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Central Asia: Region Looks To Fuel Asia's Economic Boom

  • Bruce Pannier --> Kazakh President Nursultan Nazarbaev presses a button on a touch-screen monitor in the control center of the Atasu-Alashenkou (China) pipeline in Astana, December 2005 (epa) Meeting in Beijing on April 3, Turkmen President Saparmurat Niyazov and his Chinese counterpart, Hu Jintao, signed an agreement to build a pipeline to deliver Turkmen natural gas to the energy-hungry Chinese economy. The deal comes within months of a Russian agreement to construct a gas pipeline to China and the more recent launch of the first segment of a Kazakh oil pipeline to China. India has also been eyeing Central Asia to remedy its own growing energy needs. Could an eastward push for trade and political ties risk distancing Central Asia from the West?

PRAGUE, April 4, 2006 -- Under the terms of the agreement, Turkmenistan will supply China with 30 billion cubic meters of natural gas a year, starting in 2009. The 30-year deal was another reminder that the growing economies of Asia will require new energy sources. And Asian economic powerhouses like China, India, and even Japan and South Korea are increasingly looking closer to home to slake their thirst for fuel.

Alex Vatanka, of Jane's Information Group, says this is part of a wider Chinese policy.

"Energy is genuinely a serious issue for the Chinese and will remain a serious issue for the Chinese as long as their growth depends on the arrival of oil and gas and coal from around [the country] and around the world," Vatanka says. "I mean, you have to look at their involvement in Latin America and Africa. If they're willing to travel that far away to bring in energy resources, then obviously they will have to consider Central Asia, [which] sits next to their western flank, and they will do that."

Vatanka cites a simple reason for Central Asia's eagerness to cooperate with these Asian economic tigers.

"If you look at it from above and in geographical terms, for the Central Asian states there is no doubt that they have to consider countries -- particularly China, but also India and also countries further afield," Vatanka says. "This is a necessity because of the fact that these [Central Asian] countries are landlocked. And in order to able to integrate globally, economically, and also to some extent politically, they need to have these outlets."

Natural Advantages

Proximity is certainly one advantage for Central Asian governments hoping to make deals in Asia. Europe is eager to purchase Central Asian gas and oil as well, but those deals involve transit through other countries.

Moreover, Europe remains a relatively new partner, whereas Central Asians and direct neighbors like the Chinese and Indians have known each other for thousands of years.

The recent surge of activity includes an oil pipeline from western Kazakhstan to China. And several other pipeline proposals in the region have been around for more than a decade, including a pipeline to take natural gas from Turkmenistan, via Afghanistan, to Pakistan and then on to India. Russia also has an agreement to supply China with oil and gas from fields in Siberia.

Freeer Trade?

Central Asian governments also see another advantage to trading with Asian states, according to Vatanka.

"They will not put human rights or complying with strict regulations -- in terms of what is classified as a bribe or how do you not get yourself involved in corrupt practices and so on -- [into the trade equation]," Vatanka says. "That kind of thing is what the Chinese are much more flexible on than, say, a Western firm that has to abide by a number of rules and regulations that are simply very difficult to work with when you take them out of their context. Once you take it out of the European or North American context and try to play by those rules in these high-risk environments, it becomes very difficult [to compete]. And that's what the Chinese are very good at. Or, for instance, even the Indians would be much better than, say, a French, British, or American company."

There are high hopes pinned on Central Asia's willingness to extract natural resources. The region's hydrocarbon wealth remains relatively untapped; it lay almost entirely dormant during the Soviet-era -- a reserve to be exploited in the future.

Giant Ambition

Turkmenistan claims to have the fourth-largest reserves of gas in the world. But John MacLeod, senior editor at the London-based Institute for War and Peace Reporting (IWPR), says one of the problems with this week's Turkmen-Chinese gas deal is that it is unclear whether Turkmenistan can meet all its gas pledges.

"I think another important point to make about this gas arrangement is that it's built on future hopes rather than present realities, because the Turkmen seem to be promising the Chinese roughly the same kinds of amounts of gas that they're promising also to Ukraine and Russia," MacLeod says. "And down the line, [Turkmenistan] also wants to build a completely new pipeline through Afghanistan to markets in the subcontinent -- India and Pakistan. The big unknown here is whether they actually have the gas."

MacLeod adds that huge amounts of foreign investment are necessary to build any pipeline out of the region. But without reliable estimates of gas and oil reserves, finding investors may prove difficult.

"They'll need considerable investment in pipeline infrastructure, and nobody -- not the Chinese and not the people who are funding the Afghanistan-Pakistan pipeline -- nobody's going to pay for that until they see some evidence that the gas is really there," MacLeod says.

As the world waits to see just how much oil and gas Central Asia can produce, its fast-growing Asian neighbors are trying to get as much as they can of each while supplies last.