Accessibility links

Breaking News

China: Beijing Determined To Tap In On Caspian Region Oil

London, 21 November 1997 (RFE/RL) -- Oil analysts say that China, the second largest energy user in the world, is looking to the oil fields of the Caucasus and Central Asia to help meet its predicted tripling in demand for fuel in the next few decades.

China is poised to overtake the United States as the number one user of energy early in the 21st century.

Beijing regards the new oil fields being developed around the Caspian Basin -- its oil and gas reserves are second only to those of the Persian Gulf -- as a means of avoiding excessive reliance on the Middle East, South Asia and West Africa.

China has already signed a $9.5 billion contract with Kazakhstan to develop three oil fields in the Central Asian country and to build a pipeline from there to China. Analysts predict Beijing will seek similar deals with the Caspian region in years ahead.

The growing Chinese interest in Central Asian and Caucasus energy supplies has important geopolitical significance.

Frederick Starr, chairman of the Central Asia Institute at Johns Hopkins University, said in a paper submitted to an oil industry conference in London this week: "China's recent investment in Kazakhstan marks that country's decisive shift from being a passive neighbor to being an active participant in the region's affairs."

He said: "Growing cross-border trade and the new rail lines linking Xinjiang (in western China) with Kazakhstan, Kyrgyzstan and Tajikistan all reinforce this shift."

Other analysts say China's desire to tap into Caucasus and Central Asian oil has implications for how it manages its relations with ethnic groups in its troubled Xinjiang province, the route for the proposed oil pipeline across Kazakhstan. Xinjiang was the scene earlier this year of separatist unrest involving Uighurs closely related to Turkic-speaking groups across the border in Kazakhstan.

An examination of China's energy resources, and its projected future consumption, makes it clear why Beijing is so interested in the huge gas and oil fields being developed in the Caspian region -- in Azerbaijan, Kazakhstan and Turkmenistan

China at present is roughly self-sufficient in energy production and consumption. It possesses extensive reserves of coal, and its hydropower potential ranks first in the world. Its petroleum and natural gas reserves, however, are relatively modest (although China ranks fifth in the world in crude oil output.)

But China cannot remain self-sufficient for long. Recent years have seen a huge jump in energy consumption, a trend coinciding with the economic reforms launched by the late Deng Xiaoping.

David Fridley, of the U.K Lawrence Berkeley National Laboratory, says China's energy consumption has more than doubled since 1980, and the potential growth in demand is "enormous."

Per capita use of energy by the 1.2 billion Chinese population is still very low, about one-fifth of Japan and one-tenth of the U.S. But rapid industrialization and a growing residential demand for electricity (fed by a dramatic increase in ownership of refrigerators, washing machines, TVs and air conditioners) suggests that energy consumption will grow by 3-5 percent per year to 2020.

World Bank forecasts, based on GDP growth averaging eight percent over the period (6.5 percent after 2010) say that energy consumption growth will average about four percent a year.

So where is the energy to come from? China will meet demand from a variety of primary energy forms: nuclear power, hydropower, and natural gas. Fifty percent of demand is expected to be met by coal. And China is tapping its own oil reserves.

Fridley says China has directed a lot of investment to its far west, claiming that the Tarim Basin oil field in Xinjiang, bordering Kazakhstan, is "another Saudi Arabia". It has opened these oil fields to foreign oil company investment in the hope that their potential will offset the decline of its large eastern oilfields. Total production in Xianjiang doubled to 240,000 barrels a day in 1996, but Chinese officials admit the results in Tarim are "disappointing."

So China is looking abroad. In 1985, China was Asia's top oil exporter. It is now the region's second largest importer (after Japan) and the current policy of the Beijing government recognizes its growing and long-term dependence on imported oil.

Because of its long-term import needs, it has begun to look at options for diversification of supply. The policy of China's giant oil company, CNPC, is to match its production shortfalls with capacity developed abroad. It has invested in exploration projects with more than 20 countries including Kazakhstan, Turkmenistan and Russia. In Kazakhstan, CNPC plans to produce 200,000 barrels of oil a day -- a goal which some analysts regard as over-ambitious.

China plans to pipe this oil from western Kazakhstan, north of the Caspian Sea, across Xianjiang to the interior of China. The pipeline would also carry oil from the Tarim Basin in Xianjiang. (Xianjiang is entirely dependent on railways for its oil deliveries to the interior).

The project is on a daunting scale: the pipeline will be hugely costly and engineers have to solve the problem of how to lay the pipeline across the mountains separating the two countries. It may be, too, that Kazakh oil will eventually be too expensive for China.

However, Fridley says the pipeline will provide Kazakhstan with greater flexibility in its talks with Iran and Russia over other pipeline issues. (The world's oil industry is locked in a debate right now about the best, and politically feasible, exit routes for the oil and gas from the landlocked Central Asian and Caucasus countries.)

Whenever oil is mentioned, politics are not far behind. This is certainly true of emerging Kazakh-Chinese relationship. Fridley points out that Kazakhstan is home to Turkic-speaking people who are closely related to the Uighurs and other ethnic people on the Chinese side of the border. With the growing separatist sentiment in Xinjiang -- which found expression in the Uighur unrest earlier this year -- Beijing's "central geopolitical concern is to work with Kazakhstan to manage the relationship among these ethnic people."

As for the long-term, analysts have no doubt that China, seeking to meet its soaring energy needs, will compete with the west for a its share of the immense oil reserves of the Caspian Sea region.