China's Involvement in Central Asian Petroleum: Convergent or Divergent Interests?

Author(s): Philip Andrews-Speed and Sergei Vinogradov Source: Asian Survey, Vol. 40, No. 2 (Mar. - Apr., 2000), pp. 377-397 Published by: University of California Press Stable URL: . Accessed: 25/04/2011 11:01
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Convergentor Divergent Interests?
PhilipAndrews-Speed and

Sergei Vinogradov
China's involvement in CentralAsia has grown significantly in the past few years, driven by both the country's political and economic ambitions and its energy requirements. China is becoming a major importerof oil and gas, and the countries of CentralAsia-particularly Kazakhstan,Azerbaijan,Uzbekistan,and Turkmenistan also Kyrgyzstanand but Tajikistan-are attractivepotential targets in Beijing's search for secure petroleum supplies. China already has committed substantial investments in Kazakhstanand also hopes to provide further capital aimed at developing resourcesin CentralAsia and building long-distancepipelines runningto and from the region. If these ambitiousplans materialize,China's political influence in CentralAsia would be greatly enhanced. This article assesses China's goals for expandingits source of energy supplies in the context of its foreign and energy policies. It focuses on the potential for conflicts of interest (1) over achieving the goals of these two policies, (2) between the goals of the state's energy policy and the ambitions of stateowned oil companies, and (3) between China and the Central Asian states. The article's first section will address internationalpolitical issues in the region, focusing on elements of China's foreign and energy policies and key concerns in CentralAsian politics that Beijing must contend with in setting those policies. The second section shows how China's currentenergy policy has led to extensive internationalinvestment in petroleum, despite the gov-

Philip Andrews-Speedis Lecturerand Director of Studies, and Sergei Vinogradov is Senior Research Fellow, Centre for Energy, Petroleum and Mineral Law and Policy, University of Dundee, Dundee, U.K. Asian Survey, 40:2, pp. 377-397. ISSN: 0004-4687 i 2000 by The Regents of the University of California/Society. All rights reserved. Send Requests for Permission to Reprint to: Rights and Permissions, University of California Press, JournalsDivision, 2000 Center St., Ste. 303, Berkeley, CA 94704-1223.


ed. This latterconcern is of crucial significance given that the present governmentin Beijing believes that the continued existence of the Chinese CommunistParty (CCP) is vital to the nation's security and development. Economic interest is a significant motivation behind many of these ties.378 ASIANSURVEY. 1994). This aspirationis in part derived from the government's worldview. Joseph Y. MARCH/APRIL ernmentand state enterprisesnot always sharingthe same goals..and decision making patterns. 1998). is not only a global hegemon that needs restrainingbut may also pose a threatto the stability and status of China itself.: Westview Press. 30-46. Levine.S.XL. although economic interests have become progressively more importantof late. Beneath this expanding network of diplomaticlinks is a preferencefor bilateral relationshipsbased on practical needs ratherthan strategic partnerships 1. In a world perceived as hostile. Stephen I. and a zero-sum balance of power politics. Colo. In China's eyes. Barry Naughton. China's Foreign and Energy Policies Issues and Framework The literatureon China's foreign policy is large'. Cheung (Hong Kong: Chinese University Press. so that the country can direct its efforts to economic development. Kim. the Chinese government'sapproachto foreign policy in the 1980s and 1990s has emphasized nationalism. Thomas W. China and the World: China's Foreign Policy Faces the New Millennium(Boulder.conceptual approach. ed.sovereignty. Despite occasional liberal rhetoric. "New Geopolitical in Thinking and the Sino-Russian Strategic Partnership" China Review 1998. . the third section evaluates from the viewpoint of their respective interests the issues raised by China's investments in CentralAsia. pp. 83-123. S. namely. NO. 1998). it is military security and national sovereignty rather than economic prosperity and social welfare that have been of prime importance.. especially neighboringcountries. and may be described as neorealist. 2. the U. general aspirations. "The Foreign Policy Implications of China's Economic Development Strategy"in ibid. ed.priorities. pp. Robinson and David Shambaugh(Oxford: Clarendon Press. see the bibliography in Samuel. Finally. S. 2. we restrictourselves to identifying those features of it that have a direct bearing on the nation's behavior in the CentralAsian region. 2000 VOL. pp. "Perceptionand Ideology in Chinese Foreign Policy" in Chinese Foreign Policy: Theory and Practice. and Ren Yue.S. 47-69. A recent priorityfor China's foreign policy makers has been to establish peaceful working relationships with as many states as possible. here.relevantspecific attitudes.2 One theme that continues to underlie many of the relationships China has established has been the perceived need to act as a counterbalance to the U. At the heartof China's foreign policy lies Beijing's desire to be recognized as a major player in internationalpolitics and establish itself as the leading regional power in East Asia. For a recent listing.

