Pipelines to Partnerships

China will build a further 150,000 km (93,000 miles) of oil and gas pipelines in the next 12 years, the official Xinhua news agency said on October 19th” (Reuters). These pipelines traveling within the country, and others which travel without carry oil, and geopolitical implications.

Below, I examine where China’s internationally-destined pipelines are going, examine the feasibility, and postulate what the pipeline developments mean for China’s future development.

Chinese Pipelines, Comparatively

China has a relatively developed system of oil and natural gas pipelines, but there is a great deal of room for improved coverage and efficiency. According to the CIA World Factbook, in 2007 China had 26,344 km of gas, and 17,240 km of oil pipelines. Comparatively, Russia in 2007 had 158,699 km of gas, and 72,347 km of oil, and the United States in 2006 had 244,620 km that carried petroleum products, and 548,665 km carrying natural gas. The United Kingdom, a much smaller country than China, had 18,980 km of gas and 4,930 km of oil pipelines.

If China’s goals are reached, in 12 years, the total length of its pipelines will reach around 193,000 km, still much less than the lines in the United States or Russia.

A great deal of China’s planned internal pipeline length will be achieved due to the construction of a West-East pipeline, pumping natural gas from Xinjiang to Guangzhou. The project will cost around $20 billion, and cover over 9,102 km.

There are great opportunities for natural gas expertise and development in China. According to Xinhua, “the country planned to raise the ratio of natural gas in its energy consumption by 2.5 percentage points to 5.3 percent by 2010.”

Overview of Expanding Chinese International Energy Pipelines
(This is by no means an exhaustive list; but it is extensive.)

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Kazakhstan-China Oil Pipeline (Atasu-Alashankou pipeline)
November 2005; Expansion completed by 2009-2011.

Length: 962.2 km (600 mile) from Atasu in Kazakhstan to the Alataw Pass of Xinjiang. (Planned additional 700 km expansion to link to the Caspian Sea.)
Cost: $700-800 million shared between China and Kazakhstan.
Capacity: 5-20 million tons of oil a year.
What It Carries: “In 2005, China imported 1.3 million tons of crude oil from Kazakhstan via Alataw Pass.” (People’s Daily). By 2007, that number rose to 6 million tons (Upstream Online).
Future Developments: In August 2007, China and Kazakhstan agreed to extend the pipeline by 700 km (435 miles) westward to link it to the Caspian Sea.
(From: People’s Daily, May 25, 2006, China Daily, July 21, 2006, and Reuters, August 18, 2007.)

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Turkmenistan-China Gas Pipeline (Central Asia Gas Pipeline)
(Gas shipments start in early 2010. Phase II should be complete by 2011-2012.)

Length: 10,000 km. It originates in Turkmenistan, runs through Uzbekistan, southern Kazakhstan, and then enters China (People’s Daily, September 20, 2008). Stage I of the Uzbek part will be finished by Jan. 2010. Stage II finished by Jan. 2012 (RIA Novostoi, April 2008.) The Kazakhstan section began construction in July 2008, and phase I should completed by June 2010. “The first segment of the [Kazakh section of the] pipeline will go from the Uzbek-Kazakh border to the Kazakh-China border through Shymkent, the administrative center of the South Kazakhstan region and reach China’s Horgos” (From: New Europe, July 21, 2008).

Cost: $7.31 billion. (New Europe, January 5, 2008).
Capacity: Upon its completion and full utilization in 2013, the pipeline will have an annual transmission capacity of 30-40 billion cubic meters of natural gas (People’s Daily, September 20, 2008). These supplies should last for 30 years. Initially, 4.5 billion cubic meters will be pumped annually. Completion of Kazakhstan’s “second segment (Beineu – Bozoi – Kzyl-Orda – Shymkent) will have an annual capacity of 10 billion cubic metres and a length of 1,480 kilometres” (New Europe, July 21, 2008).

Of Note: Turkmenistan sells nearly half of its natural gas to Russia, around 40 billion cubic meters a year of the 70 billion cubic meters of gas a year it produces. By constructing this pipeline toward China, Turkmenistan gains access to a source that is willing to pay more for its gas, and loosens Russia’s hold on its economy, while bringing Turkmenistan closer toward China’s sphere of influence.
Also see: Silk Road Intelligencer, July 9, 2008 and Asia Times Online, July 17, 2008 and China’s Pipeline Diplomacy.

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Russia-China Gas Pipeline (Altai Gas Pipeline Project)
(2011 previous plan; 2013 is now a more likely date due to diplomatic and economic hangups between China and Russia over the price of natural gas from the pipeline and its route. If however, a 2015 goal of piping gas to South Korea is achieved, an earlier constructed Chinese spur would seem rational. (Also see the WSJ))

This on-again, off again pipeline finally seemed ready to be deployed when resource and energy prices reached stratospheric levels during Spring 2008. However energy price drops, expansion of China’s energy supplies vis-a-vis domestic and Turkmenistani projects, and a worldwide economic slowdown have resulted in Russia rethinking the deal. According to an Oct. 8, 2008 Forbes article, “Russia will delay the construction of proposed gas pipeline to China due to competition from other gas sources in the Chinese market,” such as the new Central Asia Gas Pipeline.

Cost: $14 billion.
Capacity: 30 billion cubic meters/year. (10 billion cubic meters/year in the alternative South Korea-only plan.)
(Reuters’ optimistic September 10, 2008 article on the subject.)

Note (Update 10/29/2008) Despite delays in the natural gas pipeline; the ESPO oil pipeline spur, which will cost around $800 million and deliver 300,000 b/d should be completed sometime in mid-late 2009; although as often seems to happen with Russia-related projects, disputes and delay have arisen as of mid Nov/2008. When oil prices start rising again though, the parties will likely give/take more in negotiations. That would place pipeline completion around mid-late 2010.)

