terms of reserves, with

Kazakhstan and Uzbekistan about even….Central Asia’s three natural gas providers with the

greatest potential- Uzbekistan, Turkmenistan, and Kazakhstan- all face the challenge to diversify

their markets to make planned natural gas exports viable. Both countries need new investment

dollars to increase production.”7 In terms of statistical figures of natural gas reserves in these

countries, the gas reserves and production potential are significant. Uzbekistan holds about

1,798,000 billion centimeters in reserve and has a potential annual production rate of 62,500

billion centimeters per year. Turkmenistan holds about 2,820,000 billion centimeters in reserves

and can potentially have an annual production rate of 60,420 billion centimeters per year. Lastly,

Kazakhstan holds about 1,765,000 billion centimeters in reserve and can potentially produce

approximately 25,930 billion centimeters per year. Although natural gas does not make up a

significant percentage of China’s energy use, the close proximity of Central Asia’s vast natural

gas reserves to China opens the door for the leadership in Beijing to negotiate bi-laterally with

each country to purchase control of stakes in the natural gas fields. The goal of Beijing’s energy

initiative is not necessarily to negotiate for securing oil and natural gas to fuel its economy,

                                                                                                                         7  Garrison, Jean A. "The "Great Game" in Central Asia." China and the Energy Equation in Asia: the Determinants of Policy Choice. Boulder, CO: FirstForumPress, 2009. Print. (Pg. 44)  

Kwon, 7

military, or society, but to negotiate for control of stakes in the vast natural gas fields in Central

Asia, thus guaranteeing steady flow of these energy sources into China without interruption.

Also by controlling certain stakes in the natural gas fields of Central Asia, China will be able to

keep Russian and Western ambitions in the region in check. Through its energy diplomacy

initiative, China seeks to become the pre-eminent and dominant player in Central Asia’s “great

energy game.” Having control over vast natural gas fields will give China complete and

undeterred access to some of the most fertile natural gas fields in the world. Although natural gas

may not figure prominently in China’s current energy use, negotiating for control and purchasing

stakes in the natural gas fields of Uzbekistan, Turkmenistan, and Kazakhstan will undoubtedly

put China as one of the leading holders of vast natural gas sources. As China’s energy arsenal

mostly includes non-renewable resources, in the eyes of the Beijing leadership, the more it

possesses and controls, the more secure and powerful China can become.

III. HOW DOES CHINA GO ABOUT NEGOTIATING FOR CONTOL AND

PURCHASING THE VAST OIL FIELDS AND NATURAL GAS FIELDS IN CENTRAL

ASIA? WHAT ARE ITS STRATEGIES?

With the collapse of the United Soviet Socialist Republics (USSR) in 1991, the Central

Asian republics (Kazakhstan, Uzbekistan, and Turkmenistan in the context of this work) became

independent and sovereign countries. It would take these newly independent and sovereign

countries a few years to stabilize themselves domestically before entering the fray of the oft-

Kwon, 8

complicated and complex nature of foreign diplomacy and relations. The abundance of energy

sources in the Central Asian republics is not a new or recent phenomenon. During the Cold War

era, the Russians were the dominant force in the Soviet Union and were keen to exploit the

energy source potentialities in the Central Asian republics for its own benefit. (Perhaps this is the

reason why modern-day Russia still is considered a major player in Central Asian energy politics

in the modern age). After the collapse of the Soviet Union and achieving independence and

sovereignty of the Central Asian republics, Russia was no longer the single major force in

Central Asia. Competing Western influences started looking at this region with keen interest with

possible ambitions (i.e. negotiating for control of oil fields or natural gas fields) of their own. At

the same time, realizing that the vast sources of energy they possess, the Central Asian republics

sought to use its vast reserves of energy sources to pave their ways into the international arena

and establish formal relations with other countries. Noticing the geostrategic importance of

Central Asia and its vast reserves of oil and natural gas, China sought to get involved as soon as

possible to negotiate for purchasing of and control of stakes in the vast oil fields and natural gas

fields in the Central Asian republics. For China, this was a huge opportunity to secure its energy

security future, as Central Asia is essentially right next door to China and it has shown strong

resolve and willingness to get involved in the region for the sake of its future energy security.

