New Great Game in Old Central Asia
The Great Game is alive and well. In the 19th and early 20th century, it was the British and Russian empires vying for supremacy in Central Asia.
Fast forward to this year, and Russia is seeing its influence in the energy sectors of Kazakhstan and Turkmenistan wane in the face of China's engagement.
The world's second-largest economy needs ever greater quantities of oil and gas and so is investing heavily in Central Asia to secure resources as an alternative to Middle East supplies.
Economic ties are extending to fields beyond energy. China and Kazakhstan recently marked the completion of a railway line joining the countries, and there are plans to build a high-speed link.
"Central Asia shares a land border [with China]. In terms of hydrocarbons, it's getting increasingly important with the gas pipelines and oil pipelines from Kazakhstan … economically [Kazakhstan] could be more tied to China as the years go by," says Chung Chien Peng, an analyst in Central Asian-Chinese relations at Hong Kong's Lingnan University.
Among the key agreements this year was one between Kazatomprom, Kazakhstan's nuclear holding company, and Guangdong Nuclear Power Group for 55,000 tonnes of uranium to be supplied to China over a decade, providing half the uranium needed for China's nuclear industry.
China Development Bank has provided loans worth about US$2 billion (Dh7.35bn) for the likes of Kazakhstan's Natural Resources Corporation, the funds being used for, among other things, the exploitation of iron ore and aluminium deposits.
Bilateral trade between China and Kazakhstan jumped from $3.3bn in 2003 to $20bn last year, and political cooperation has developed on the back of economic links in fields such as anti-terrorism, to the chagrin of human rights campaigners.
Yet it is energy where attention is mainly focused, thanks to agreements such as one signed this year for Chinese banks to provide $5bn in loans for a petrochemical complex. Many large loans have been provided in return for future energy supplies.
They seem destined to dominate the world economy. Yet as the Bric concept celebrates its 10th birthday, Brazil, Russia, China and India may each find that energy is its Achilles heel."Central Asia is important for energy supply to China because the Chinese are trying to diversify their supply," says Shamil Yenikeyeff, a research fellow in the Oxford Institute of Energy Studies.
Other deals include one from 2005 in which the China National Petroleum Corporation (CNPC) acquired PetroKazakhstan, which controls substantial oil and natural gas reserves, coming eight years after CNPC bought more than half of another Kazakh energy company, AktobeMunaiGas. Last year, Hu Jintao, the Chinese president, while on a visit to Kazakhstan signed an agreement with Nursultan Nazarbayev, the Kazakh president, for China to provide finance for the modernisation of an oil refinery in western Kazakhstan.
Also key is a pipeline that opened in late 2005 to transport oil from central Kazakhstan - the country has nearly 40 billion barrels of proven reserves - to north-west China's Xinjiang province. To give China access to the Caspian Sea's oil, this pipeline, owned by CNPC and KazMunayGas and the first pipeline directly importing oil into China, is being extended west.
Even so, there are problems ahead. Riots in Kazakhstan's western Mangistau region, the deadliest in the Central Asian state's recent history, spread late on Saturday when one person died and 11 people were injured as protesters clashed with police near the village of Shetpe.
Mr Nazarbayev declared a 20-day state of emergency on Saturday in the oil city of Zhanaozen, located in the same region, after at least 11 people were killed there in an outbreak of violence last week.
Public protests are rare in Kazakhstan, Central Asia's largest economy and biggest oil producer, where Mr Nazarbayev has overseen more than $120bn in foreign investment during more than two decades in power.
"We will not permit any attempts to disturb the peace and calm in our home, to erase the achievements of our independence," said Mr Nazarbayev.
China will obviously be keeping a close eye on the situation.
Turkmenistan is the primary gas supplier in Central Asia, with proven reserves of 8.1 trillion cubic metres, compared with less than 2 trillion cu metres each for Kazakhstan and Uzbekistan. But a gas pipeline running from Turkmenistan, developed by CNPC, through Uzbekistan and Kazakhstan to Xinjiang province in western China was opened in December 2009.
This is particularly significant since it allows supplies to bypass Russia, a reflection of the shift in China's favour when it comes to leverage over Central Asian energy. Between December 2009 and May this year China received more than 10 billion cu metres of natural gas from Turkmenistan, says Mr Yenikeyeff. This year alone, the figure is set to reach 17 billion cu metres, increasing to more than 30 billion cu metres annually over the next couple of years, a quarter of China's total need.
China has also invested heavily in gas pipelines within its territory. There is a pipeline from Xinjiang to Shanghai, while a second west-to-east one already runs from the Chinese border with Kazakhstan to eastern China, and will later have branches to Hong Kong and Guangzhou.
The west-to-east gas pipelines link China's poorer western regions with the wealthier eastern centres, Mr Yenikeyeff says, helping to spread economic development more evenly and explaining why China was prepared to invest so heavily in such infrastructure.
Better gas supplies should also reduce China's acute dependence on coal, improving the country's hitherto poor environmental record.
Overall, Mr Yenikeyeff says, Turkmenistan accounts for about a quarter of Chinese gas inputs, while China is responsible for a similar proportion of Kazakhstan's oil and gas outputs.
It is China's large cash reserves and efficiency in completing infrastructure projects that has helped the country secure such an important role in the Central Asian energy sector, partly crowding out Russia.
"At the end of the day, Central Asia will be a service economy to China. They recognise their relationship with Russia is important, but they have to engage with the fast-growing economies," Mr Yenikeyeff says.
Not everyone is happy about this. Just as in Mongolia some have said China has become too powerful in securing access to resources, so in Kazakhstan similar concerns have been raised.
"There's a certain amount of discontent with Chinese investment and influence in Central Asia," says Mr Yenikeyeff.
"They have had parliamentary requests to the ministry of oil and gas asking about the level of Chinese influence in the sector." Yet, while concerns have been raised in Kazakhstan over Chinese influence, Mr Yenikeyeff says the Kazakh government has been "very clever" in not getting too close to any one country when it comes to energy. "They try to engage with everyone to balance them off each other," he says.
Uzbekistan and Turkmenistan are strengthening energy ties with India, and Delhi could be "the only counterbalance" to China's expanding influence as Russia's significance declines.
"But that's 15 to 20 years from now. It's going to take time," Mr Yenikeyeff says, talking of how long it will take for India's influence to be fully felt.
Source: The National