"In[ter]dependence China's Post-Cold War. 70-112. But China's global status does depend to some extent on joining such key internationalclubs as the World Trade Organization. Carol Lee Hamrin. On the other. "The Implications of China's Economic Development Strategy". these factors in part explain why the governmentfinds it difficult to formulateand implement sus3. . "China's Cooperative Behaviour.6 Taken together with the fact that the CCP's first priority is to remain in power.the past two decades of the 20th centuryhave seen a proliferationof nongovernmentaldomestic actors seeking and to some extent able to influence China's foreign policy. Indeed."in China and the World. pp. "The China Syndrome:Rising Nationalism and Conflict with the West. 81-95. Since the death of Mao. Kim. 4." China Quarterly 154 (May 1998). "Elite Politics and the Development of China's Foreign Relations" in Chinese Foreign Policy.3 In cases where geopolitical or securityconcerns are of prime importance. greater integration poses two parallel threats that might weaken the government's hold on power: a reductionof China's political independenceand the country's increasedexposure to Westernpolitical and culturalvalues. 308-29. this has been far from the case.nationalistsagainstinternationalists. and Samuel S. Robinson. "ChineseForeign Policy from the 1940s to the 1990s.."Analysisfrom the East WestCenter.pp. and Thomas W. Harry Harding.5 This brief account may give the impression that foreign policy making in China is a unifiedprocess. 115-57. no. Bin Yu.4 One of the key dilemmas facing the Chinese governmentis what approach it should take toward globalization and growing internationalinterdependence. pp. pp. toward greaterpolitical as well as economic interdependence. economic self-interest has been pursued in a very narrowlydefined context. Tow. those supportingthe promotionof national interests overseas against those giving priorityto selfpreservation. "China's Foreign Policy in Theory and Practice.ANDREWS-SPEED VINOGRADOV AND 379 or multilateral mechanisms." in China and the in World. 3-33. and Yong Deng. "The Chinese Conceptionof National Interestsin International Relations.William T. "Chinaand the International StrategicSystem"in Chinese Foreign Policy. Naughton. 555-602. Many commentatorshave emphasizedthe importanceof factional politics in China's foreign policy decision-making process that pits realists and againstliberals. with a case-by-case quest for maximum benefit at minimum cost."WesternizingRussia and China. pp. and Michael Mandelbaum. 6. Thomas W. In addition. On the one hand. greater economic integrationwith the rest of the world is a prerequisitefor sustainedeconomic growth. pp. pp.pp. albeit slow."Foreign Affairs 76 (May/June 1997). 193-216. 5. 27 (May 1996)." in ibid.and it is likely that the countrywill continue to make progress. activities that would lead to greaterChinese political integrationwith the rest of the world have not kept pace with those related to increased economic and investmentmay be used as instrumentsto establish new relationships." in Chinese Foreign Policy. 375-400. As a result. Robinson.