“An initial breakthrough was achieved in 1996 at the meeting between President Jiang

Zemin and President Nazarbaev, when the border delimitation between the two countries was

finally achieved. Kazakhstan was eager to sign deals with Chinese companies in order to

strengthen its ‘multi-vector’ foreign policy, and the first contract on building a pipeline to

Kwon, 9

Xinjiang was quickly drafted.”8 China’s first deal came in 1997, when its CNPC (China National

Petroleum Corporation) bought a 60 percent share of the Aktobemunaigaz oil company for $4.3

billion and later that year won the controlling interest in Uzen, the second-largest oil field in

Kazakhstan. The next year the two countries agreed to principle to build a nearly 3,000 km oil

pipeline linking Kazakh oil fields with China’s Xinjiang Province in a deal to be financed by the

CNPC over twenty years. Despite, initial enthusiasm for these deals, however, no progress

occurred for several years due to a lukewarm reception on the Kazakh side and reluctance by

China to invest in the needed infrastructure.”9 This was the very beginning of Beijing’s

involvement in Central Asia in search of energy security, so it isn’t a surprise that both sides

showed reluctance towards each other and this could simply be because one side did not know

the other side too well, perhaps breeding a sort of mutual distrust for time being. Debatably, it

could be said that this is the first time that the ‘energy diplomacy’ initiative of Beijing was

applied and put to the test. This negotiation and transaction process put the CNPC (China

National Petroleum Corporation), which is China’s state-owned oil corporation, in the thick of

things in Central Asia’s “great energy game.” Through these initial deals, CNPC had taken

center stage for future Chinese negotiations and purchases of oil fields and natural gas fields of

Central Asia and arguably became an indispensable tool in Beijing’s Central Asian energy

diplomacy initiative arsenal. Despite these early deals though, it was not until the new

millennium that China started making significant inroads and expanded into Central Asian oil

                                                                                                                         8  Baev, Pavel K., Bjorn Brunstad, Indra Overland, and Stina Torjesen. "4.8: China Increases Its Influence and Is Met by Scepticism." The Caspian Sea Region toward 2025:. By Morten Anker. CW Delft, The Netherlands: Eburon Academic, 2010. Print. (Pg. 82)  9  Garrison,  Jean  A.  "The  "Great  Game"  in  Central  Asia."  China  and  the  Energy  Equation  in  Asia:  The  Determinants  of  Policy  Choice.  London,  UK:  FirstForumPress,  2009.  Print.  (Page  45)  

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and natural gas development projects. The Chinese government slowly started to build up

significant influence in Central Asia, often by providing non-commercial loans. The reason for

Beijing and its energy diplomacy initiative’s focus on Central Asia is to strike a balance in the

geopolitical and geostrategic maps in the region as China primarily involved themselves in

Central Asia to keep a check on the influence of the Western entities (i.e. United States of

America and the European Union), who primarily involved themselves in the Caucasus region,

which is further west from Central Asia.

The CNPC was also involved in a major deal with Kazakhstan when “the discovery of

Kazakhstan’s giant Kashagan oil field (estimated to be the fifth-largest in the world)…and

domestic energy shortages became important factors to make the Chinese leadership again look

to Central Asia for energy. As a result, in March 2003 CNPC and the Kazakh state oil company,

KazMunaiGaz (KMG), jointly constructed the western-most section of the cross-border oil

pipeline running 448 km from Atyrau to Kenkiyak in Kazakhstan. The eastern-most part of the

pipeline, running 988 km from Atasu in Kazakhstan to Alshankou at the Chinese border, was

completed at the end of 2005 and became operative in May 2006 with a total investment of just

under $800 million.”10 (In addition to the 60% stake in KMG, CNPC also won contracts to

Kazakhstani oilfieds). KazMunaiGaz was previously a state-owned oil and gas company of