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Pakistan-China Gas Pipeline

This pipeline would provide China with an alternative transportation route to the easily blockaded Strait of Malacca. However, a solely Pakistani-Chinese pipeline is more of a distant future hope than any short-term reality. Given Pakistan’s unrest and general difficulties, it will be difficult to safely tap the country’s resources or make any extensive long term investments.
Information on the pipeline’s proposal is from: (Xinhua, April 30, 2007).

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Iran-Pakistan-China Gas Pipeline
(Construction begins May 2009? Completion June 2014?)

This pipeline is significantly more likely to be built than a solely Pakistan-China pipeline since Iran has better developed energy infrastructure than Pakistan and can supply the needed resources. However, there is danger that the pipeline in Pakistan may suffer damage due to terrorism or internal unrest much as pipelines in Iraq have been plagued by terrorism. Originally, the pipeline was planned to go to India, but has been held up for various reasons.

Cost: $7.4+ billion.
(More information at Stratfor; February 11, 2008. AND the Tehran Times, October 20, 2008; A March 30, 2008 Heritage Foundation backgrounder on the history of the original planned 1993 Iran-Pakistan-India Pipeline.)

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Myanmar-Yunnan Gas Pipeline (Kyaukphyu-Kunming)
(Under negotiation and feasibility study. Plausibility of near-term development… low due to stability concerns, especially post-cyclone. Plausibility of development 2010-2012 medium to high depending on international natural gas prices and stability of the region.)

Length: 1,450 km (900 miles).

(The Guardian… as always, often alarmist, gave an early analysis of the situation in January 2008; Reuters, with an update. March 6. 2008).

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UAE Oil Pipeline (Habshan-Fujairah Main Oil Pipeline)
(March 2008 Construction begun; March 2010 completion.)

Length: 360 km.
Cost: $1+ billion.
Capacity: 1.5m bpd/oil.
Notes: “In early 2007 the China Petroleum Engineering and Construction Corporation (CPECC) signed an agreement with Abu Dhabi’s International Petroleum Investment Company to build a pipeline that would bypass the Strait of Hormuz… Still, when completed, it will be a drop in a bucket compared to the 17 million bpd of crude oil that pass the Hormuz Strait today.” This pipeline is important because it helps alleviate threats that Chinese oil will be blockaded should the international diplomatic situation degrade.
(Pipeline Information from Here. and Yitzhak Shichor writing for Jamestown in September, 2008.)

Compact Analysis

Importation of foreign Natural Gas is not essential to the growth of China’s energy industry since it accounts for less than 5% of China’s energy mix, but the addition of pipelines carrying up to 40 billion cubic meters of natural gas apiece would nearly double current Chinese capacity.

In 2006, China received 69.6% of its energy from Coal, 21.1% from Oil (350M tons; 183.7M produced domestically, around 47% imported), 5.8% from Hydroelectric, 2.7% (~3% in 2007) Natural Gas (55.6B cubic meters- in 2007 this rose to 69.8B cubic meters),  0.8% (1.3 % in 2007) from Nuclear Energy (9.6 GW), and 0.4% (0.7% in 2007) from Wind (5.6 GW), and [data from: Rosen (17), and China Daily (2006) with some updating.]

China‘s natural gas output in 2005 was around 48 billion cubic meters, in 2006 it was 58.6 billion cubic meters (China Daily, October 2007), and it was 69.8B cubic meters in 2007. “The government plans to increase the figure to 80 bcm by 2010 and 120 bcm by 2020… the expected demand [is] 120 bcm per year by 2010 and [150-]200 bcm by 2020.” (China Daily, Dec 2005)

Beijing will receive a relatively large chunk of Turkmenistan, Kazakhstan and Uzbekistan’s natural gas and oil, which will strengthen Beijing’s influence in the SCO (Shanghai Cooperative Organization) economic and defense grouping of Central Asian states. Beijing’s rising importance in these countries’ GDPs will lead to declines in Russian and American power, and present multiple diplomatic options for these countries.

Through its energy diplomacy and economic influence, Beijing appears to be creating a multi-polar near-term future for the Central Asia-East Asia world. A few years after the pipelines are completed at at capacity and the gas and money are flowing along the routes (perhaps as early as 2012), Beijing will become integral to these relatively small economies which may become increasingly less amenable to hosting Russian or American military bases or exercises without extremely viable compensation.

Beijing already surpasses the US in trade partner significance to several Central Asian States, trading $12 billion in 2006 (CRS, 71) with the region, compared to 2006 US trade of slightly over $2.3 billion with the region.  (Data from HERE, HERE, HERE, HERE, and HERE for exports; HERE for imports)

The Central Asian states need Beijing more than Beijing needs them so it will be interesting to see what diplomatic initiatives China may enact and what diplomatic repercussions these energy shifts will have if Beijing attempts to exercise its soft power, especially as energy resources are diverted from Russia, economies become tied to China rather than Russia or US-Allies, and Iran finds a new source for its gas pipelines.

Extra!
* China’s Pipeline Diplomacy. Deals with the reprecussions of China’s energy investments in the Central Asian States and what it means for their economies and ties to Russia.
* IAGS Global Energy Security.
* Iran’s Major Oil Customers.
* Kazakhstan’s Plentitude of Oil. Estimates of production of 3.5 million barrels per day (174 million tonnes) by 2020.
* Oil and Gas Industry Terrorism Monitor.
* Pipeline and Gas Journal’s October 2007 International Pipeline Report, and international trend analysis.

Also please see; Natural Gas Development, chinacomment’s prior treatment of the natural gas industry.