Wigdortz. Though it accounts for barely one-quarterof 1% of China's total internationaltrade. pp.7 China's Foreign Policy in CentralAsia The collapse of the Soviet Union requiredChina to develop an entirely new policy toward Central Asia. Kazakhstan'ssheer size. there also has been an upsurge in radical Islamic sentimentin the region that worries the governments of China. Russia. Rosemarie Forsythe. Trade and investment have been the most visible elements of China's growing involvement in Asia. Gladney. Dorian. MARCH/APRIL 2000 tained foreign policy initiatives as well as why China's foreign policy appears so unpredictable.and Ethnic Relations.9 At present. and the ease of 7. 506-23.380 ASIANSURVEY. Only small changes in either the external environmentor the internal balance of power need occur for a substantialshift in foreign policy to result. the Kazakhsand Uyghurs in northwestern China) who might seek supportfrom one state to realize separatistambitions in another. 61-76. 2. NO. in practicalterms Chinafaces potentialthreatsfrom (1) ethnic groups that straddle nationalborders(for example. Adelphi Paper no. Russia. "Forecasting Chinese Foreign Policy: IR Theory vs. 8. Manufactured goods from China form a large proportionof imports to Kazakhstan. H. Tajikistan.Kyrgyzstan. The desire for regional political stability in the face of these potential problems lies at the heart of China's currentCentralAsia policy. and (2) militant Islamic groups that might seek to replace the current secular governments in the neighboring states. Much of this trafficcomprises basic consumergoods made in northwesternChina that are sold in neighboringCentralAsian states. pp."Foreign Affairs 76 (March/April1997). 31 (May 1997). However. 1998). and Denny Roy.8 Thus. VOL."Russia's Illusory Ambitions.and Kazakhstanmoved rapidlyto agree on where theircommon borderslay and plan for reductionsin the numbersof troops along those frontiers. 1996). . Kazakhstanis the most importantCentralAsian state to China. The goals of this policy are to constrain new threats and enable China to take advantageof new opportunities.and Uzbekistan. The two most significant new threatsfacing China are overlapping ones: the stability of the country's borders with the Central Asian states and the potentialfor unrestamong Muslim peoples across the region. 9. In the wake of the Soviet Union's downfall.XL. Whiting. Trade. ShermanGarnett. China's Foreign Relations (London: Macmillan. Allen S. no. The Politics of Oil in the Caucasus and CentralAsia. the political need for China to promote economic development in Xinjiang Province renders this commerce with CentralAsia especially important. and this volatility will persist for at least the short term." Analysis from the East West Center. and other regional states. The Fortune Cookie. the length of its borderwith China. and James P. China. "Chinaand CentralAsia's Volatile Mix: Energy." in Chinese Foreign Policy. 300 (Oxford:Oxford University Press.Kyrgyzstan. Brett. and Dru C.

pp. pp. On the Russian side. The economic componentsof this relationshiphave failed to live up to their early promise.a numberof factors constrainthe development of this relationship. 94-112.12 Despite the apparentmultiplicityof common interests. China's relationships with Central Asian states should not be analyzed without reference to two other countries that also have a substantialinterest in the region: Russia and Iran. the prime minister for the first time publicly invoked the idea of a strategic alliance of Russia and China (and India) to counteractU. China sees Russia as a vital stabilizingforce in CentralAsia. 2. Neither the disintegration of the Russian Federationnor the rise of rabid nationalismwould be in China's short-terminterest. p. Of China's many new relationships. 12. JenniferAnderson.S. and Japan. The Limits of the SinoRussianPartnership.S. "IraqConflict SparksAlarm in Russia over World Role. 13. 93-113. Further.looking west. 11. Strategic interests lie at the heart of the tentative rapprochement.China can call on Russia's supportto counterbalancethe U. in the wake of the bombing of Iraqby the U. "The Post-Cold War Political Symmetry of Russo-Chinese Bilateralism. in line with its antipathyto strategic alliances.December Beijing prefers to emphasize the practical economic benefits of cooperationrather than the strategic elements. together with the substantialnumber of Uyghurs living in Kazakhstan." . Looking eastward. 1996). in December 1998. while an economically and militarily strong Russia might yet result in an uncomfortableneighborin the long term.K. "Sino-RussianRelations in the 1990s: A Balance Sheet. 1998. hegemony.investment."InternationalJournal 49:4 (1994). To these factors may be added the CentralAsian state's considerableoil potential. "China'sSearch.which will be discussed furtherbelow.the one that most resembles a strategic partnershipis with Russia.Adelphi Paperno." Post-Soviet Affairs 14:2 (1998). Gilbert Rozman. and Deng." Financial Times. and the resolutionof borderdisputes. Lowell Dittmer. military training.10but the political rhetoriccontinues. and the U.13 The Russian view of China likewise is not monolithic." Russia's currenteconomic and political problemshave temporarilydiminishedits ability to pose a credible military threat to China and it appears on first glance to be well-suited as a strategicpartner.China still perceives the potential for threatsto come from Russia. 751-87.S. The 1990s have seen the two nations cooperate on a number of fronts: arms sales. 316 (Oxford:Oxford University Press. as the enthusiasmemanating from Moscow is counterbalanced caution and hostility toward China by 10. Ronald C. "China and Russia: New Beginnings" in China and the World.combine to provide Chinawith a strongincentive to build an effective working relationship. Keith.ANDREWS-SPEED VINOGRADOV AND 381 communication across this border.