Kazakhstan. It was founded in 2002 by the merging of Kazakhoil and Oil and Gas

Transportation. Further adding to the purchase of a 60% stake in KazMunaiGaz (KMG) and

winning contracts to develop Kazakhstani oilfields, “In 2005, CNPC purchased PetroKazakhstan

                                                                                                                         10  Garrison,  Jean  A.  "The  "Great  Game"  in  Central  Asia."  China  and  the  Energy  Equation  in  Asia:  The  Determinants  of  Policy  Choice.  London,  UK:  FirstForumPress,  2009.  Print.  (Page  45)  

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for US$4.2 billion. This sale was the largest Chinese overseas purchase to date…Another hefty

cheque (US$1.9 billion) was written by China’s CITIC group to purchase the Karazhanbas

oilfield in western Kazakhstan in December 2006.”11 All these purchases are in line with the

original intentions of Beijing’s energy diplomacy initiative in Central Asia. The goal of the

energy diplomacy initiative is not to merely seek to obtain energy sources to fuel the Chinese

economy, but to win or purchase control of the energy sources itself, as to absolutely guarantee

there will be no interruptions in obtaining the energy sources needed for its energy security and

to keep a check on penetration of foreign influences and interests in Kazakhstan as well. Beijing

uses the CNPC as a means to end, using the CNPC as a strategic tool to purchase stakes in or

entirely purchase Kazakhstani oil corporations. Through these purchases of Kazakhstani oil

corporations, it can be argued that Beijing essentially exerts significant influence and control

over Kazakhstani oil. It can be said that Beijing has a significant say in the fate and destiny of

Kazakhstani oil. It also has to be said that Beijing’s energy diplomacy efforts in Kazakhstan were

not just effective, but very successful as well, as it attained its goals of gaining control over the

energy sources.

“In addition to seeking oil in the region, Beijing has been pursuing natural gas, especially

from Turkmenistan….In 2006, Ashgabat and Beijing agreed to develop a dedicated natural gas

pipeline to China via Kazakhstan. Beijing also signed a production-sharing agreement (PSA)

giving China the power to jointly develop the gas fields that will be feeding the line- the only

                                                                                                                         11    Lanteigne,  Marc.  "China,  Energy  Security  and  Central  Asian  Diplomacy:  Bilateral  and  Multilateral  Approaches."  Caspian  Energy  Politics:  Azerbaijan,  Kazakhstan  and  Turkmenistan.  New  York,  NY:  Routledge,  2010.  Print.  (Pg.  108)  

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such agreement Turkmenistan had struck with another state as of 2008.”12 Although it is not

clear exactly how much natural gas reserves Turkmenistan holds within its borders (there have

been numerous statistical figures published, but they are disputed to this day and there are

questions about the government of Turkmenistan’s capacity to get an accurate statistics on how

much natural gas it holds), this deal was a breakthrough for Beijing. Through signing the

product-sharing agreement with Turkmenistan regarding natural gas, Beijing recorded another

success in its energy diplomacy policy in Central Asia. The product-sharing agreement

essentially gives Beijing the rights and powers to develop natural gas fields in Turkmenistan, but

on the conditions that China and Turkmenistan work to develop the natural gas fields jointly.

Although it is a joint project, Beijing would have relatively uninterrupted access to Turkmen

natural gas because ‘joint development’ means that Beijing has made investments and

commitments to develop the natural gas fields of Turkmenistan that will be passing through the

proposed pipeline, therefore giving Beijing a great degree of control and influence of how

Turkmen natural gas will be developed and used in the future.

IV. PIPELINE POLITICS OF CENTRAL ASIA: COSTS AND BENEFITS, CURRENT

AND POTENTIAL SECURITY ISSUES, AND GEOPOLITICAL TENSIONS

With the achievement of acquiring control over petroleum corporations in Kazakhstan

and natural gas field development rights in Turkmenistan, Beijing has kept in line with its energy

                                                                                                                         12    Lanteigne,  Marc.  "China,  Energy  Security  and  Central  Asian  Diplomacy:  Bilateral  and  Multilateral  Approaches."  Caspian  Energy  Politics:  Azerbaijan,  Kazakhstan  and  Turkmenistan.  New  York,  NY:  Routledge,  2010.  Print.  (Pg.  108)  

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diplomacy initiative to gain control of a significant stake in Central Asian oil and natural gas.

