Energy: Russia and China compete for region's energy resources

By: Brian Whitmore (RFE/RL)

When Russia and China held joint military exercises last summer, it appeared that a powerful new strategic alliance was about to come of age.

The two countries, after all, routinely cooperate on the UN Security Council to thwart the West on issues ranging from Kosovo's independence to sanctions against Iran. They are the frontline states in the Shanghai Cooperation Organization, which both have touted as an emerging Asian military powerhouse. They also share a common stated desire to curb U.S. global influence and establish what both Moscow and Beijing call a "multipolar world."

But despite the hype in Moscow and Beijing, analysts say the long-term prospects for an anti-Western Sino-Russian axis are less promising than official statements suggest. Beneath the platitudes about strategic global cooperation and partnership lies a growing local rivalry: a fierce competition between Moscow and Beijing for energy reserves in Central Asia, a region in both countries' backyards that both view as a vital sphere of influence.

"In the last year, many analysts have spoken about a Sino-Russian axis. But it is not an axis. It is a tactical alignment against some United States moves," says Federico Bordonaro, a Rome-based analyst with the "Power and Interest News Report." "In the medium term, competition between China and Russia is set to take a more important place in relations between Beijing and Moscow. This is due to the fact that Beijing absolutely needs energy and the same energy is in the strategic interests of Russia."

China's breakneck economic growth -- 11.4 percent last year -- has sparked an insatiable appetite for energy that has led Beijing to eye Central Asia's oil and gas reserves. Beijing imports a large amount of its energy from Russia, but has become increasingly interested in buying directly from Central Asian suppliers -- including oil from Kazakhstan and natural gas from Turkmenistan.

But Russia's state-controlled Gazprom, which is struggling to supply both the domestic market and its European customers, also covets Turkmenistan's gas reserves. Moscow has thus taken steps to ensure that it controls the distribution of Turkmen gas via its network of pipelines.

"They need to control the networks," Bordonaro says. "And in the medium and longer term, they absolutely need to avoid [having] the majority of Turkmen gas flowing to China."

Dueling Gas Deals

Moscow is also concerned about Beijing's recent moves into the Central Asian market, where Russia has long dominated but food and textile imports from China have become increasingly conspicuous. Russia still accounts for the largest share of Kazakhstan's and Uzbekistan's imports, but China is right behind it and closing the gap quickly.

Turkmenistan also agreed last year to allow China National Petroleum Company to develop gas fields in its Bagtyyarlyk region.

For the time being, common strategic interests shared by Russia and China have taken precedence over the emerging economic tension -- but it is not clear how long that will last.

"I wouldn't say it is a conflict; that is too strong a word," says Fyodor Lukyanov, editor in chief of the Moscow-based journal "Russia in Global Affairs." "We will see a soft competition that could heat up as China becomes more successful. Russia doesn't want to be China's junior partner in this region."

Gazprom announced on March 11 that it had agreed to pay Kazakhstan, Uzbekistan, and Turkmenistan market prices for natural gas starting in 2009. In recent years, Gazprom had been purchasing the gas at between $70 and $150 per 1,000 cubic meters and then reselling it -- either on the Russian domestic market at heavily subsidized prices, or in Europe and elsewhere for a hefty profit.

Gazprom did not announce the price it was going to pay, but analysts say it will fall somewhere between $350 and $400 per 1,000 cubic meters.

The move was widely seen as an attempt by Russia to retain control of the market following recent moves by China to gain a stronger foothold.

Construction began in 2007 on a pipeline that would transport natural gas from Turkmenistan to China. Beijing and Ashgabat signed the deal in 2006 and the pipeline is scheduled for completion in 2009. Beijing has also agreed to buy 30 billion cubic meters of gas a year from Turkmenistan over a 30-year period.

Matthew Clements, the Eurasia editor at the London-based Jane's Information Group, says China has been rapidly erasing Russia's natural advantage in Central Asia, which is based largely on Soviet-era ties.

"Russia is very active in the region, has seen it as its sphere of influence, and has historic links with all these countries. But likewise, the behemoth that is the Chinese economy at the moment is obviously pulling a huge amount of influence in the region," Clements says. "You can say that traditional Russian ties would give it slightly greater influence in these countries. But it seems that more and more, China has more to offer, which is really sort of counterbalancing this."

Wither Nabucco

The Sino-Russian competition is also hindering plans by the United States and the European Union to gain access to Central Asian gas. Specifically, it is a blow to the Nabucco and trans-Caspian pipelines, EU-backed projects that seek to circumvent Russia by transporting gas from the Caspian and Central Asian regions to Europe via Turkey and the Balkans.

It is also unclear how much natural gas Turkmenistan actually has, and whether it is enough to meet the needs of China, Russia, and Europe. Analysts say the struggle over limited resources, the competition promises to be fierce.

"In Central Asia, we are witnessing a zero-sum game because if the resources will flow toward China, they won't flow toward Russia and Europe," Bordonaro says. "This is a very simple thing, but a very important one, because it is the foundation of a new great energy game in Central Asia, which was said by some analysts to be looming. But it is already in place."

It is a "great game" that the Central Asian gas suppliers -- Turkmenistan, Kazakhstan, and Uzbekistan -- have become increasingly adept at playing to their advantage. Analysts say that for this reason, projects like Nabucco, while damaged by recent developments, are far from dead.
The Central Asian states "want to play on all possible tables," Bordonaro says. "They have eyed the possibility to make deals and do business not only with the Russians, but with Chinese and the Europeans. The Europeans could have the possibility to ameliorate their position, because these countries strongly want to diversify."

Analysts point out that Turkmenistan, Kazakhstan, and Uzbekistan have also learned that it pays to put aside their rivalries and present a united front on gas deals.

This new dynamic in the region promises to complicate relations inside the Shanghai Cooperation Organization, which comprises China, Russia, Kazakhstan, Kyrgyzstan, Tajikistan, and Uzbekistan.

"In the past year or so, there has been a lot of discussion about the Shanghai Cooperation Organization, but Russia's active participation and its desire to develop this organization has significantly decreased," Lukyanov says. "This is because it has become clear that China will play the leading role and Russia doesn't need this."

Moscow and Beijing have a long history of complicated and ambivalent relations. They were close allies after the 1949 communist takeover in China. Relations soured in the 1960s and the two fought a border conflict in 1969. Relations improved following the Soviet breakup in 1991.

By Brian Whitmore - Central Asia: Behind The Hype, Russia And China Vie For Region's Energy Resources

Copyright (c) 2008. RFE/RL, Inc. Reprinted with the permission of Radio Free Europe/Radio Liberty, 1201 Connecticut Ave., N.W. Washington DC 20036.