Page 2 of 2 Energy superpower emerges in the Caspian
By M K Bhadrakumar
Russian diplomacy has effectively used energy as a calculus for generating
political and strategic influence. At the very least, with the emergence of
Turkmenistan as an energy superpower, the "co-relation of forces" within the
CIS undergoes a change. This is not only for Russia but also for the other
countries which consider themselves as leading players in Central Asia and the
Caspian - Kazakhstan, Uzbekistan and Azerbaijan (all of them have uneasy
"partnerships" historically with post-Soviet Turkmenistan).
But Russia also has factors of advantage. It has a surplus of hard cash at a
time when the Western banking system is collapsing. Gazprom can use this clout
of financial liquidity as a bargaining chip to outsmart Western oil companies
cultivating favor in Ashgabat. A Russian business daily reported on Tuesday
that
Putin is forthwith providing $9 billion to Russia's four largest oil and gas
companies to "refinance" their foreign debt in the context of the meltdown of
the Western banking system.
The government had earlier announced $5.5 billion in tax breaks for the Russian
energy companies. The four Russian oil majors had addressed a letter to Putin
last month asking for a total of $80 billion to pay off their foreign debts and
finance strategic projects. Putin responded on Friday by saying the government
would disburse up to $50 billion.
Now, how many Western governments can match Russia providing such backing out
of sovereign wealth funds to its oil majors at the present time of global
credit crunch? The decision-makers in Ashgabat are bound to factor in these
hard realities when they weigh the relative merits of competing offers from
Gazprom and Western oil and gas companies.
There is also a huge psychological factor. In the idiom of wagering, it is
always the case that when you are essentially betting against all else, your
chances of winning depend on making a more informed decision. Simply put,
Moscow has multiple lines open to Ashgabat dating to the Soviet era.
All the same, the latest development provides the US with a window of
opportunity to play itself back into the race for Caspian energy after Russia
repeatedly outsmarted it in recent years. Clearly, there is now no dearth of a
resource base if Washington is to push trans-Caspian gas pipeline projects.
The Turkmen government announced last week that it intended to increase its gas
exports to 125 bcm annually by 2015. From the US perspective, that target seems
reasonable enough to make a robust pitch for Nabucco in the short term even
though Yoloten's gas will take time to be extracted for exports.
The US will make a pitch on behalf of Western companies as regards providing
expertise. The deck has already been cleared. Washington no more harps on
Turkmenistan's human-rights record, nor is it appealing to Western governments
to pressure Ashgabat into making fundamental democratic reforms. As an American
commentator put it, "It has become clear this year that the need for energy
supplies has pushed rights concerns to the background in discussions with the
Turkmen government".
Such pragmatism is nothing new to US diplomacy and Ashgabat can be expected to
take note. Surely, the graph of US expectations is curving upward sharply.
Washington would have had prior knowledge of the GCA's audit. A US expert on
the Caspian wrote, "The implications of the [GCA] audit results are momentous
for European and trans-Atlantic energy security ... Brussels and Washington can
encourage Western companies to become involved in developing South
Yoloten-Osman, Yaslar and other Turkmen gas fields with westbound pipeline
outlets via Azerbaijan to Europe. This could significantly counterbalance
Russian Gazprom's dominance in European markets."
Even so, he also acknowledged, "Conversely, the Kremlin will undoubtedly seek
privileged access for Gazprom to the newly ascertained Turkmen resources,
acting preemptively against the West. By combining those new resources (on top
of the already committed Turkmen inputs) with its own volumes, Gazprom would
boost its dominance in Europe to impregnable levels for a long time to come."
There is also much hyperbole in these expectations. The heart of the matter is
that the US experts do not spot a dark horse. It is far too presumptuous to
choreograph the battle scene in such straightforward terms of Russia versus the
West. There is yet another serious player watching the fabulous Turkmen gas
fields from the east - China.
US experts and cold warriors are obsessed with battling resurgent Russia on the
beaches of the Caspian Sea, the mountains of the Caucasus and the steppes of
Central Asia. But they are underestimating China's potential as a market for
Turkmen gas and as a competitor to European countries.