The next logical step for Beijing to take would be to work through the issue of transporting the

oil and natural gas into China. Since Central Asia is landlocked, the best option in this case

would be to construct pipelines and supporting facilities to transport oil and natural gas into

Western China, into the Xinjiang Province, which shares common border with Kazakhstan.

However, there are a multiplicity of issues involved with constructing these pipelines for both

Beijing and its Central Asian counterparts. These issues range from costs and benefits related to

constructing pipelines and supporting facilities, security issues surrounding the proposed

pipelines, and geopolitical tension among countries in and around the Central Asian region

where the pipeline construction projects will go underway. These complications and issues

surrounding pipelines threaten to delay the process of pipeline construction or even worse,

cancellation of pipeline construction projects before it even starts or stopping in the middle of the

construction process. Because of these issues and risks surrounding the construction of pipelines,

meticulous negotiations and strategic planning are required by both Beijing and its Central Asian

counterparts. Especially in joint projects, cooperation between the partners will be very

important. First, Beijing and its Central Asian counterparts must work together to draw out

precise modifications and measurements for the pipelines, which must be drawn out by specialist

engineers and architects. Pipelines built for the purpose of transporting oil and natural gas must

be constructed with meticulous detail and attention because one default in the construction

process can potentially damage the entire pipeline structure. For China, the successful

completions of numerous pipeline projects are essential for its energy security because without

the pipelines, there isn’t another viable alternative to bring in oil and natural gas from Central

Kwon, 14

Asia into China aside from pipelines, so therefore, control of the oil and natural gas fields that

Beijing worked hard on obtaining would be rendered as questionable or even empty-handed

achievements. “The proposed pipelines shipping oil and gas from Central Asia to China for

domestic consumption or re-export have several problems that are yet to be resolved. The first is

the requirement for foreign investment. Neither China nor Kazakhstan have the funds to build

the pipeline. Without substantial loans from the developed nations, the viability of the project is

questionable. The second problem is the technical difficulty of constructing a pipeline. The

remoteness of Xinjiang coupled with the lack of adequate roads and railways to transport

materials make the project even more daunting….The third problem China and Kazakhstan face

is the separatist movement within Xinjiang that might dissuade foreign investors from putting

money into the pipeline. Addressed above, this is a psychologically important influence, though

practically speaking, there is little evidence to date that separatists intend to disrupt development

projects.”13

Another complicated issue that surrounds the construction and use of pipelines for the

purpose of transporting oil and natural gas across a large landmass such as Central Asia and

China is the issue of geopolitical tension. To elaborate further, ‘geopolitical tension’ in this

context covers the issue of transit fees (as pipelines have to be constructed across borders of

various countries in an out of the region) and in the case that the pipeline bursts or experiences

malfunctions, the country in which those bursts or malfunctions happened will inevitably have to

shoulder the blame for that damage from its neighboring countries that share the pipeline with it.                                                                                                                          13  Gladney, Dru C. "China's Interest in Central Asia: Energy and Ethnic Security." Ed. Robert E. Ebel and Rajan Menon. Energy and Conflict in Central Asia and the Caucasus. Lanham, MD: Rowman & Littlefield, 2000. Print. (Pg. 218)  

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If these damages happen on Chinese territory, Beijing will inevitably face a flurry of criticism

from its Central Asian neighbors and Beijing may lose credibility in the eyes their Central Asian

counterparts and thus as a result, Beijing’s energy diplomacy policy could potentially be

weakened in wake of such an event and its position of influence in Central Asia’s energy politics

could take a massive hit. Below, there are two real-life scenarios that illustrate the wider

geopolitical tension surrounding pipelines in and out of the Central Asia region and how these

scenarios could possibly play out for China. The results will most likely vary for China

depending on the scenarios.

