Wednesday, 16 October 2013

Turkmenistan, China Reach New Energy Deals

Published in Field Reports

By Tavus Rejepova (the 16/10/2013 issue of the CACI Analyst)

Turkmen and Chinese energy officials, in the presence of Turkmenistan's and China's Presidents Gurbanguly Berdimuhamedov and Xi Jinping, signed a number of new agreements and contracts on September 3-4 on the development of Turkmenistan's  giant Galkynysh (Renaissance) gas field and to increase the supply of Turkmen gas to China to 65 billion cubic meters (bcm) per year by 2020. A total of thirteen bilateral documents including the energy sector deals were signed to bring the Turkmen-Chinese cooperation to a new strategic level.

On September 4, Turkmenistan's and China's presidents announced the completion of the first phase of construction of the Galkynysh gas field and launched the construction of the second phase. Within the framework of phase one development, UAE’s Petrofac International LLC, China’s CNPC Chuanging Drilling Engineering Company Limited and South Korea’s consortium of LG International and Hyundai Engineering Co. Ltd. built three gas processing plants with a combined annual capacity of 30 bcm at the Galkynysh gas field, worth US$ 9.7 billion. The commercial production is expected to reach 30 bcm a year by the end of 2014.

Berdimuhamedov and Jinping have also signed a Joint Declaration on Establishing a Strategic Partnership between Turkmenistan and China, stressing that the sides will also expand cooperation in construction of infrastructure, telecommunications, chemical industry, textile industry, agriculture, healthcare, high technologies and implementation of large joint projects.

Turkmenistan's state concern Turkmengaz and the China Development Bank signed a cooperation agreement on financing the second phase of development at Galkynysh through an undisclosed loan to the Turkmen government. Turkmengaz and China National Petroleum Corporation (CNPC) also signed a contract for the purchase and sale of 25 bcm of natural gas to China and a contract for the design and construction of an upstream complex with a capacity to produce 30 bcm of additional gas sales.

According to these new contracts, Turkmenistan is going to supply China with 65 bcm of gas per year by 2020, up from nearly 24 bcm in 2012. Under a joint declaration made by the two presidents, the sides agreed to build a new natural gas pipeline, Line D, in addition to the existing Lines A and B, and Line C that is under construction. Unlike lines A, B, and C, the fourth line will be built through the territories of Uzbekistan (205 kilometers), Tajikistan (415 kilometers) and Kyrgyzstan (225 kilometers). This new route, with undisclosed capacity, is expected to be completed by 2016 and will pump gas to China from Galkynysh.

The joint declaration stipulates that the sides agree to take measures to guarantee the safe and stable operation of Lines A and B of the Turkmenistan-China natural gas pipeline, as well as a sound implementation of their natural gas project in the Bagtyyarlyk gas field on the right bank of the Amu Darya River. The sides also vowed to cooperate to complete the construction of Line C by the end of 2014 and make it ready for gas transmission.

The Chinese president’s two day visit and signing of major energy deals for the development of Galkynysh, the world’s second largest deposit containing some 24 trillion cubic meters of gas, reconfirmed China’s long-term commitment and interest in Turkmenistan’s oil and gas sector and made China Turkmenistan’s largest creditor in this sector. As per the estimates, China’s loan to Turkmenistan in 2010-11 was US$ 8 billion. Official sources in Turkmenistan reported that the trade turnover with China reached US$ 9 billion out of its total US$ 35 billion trade turnover in 2012, and exceeded US$ 4.5 billion in the first half of 2013. Since the launch of the Turkmenistan-China gas pipeline in 2009, the total volume of natural gas delivered to China is over 50 bcm. Energy analysts believe that the new Turkmen-Chinese deal for more gas imports may also provide China with some leverage in its long-lasting gas sale and purchase negotiations with Russia. In addition, the construction of Line D is also expected to bring Kyrgyzstan over US$ 2 billion in transit fees and similar undisclosed income to neighboring Uzbekistan and Tajikistan. It has been suggested that Line D that goes via Uzbekistan, Tajikistan and Kyrgyzstan will also help reduce the frictions among these countries. 

Read 18642 times Last modified on Thursday, 17 October 2013

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