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August, 2007:

CNPC Starts Building Turkmenistan-China Gas Pipeline

on 30 August, 2007 – nCa News and Commentary

Ashgabat, 30 August 2007 (nCa) — In a simple ceremony Wednesday morning, Turkmenistan and China started building a pipeline that would begin transporting Turkmen natural gas to China in January 2009.

The unveiling of a plaque by President Gurbanguly Berdymuhamedov and welding of two segments of pipe – one emblazoned with ‘Turkmenistan’ in bold letters and the other, with ‘Hytay’ China – symbolized the happy blend of skilful diplomacy and robust pragmatism. It was truly a historic day for both China and Turkmenistan.

The inauguration ceremony took place at the Bagtyarlyk gas territory at the right bank of Amudarya River.

Bagtyarlyk territory, containing at least five gas fields, is supposed to hold more than 1.3 trillion cubic meters of gas, more than enough to feed the China pipe for 30 years at 30 billion cubic meters per annum.

The Chinese experts have independently verified the volume of reserves at Bagtyarlyk.

CNPC will develop some of the fields, and lead the pipeline construction. According to the information available so far, CNPC is doing the project without any investment or expertise from the western companies.

The pipeline – China calls it Central Asia Gas Pipeline – will run some 7000 kilometers. It will have two branches, one going through Kazakhstan and the other through Uzbekistan.

Bagtyarlyk territory was leased to China in July this year. It contains some fields that are already productive such as Samandepe and Altyn Asyr. These two fields, after reconstruction, will provide 13 billion cubic meters per annum for the pipe. The remaining 17 billion cubic meters will come from development of new fields in the contract territory.

In addition to building the pipeline, the CNPC will provide financing and technical know-how for the gas processing and purification facilities, pumping and compression stations and boosters.

TurkmenGaz and CNPC have already signed gas sale-purchase agreement but the price has not been disclosed. Some reliable sources told that the price would be above US $ 100 per 1000 cubic meters.

President Berdymuhamedov said that the pipeline would bring economic benefits to Uzbekistan and Kazakhstan and would encourage regional economic cooperation, stability and friendship.

He said that Turkmenistan had struck a unique deal with CNPC. According to the terms of contract, CNPC has been given operator’s license for exploration and production. CNPC is also allowed to map the contract territory.

Wang Jiarui, head of the International Department of the Communist Party of China Central Committee, CNPC President Jiang Jiemin, and Chinese ambassador in Turkmenistan were present during the ceremony.

nCa Commentary

Now that the construction of China pipe has started, the inevitable will happen in the media. Armchair pundits and myopic commentators will spew their tired babbling that can be divided into three groups:

1. There is not enough gas in Turkmenistan to meet all the commitments
2. When China starts buying gas from Turkmenistan, it will buy less from Russia
3. Turkmenistan is not seriously interested in any other pipelines

As far as gas reserves are concerned, BP is supposed to be the industry gospel. One fine morning BP said that Turkmenistan has 2.8 trillion cubic meters of gas, and everybody said Amen.

The BP figure, apparently taken out of the hat, doesn’t coincide with reality. We have reasons to believe that Turkmenistan has ample reserves; about nine times more than the BP claim.

Turkmenistan asserted during Niyazov’s time that it has 24 trillion cubic meters of gas. And, that was before the discovery of Yolotan.

The circumstantial evidence suggests that Yolotan field alone contains about 7 trillion cubic meters.

Gas reserves are enough and Russia doesn’t need to worry because it would continue to be the main beneficiary of Turkmen gas. The China pipe is restricted to the right bank of Amudarya River and it will not siphon gas form other fields that are currently supplying to Gazprom.

Russia also need not worry that China will buy less from Gazprom if it gets some volumes from Turkmenistan. The Chinese economy can sponge any volumes of gas that producers can send its way. China, realistically the second largest economy of the world, needs all the gas it can find.

Other present and potential buyers of Turkmen gas can also relax. Turkmenistan is following a sectoral approach to divide gas among the buyers.

Right bank of Amudarya River is reserved for China. Trans-Afghan will get gas from Daulatabat cluster. Iran will continue to receive volumes from the general area of Korpeje. The present demand of Russia and the future commitment to Caspian coastal pipeline will be met through all other mainland fields. Trans Caspian, if and when it happens, must depend on volumes from the Caspian shelf of Turkmenistan.