a. Scenario #1

“The proposed pipeline network between China and Turkmenistan will be a significant

engineering challenge. With an estimated cost of US$6.7 billion, the pipeline will commence in

Turkmenistan’s Amu Darya River region, crossing wide expanses of the Eurasian landmass. This

includes portions of Uzbekistan and Kazakhstan, leading to expected complications regarding

transit fees.”14

Potential results for China and possible actions it may choose to take in this particular scenario:

Construction of the Uzbekistan segment of this proposed pipeline began in late June 2008. China

projected that this pipeline would be able to go online in 2009, but experienced delays because of

                                                                                                                         14  Lanteigne, Marc. "China, Energy Security and Central Asian Diplomacy: Bilateral and Multilateral Approaches." Caspian Energy Politics: Azerbaijan, Kazakhstan and Turkmenistan. New York, NY: Routledge, 2010. Print. (Pg. 108)

 

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a delay in the construction of a processing plant at the Saman-Tepe gas field in Turkmenistan.

Because of this delay, the pipeline is projected to be officially operational sometime in 2011 or

2012. Delays in construction won’t necessarily hurt China badly because these delays aren’t

long-term delays (i.e. one decade) but rather short and temporary delays. China possesses partial

control and ownership over Turkmen natural gas fields under the terms of the product-sharing

agreement that was signed by both sides in 2006. Turkmenistan stands to be hit harder than

China in this case because Turkmenistan would only start earning profits once the pipelines are

complete and natural gas starts flowing into China. China is the recipient of the natural gas that

will flow through this proposed pipeline, so thus, for Beijing, this could either be merely a

‘waiting game’ with small consequences (only if the delays are short and temporary) or a serious

problem because there are always possibilities of further delays in the construction process that

could potentially result in China experiencing significant financial losses due to long-term delays

in the construction process.

In regards to transit fees, Beijing has three options on its table, which would be to either

negotiate the transit fees through a bi-lateral channel, a multi-lateral channel, or choose both

options. Each option has its advantages and disadvantages for Beijing. If Beijing is to negotiate

transit fees only through a bi-lateral channel, it will be dealing with just one of its Central Asian

counterparts at a time. In this particular scenario, China would be negotiating with Uzbekistan or

Kazakhstan individually. The advantages for Beijing in regards to bi-lateral negotiations would

be that it may be able to dictate the negotiations on its own terms as it possesses significant

political clout and influence in the Central Asia region and may be able to negotiate for transit

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fee terms favorable towards China. The disadvantages of bi-lateral negotiations in this particular

scenario would be that either Uzbekistan or Kazakhstan could threaten to refuse passage of

natural gas pipelines through its territory if it does not get its own favorable terms regarding

transit fees, which will inevitably result in further delays in the pipeline construction process. In

the case of multi-lateral negotiations over transit fees (which could be organized under the clout

of the Shanghai Cooperation Organization), the advantage here is that there is potential for a

consensus on one fixed transit fee across all territories that the pipeline resides in, which could

prove to be the most beneficial for Beijing because there are no complications about paying

different amounts of transit fees in different countries. The disadvantage in multi-lateral

negotiations is that it could possibly be a very dragged out process that takes a long time to come

to acceptable terms for all sides. There is also the option of negotiating through either bi-lateral

or multi-lateral channel for Beijing. This is a rather risky option to pursue because in the case

that both channels fail to produce adequate results, Beijing would be out of options.

b. Scenario #2

“The Kazakh-China pipeline project is a 50-50 joint venture between KMG and CNPC,

although the Chinese company paid 85 percent of the cost. Only 44,000 bpd of crude oil flowed

through it in 2006, but its capacity is estimated to be ten times that amount after connecting

pipelines within China and Kazakhstan are completed. The pipeline can accept crude oil

deliveries from the west, from the north (Russian sources in western Siberia), or from the south

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from Kazakhstan’s Turgai basin. To function effectively, the pipeline needs Russian oil to

supplement Kazakh contributions because of inefficient fill and viscosity issues.”15