Ashgabat is already committed to delivering up to 40 bcm gas annually to China
through a $2.6 billion Central Asia-China gas pipeline that Beijing is
financing. PetroChina (a subsidiary of China National Petroleum Corporation)
and China National Oil and Gas Exploration and Development Company (CNOGEDC)
have a 50-50 sharing of the project's costs and have formed the Trans-Asia Gas
Pipeline Company Ltd as a wholly owned subsidiary for this purpose.
Interestingly, China is collaborating with local companies in Kazakhstan and
Uzbekistan for the construction, which is an altogether new and interesting
experience for the Central Asian countries.
China is a latecomer in Turkmenistan but it has already overtaken the West and
is second only to Russia in that country. At the time of the signing of the
July 2007 Sino-Turkmen agreement on supply of Turkmen gas, US analysts
pooh-poohed the agreement as a typical ploy by Ashgabat to drive a hard bargain
vis-a-vis Russian and Western companies bidding for contracts. They overlooked
that China was dead serious.
CNOGEDC is far from a novice; its expertise in oil and gas exploration work is
well known in diverse markets, not only in the Caspian (Kazakhstan and
Azerbaijan) but also in Indonesia, Algeria, Oman, Niger, Chad, Ecuador, Peru,
Venezuela and Canada.
China holds many trump cards. First, it is a "virgin" market with a strong urge
to expand. Beijing plans to raise its ratio of natural gas consumption to total
energy use by 2.5 percentage points to 5.3% by 2010. This is still far below
the global average of 25% and is indicative of China's potential as a market.
Two, China carries no imperial baggage - unlike the US or Russia. It is not
prescriptive. It is not peddling "color revolution". China doesn't hector on
free market or human rights. The Central Asian countries find such an attitude
extremely comfortable.
Three, China has a game plan. It will not appear avaricious, like Western
companies. Energy cooperation will invariably form part a broad Chinese thrust
in the direction of mutually beneficial economic cooperation. Thus, China will
not hesitate to offer substantive assistance to Turkmenistan. Four, China will
not overtly compete. Instead, China will most likely work with Russia on
development packages to increase Turkmen gas production.
In contrast, the cold warriors in the US visualize the Western companies as
lone rangers on the Central Asian steppe. In fact, the entire European energy
diplomacy in the Caspian suffers almost fatally from the spirit of rivalry with
Russia that Washington injects into it. Wherever German, Italian and French oil
companies have shaken off the US tutelage and begun working with Russia, they
have done far better. China's energy diplomacy in Central Asia and the Caspian
offers a model for the European oil majors.
Of course, it will be fascinating to see how China learns from its own history.
In 101 BC, Han emperor Wu-Ti was absolutely captivated by Akhal-Teke, which he
called "heavenly blood-sweating horses". He wanted to buy a stallion as a model
for making a horse statue made of gold in his palace. But the Turkmen for some
obscure reason, rejected the Han request. Wu-Ti retaliated by dispatching an
army of 80,000 to the inhospitable Turkmen deserts where the Akhal-Teke roams
in abandon. The Chinese simply got hold of 30 purebred horses and some 3,000
partbreds and made their way back to Wu-Ti.
True, China has been absolutely mesmerized by the Akhal-Teke. Tu Fu, an 8th
century Chinese poet wrote
The Ferghana horse is famed among nomad
breeds.
Lean in build, like the point of a lance;
Two ears sharp as bamboo spikes;
Four hoofs light as though born of the wind.
Heading away across the endless spaces,
Truly, you may entrust him with your life.
All the same,
today's China is unlikely to do what came naturally to Wu-Ti. Even if Ashgabat
were to tell China that it cannot have the entire output of the Yoloten-Osman
gas fields, Beijing will unlikely remonstrate. It will gladly settle for
sharing the output with its friends in Russia or the West if that's indeed what
Ashgabat wants.
Ambassador M K Bhadrakumar was a career diplomat in the Indian Foreign
Service. His assignments included the Soviet Union, South Korea, Sri Lanka,
Germany, Afghanistan, Pakistan, Uzbekistan, Kuwait and Turkey.
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