Diversion ahead

PUBLISHED : Monday, 25 August, 2008, 12:00am
UPDATED : Monday, 25 August, 2008, 12:00am

In the fallout from the confrontation between Russia and Georgia in the Caucasus, China is likely to gain a significant bonus in the drive to buttress its energy security by importing natural gas from nearby countries in Central Asia. Although restrained by a fragile ceasefire brokered by France and agreed by Moscow and Tbilisi, the recent fighting has cast a shadow over Georgia's reliability and future role as an energy corridor bringing gas to Europe from the petroleum rich Caspian Sea and Central Asia, without passing through Russia or Iran.

Reflecting this concern, BP announced on August 12 that it had shut down an oil pipeline that runs through Georgia and stopped pumping gas into another pipeline transiting the country, both as a precautionary measure.

Normal flow in the gas pipeline was resumed two days later. But the oil pipeline to Supsa, on Georgia's Black Sea coast, remained shut, as did a much bigger oil pipeline from Azerbaijan on the Caspian to Turkey via Georgia.

It was closed earlier in the month after a fire on its Turkish stretch, blamed on Kurdish separatists. This Baku-Tbilisi-Ceyhan pipeline is also operated by BP and carries about 1 million barrels of Caspian crude oil per day, mainly to Europe.

After seeing Russian readiness to use force and the west's inability to counter the military incursion into Georgia, the three key Central Asian gas suppliers, Turkmenistan, Kazakhstan and Uzbekistan are expected to turn to China, instead of Europe, as their main alternative gas market to Russia.

Together, the proven gas reserves of these three central Asian republics total more than 6.3 trillion cubic metres, far behind Russia's 44.6 trillion cubic metres, but enough to put Central Asia into the world's top dozen sources of gas - a less-polluting fossil fuel than coal or oil.

Because of a well-established pipeline network connecting the Central Asian republics to the former Soviet Union, Russia is still by far the most important market for their gas.

Much of it is piped on to Europe, which relies on Russia for 25 per cent of the gas it uses. This figure is forecast to rise to 50 per cent by 2030.

The European Union was planning to break this dependence by importing Azeri and Central Asian gas through a trans-Caspian undersea pipeline bypassing Russia and connecting with another new pipeline to Western Europe via Georgia, Turkey, Bulgaria, Romania, Hungary and Austria. The network was to be completed by 2013.

However, analysts doubt that it will proceed. Raising capital to finance the project, always a problem, will be much more difficult now. The trans-Europe Nabucco venture already lags well behind rival Russian and Chinese pipeline projects. In May, the consortium behind the 3,300km Nabucco pipeline said the estimated cost had risen by about 70 per cent, to US$12.3 billion.

In July last year, China confirmed a deal to buy 30 billion cubic metres of gas annually from Turkmenistan for 30 years and to build a 2,582km pipeline to carry it across Uzbekistan and Kazakhstan into western China to connect with the country's west-east pipeline to cities and industries on the eastern seaboard. Construction is under way and the pipeline is due to be finished late next year or in 2010, at an estimated cost of US$14 billion.

Last December, Russia, Kazakhstan and Turkmenistan finalised an agreement to build a new export pipeline to carry 20 billion cubic metres of gas along the eastern shore of the Caspian Sea into Russia.

They also decided to modernise and expand the main Soviet-era gas pipeline from Central Asia to Russia. Last month, Moscow offered to pay Turkmenistan European-equivalent prices for the 50 billion cubic metres of gas it sells to Russia annually.

Meanwhile, a plan backed by the United States to pipe Turkmenistan gas across Afghanistan to Pakistan and India has lapsed because of spreading conflict in Afghanistan and instability in Pakistan.

When these various pipeline projects were being advanced as serious competitors to one another, the main question was whether Turkmenistan had enough gas to supply Russia, China, Europe and South Asia.

Turkmenistan's government insisted it had, claiming estimated onshore reserves of 25 trillion cubic metres and Caspian offshore reserves of 5 trillion cubic metres.

However, proving these huge claims by independent verification may no longer be so important now that South Asia and Europe have dropped behind, if not out, of the race to secure Central Asian gas resources - leaving Russia and China in the box seats.

Michael Richardson is an energy and security specialist at the Institute of Southeast Asian Studies in Singapore.