Potential results for China and possible actions it may choose to take in this particular scenario:

The Sino-Kazakh Oil Pipeline was completed on July 2009 although it was scheduled to

be completed three months later in October 2009. This is a particularly important matter of

energy security for Beijing just based on the fact that Beijing paid 85% of the cost of the pipeline

alone, and so, it can be assumed that Beijing has 85% ownership rights on the Sino-Kazakh Oil

Pipeline. If there are to be any sort of damages, small or significant (damages can range from

physical damage on the pipeline to small or significant amounts of leaked oil), China will have to

take a huge hit financially because of the amount of money Beijing has invested in this particular

pipeline and its credibility as majority owner can possibly come into question from Kazakhstan.

Also Russia is involved in this picture, albeit as an outsider, but Russia’s previous history

in the Central Asia region, its present presence and influence in Central Asia, and its position as

a threat to Chinese pre-eminence in Central Asia potentially renders Russia as major player in

this scenario. The fact that this pipeline needs Russian oil to function effectively and supplement

Kazakh contributions because of insufficient fill and viscosity issues, most likely does not sit

well with Beijing. One of the tenets of Beijing’s ‘energy diplomacy’ initiative in Central Asia is

to counter and check Russian influence in Central Asian energy politics and become the

dominant player in Central Asian energy politics and Russia’s involvement in a joint pipeline                                                                                                                          15  Garrison,  Jean  A.  "The  "Great  Game"  in  Central  Asia."  China  and  the  Energy  Equation  in  Asia:  The  Determinants  of  Policy  Choice.  London,  UK:  FirstForumPress,  2009.  Print.  (Pg.  47)    

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ventured and constructed by Kazakhstan and China, hinders Beijing’s efforts to weaken Russia’s

influence in Central Asian energy politics. A potential course of action that could be considered

by Beijing is to try to persuade the Kazakhstani government that Russia’s involvement in the

Sino-Kazakh Oil Pipeline, although it may be a small role, is not good for both Kazakhstan and

China because Russia may possibly use its involvement in the Sino-Kazakh Oil Pipeline as a

justification to exert its influence over Kazakhstan and Sino-Kazakh Oil Pipeline affairs. So, to

counter this possibility, Beijing could pledge more financial investments in the Sino-Kazakh Oil

Pipeline to find a resolution to the inefficient fill and viscosity issues. If a resolution to this issue

could be found, it’ll effectively put an end to Russia’s involvement in the Sino-Kazakh Oil

Pipeline. Another option Beijing could take into consideration is to keep the status quo and

accept Russia’s involvement in the Sino-Kazakh Oil Pipeline. China and Russia has yet to

antagonize each other or start diplomatic hostilities with each other over the Sino-Kazakh Oil

Pipeline. Russia’s involvement in this oil pipeline is small compared to China or Kazakhstan’s

involvement. It might not be necessary to try to push Russia out of the picture in relation to the

Sino-Kazakh Oil Pipeline, as there is the risk that China could antagonize Russia if it does so.

Although China seeks to become the dominant player in Central Asian energy politics,

antagonizing Russia would most likely have an adverse effect on advancing Beijing’s energy

diplomacy initiative in Central Asia. China and Russia keep each other in check in Central Asia

as it is, and provoking Russia over more influence in Central Asia could undo some of the

concrete results achieved through Beijing’s energy diplomacy.

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V. SHANGHAI COOPERATION ORGANIZATION (SCO): WHAT ROLE DOES THE

SCO PLAY IN THE ENERGY POLITICS OF CENTRAL ASIA?

“Conceived as a regional security group, the Shanghai Cooperation Organization (SCO)

was officially established in June 2001 by the leaders of China, Kazakhstan, Kyrgyzstan, Russia,

Tajikistan and Uzbekistan. The organization evolved out of the Shanghai Five, which was

founded in 1996 and included the same countries with the exception of Uzbekistan. Parallel to

China’s growing role in Central Asia, the SCO has expanded beyond a security organization to

become a forum for economic cooperation in the region.”16 The Shanghai Cooperation

Organization was originally created to counter-balance Western and US influence in Central

Asia, thus giving backing to the fact that this organization was created out of necessity for

regional security.

In terms of Central Asian energy politics, Russia’s President Vladimir Putin proposed a

creation of an ‘SCO Energy Club’ in June of 2006 in response to China’s increasing involvement

in Central Asian energy politics. The SCO Energy Club’s purpose was to promote dialogue

regarding energy issues and create a forum for member states to coordinate energy policies and

investments. Putin’s initiative received support from all members of the Shanghai Cooperation

Organization. There is also a quiet suggestion among the Western powers, the United States and

                                                                                                                         16  Kassenova, Nargis. "9: The Shanghai Cooperation Energy Club." Ed. Indra Overland, Heidi Kjaernet, and Andrea Kendall-Taylor. Caspian Energy Politics: Azerbaijan, Kazakhstan and Turkmenistan. New York, NY: Routledge, 2010. Print. (Pg. 162)  

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the European Union, that this new SCO Energy Club could potentially hinder Western interests

in Central Asia and become an ‘OPEC with nukes.’

VI. HOW DOES BEIJING VIEW THE SCO ENERGY CLUB? HOW COULD BEIJING

USE THE SCO ENERGY CLUB TO FURTHER PROMOTE ITS ‘ENERGY

DIPLOMACY’ AGENDA?

“While Beijing officially supports the SCO Energy Club initiative, Chinese experts have

expressed their doubts over its viability. As Huasheng Zhao of Fudan University points out,

Russia and China do not have the same priorities. Russia is the largest exporter in the region; it

monopolizes transportation channels and considers Central Asia an appendix to its export policy.

China, in contrast is an importer interested in the supply of energy resources from Central Asia

and the construction of new pipelines from this region to China.”17 Although Beijing wishes to

keep Russia’s influence in Central Asia in check, at the same time, Beijing is careful not to

antagonize Russia or start any rivalries with Russia. Beijing views the SCO Energy Club as a

forum where a cooperative framework for energy policies and investments can be discussed and

decided upon in a collective group. Beijing perhaps holds this view because it does not want to

antagonize Russia and make relations uneasy between the two because as the ‘two big boys’ of

the SCO Energy Group, both countries are expected to lead the discussions and decision-making

process together in the SCO Energy Group. The presence of Russia in the SCO Energy Club                                                                                                                          17  Kassenova, Nargis. "9: The Shanghai Cooperation Energy Club." Ed. Indra Overland, Heidi Kjaernet, and Andrea Kendall-Taylor. Caspian Energy Politics: Azerbaijan, Kazakhstan and Turkmenistan. New York, NY: Routledge, 2010. Print. (Pg. 169)  

Kwon, 22

restrains Beijing from promoting its energy diplomacy initiative as much as it would like in a

SCO Energy Club setting. The leadership in China understands that Moscow and Beijing have

very different agendas and interests in Central Asian energy politics and are careful not to get

entangled with the Russians. Also at the same time, Moscow does not have much to gain from

antagonizing Beijing and seems to think that intensifying an already tense relationship with

China will hold back any progress that could be made in the SCO Energy Club. In essence, both

Beijing and Moscow seem to understand that using the SCO Energy Club as a forum to dialogue

with and cooperate with each other would bring benefits to both sides. Further, both Moscow and

Beijing seems to have come to an understanding that as the two pre-eminent powers in the SCO

Energy Club, any conflict between Beijing and Moscow would undermine progress in the SCO

Energy Club.

Despite this, all is not lost for China. There are still possibilities for Beijing to promote its

energy diplomacy initiative in the SCO Energy Club in the future. “China has been very

successful since the turn of the millennium in increasing trade volumes with the other SCO

members…The SCO and Chinese diplomacy in Central Asia have also pushed Beijing closer to

European regional interests.”18 If Beijing is to continuously work on expanding its trade volume

with Central Asia and at the same time, maintain cordial and cooperative relations with the

countries of Central Asia, especially the members of the SCO Energy Club, these factors and

reasons may present more opportunities for Beijing to apply its energy diplomacy initiative to

areas in Central Asia where it was not previously applied because the opportunity was not there.                                                                                                                          18  Lanteigne, Marc. "China, Energy Security and Central Asian Diplomacy: Bilateral and Multilateral Approaches." Caspian Energy Politics: Azerbaijan, Kazakhstan and Turkmenistan. New York, NY: Routledge, 2010. Print. (Pg. 111)  

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VII. CONCLUSION: THE FUTURE OF CHINA’S ENERGY SECURITY

In less than two decades, China’s energy diplomacy initiative has achieved much in

China’s quest for energy security in Central Asia. At the core of Beijing’s relationships and

policies with its Central Asian neighbors to the west will always be centered on energy trade.

Abundant energy sources such as oil and natural gas reserves was what initially attracted Beijing

to Central Asia and paved the way for Beijing to implement its energy diplomacy initiative in

Central Asia. And at the same time, when Central Asian republics that achieved independence

and sovereignty after the collapse of the Soviet Union, were welcoming yet a bit cautious about

China’s interest in their abundant natural gas and oil reserves. “As a whole, these policies have

been very successful in establishing China as an energy player in Eurasia… Pipeline projects

which in the 1990s appeared out of reach are now nearing completion, and other such mega-

projects are under discussion.”19 Certainly, China will seek to maintain and further advance its

relationships with Central Asia’s energy-producing countries because in less than two decades,

Central Asia has become a highly important geostrategic and geopolitical region for China. For

China, Central Asia’s energy imports are essential to maintaining and enhancing its energy

security profile. As much reason as there is for Beijing to be optimistic about its future energy-

based relations with Central Asia, unresolved questions and issues remain for China and its

                                                                                                                         19  Lanteigne, Marc. "China, Energy Security and Central Asian Diplomacy: Bilateral and Multilateral Approaches." Caspian Energy Politics: Azerbaijan, Kazakhstan and Turkmenistan. New York, NY: Routledge, 2010. Print. (Pg. 111)    

Kwon, 24

Central Asian counterparts, for example, in the form of unresolved issues regarding the political

tensions surrounding oil/natural gas pipelines, which will undoubtedly keep Beijing vigilant in

enhancing its own energy security through the Central Asian channel.

BIBLIOGRAPHY PAGE

1.) Lanteigne, Marc. "China, Energy Security and Central Asian Diplomacy: Bilateral and

Multilateral Approaches." Caspian Energy Politics: Azerbaijan, Kazakhstan and

Turkmenistan. New York, NY: Routledge, 2010. Print.

2.) Garrison, Jean A. "The "Great Game" in Central Asia." China and the Energy Equation

in Asia: The Determinants of Policy Choice. London, UK: FirstForumPress, 2009. Print.

3.) Lin, Christina. "The New Silk Road: China's Energy Strategy in the Greater Middle

East." The Washington Institute for Near East Policy (2011).

Http://washingtoninstitute.org/pubPDFs/PolicyFocus109.pdf. Apr. 2011. Web. Apr.

2011.

4.) Baev, Pavel K., Bjorn Brunstad, Indra Overland, and Stina Torjesen. "4.8: China

Increases Its Influence and Is Met by Scepticism." The Caspian Sea Region toward 2025:.

By Morten Anker. CW Delft, The Netherlands: Eburon Academic, 2010. Print.

5.) Gladney, Dru C. "China's Interest in Central Asia: Energy and Ethnic Security." Ed.

Robert E. Ebel and Rajan Menon. Energy and Conflict in Central Asia and the Caucasus.

Lanham, MD: Rowman & Littlefield, 2000. Print.

6.) Kassenova, Nargis. "9: The Shanghai Cooperation Energy Club." Ed. Indra Overland,

Heidi Kjaernet, and Andrea Kendall-Taylor. Caspian Energy Politics: Azerbaijan,

Kazakhstan and Turkmenistan. New York, NY: Routledge, 2010. Print.