pp. John Calabrese."Chinaand the PersianGulf: Energy and Security."Middle East Journal 52:3 (1998). This commerce persists today.14 China's relationship with Iran comprises both economic and political dimensions.China. 16-21. 1997). 107-26. too. so. As China's requirementsfor imported energy have risen. at the heart of China's relationshipwith Iranlies a tension between the obvious short-termeconomic and political benefits and 14.S.the region's underdevelopedeconomy. 1998. and the Far East: Old Geopolitics or a New Peaceful Cooperation?"Communistand Post-CommunistStudies 28:3 (1995). In the years after the CCP came to power in 1949. pp.though this officially has ceased in response to international pressure.Iran has granted the China National Petroleum Corporation (CNPC) exploration and development rights for petroleum. Valery V. and Barry Rubin. and Peter Ferdinand.16 Thus. Asia's Deadly Triangle (London: Nicholas Brealey. "China's Middle East Strategy. p. The political motivation for China's relations with Iran has evolved over the years." China Report 34:3-4 (1998).XL."Foreign Affairs 77 (March/April1998). With the Soviet Union's collapse. 351-66. The sparsepopulation.S. VladimirShlapentokh. Furthermore."China and Russia: A Strategic Partnership?" China Review (Autumn/Winter 1997). A furtherstrandof Chinese strategy in Iran. May 7. This rationale then became assimilated with a general policy of seeking to contain the U. in establishing its independencefrom the superpowers. The earliest post-1971 tradebetween the two states was China's weapons sales to Iran. has the volume of oil importedfrom Iran. Initially. 345-53. pp. "The Remakingof Eurasia. China's relationship with Iran also became a vehicle for constrainingU. though it has been reportedthat Chinahas threatenedto stop the flow because it believes that Iran was behind some recent Uyghur unrest. . and the weakness of the Russian military in the area make the region vulnerableto Chinese domination. Kent E. pp.382 ASIANSURVEY. See Far Eastern Economic Review (FEER). 37-40. Oil forms the third economic strandof the relationship. has been the desire to secure supportin constrainingefforts by Muslim activists to aid Uyghur separatists in Xinjiang.15 The second componenthas been China's provision of nucleartechnology to Iran. 307-18."Russia. MARCH/APRIL in the Russian Far East. pp. This is a major confrontationpoint for Russia and China. Iran became one of the most importantof these partnerstates as a result of its perceived regional importance.and indeed in other neighboringMuslim states. pp. The situation is exacerbatedby the moves of regional governments in the Russian Far East and by the Sakha Republic toward greaterautonomy. 8. 16. Tsepalko. The first is arms sales. After the fall of the Shah in 1971. 15. 2000 VOL. as it was with many other developing countries. 2. On the economic front the relationshipis based on three main components. NO. in the Middle East. interests in CentralAsia. China was keen to support Iran. Calder. China established relationshipswith a number of newly independentdeveloping countries.

18. Mitchell. and . The International Politics of Central Asia (Manchester. this region had been an integral part of the country for more than a century. and Moscow seeks to enhance its political. "China and Central Asia's Volatile Mix". Wigdortz. the main natural resource is petroleum.development. Naturalresources are perceived to be the key to economic growth in CentralAsia. 1997).. military and economic influence in the region while simultaneously minimizing the influence of other nations. 637-55. Such activities did not always favor the interests of the Russian government or Russian oil companies. and Gladney. Russia has the greatest stake in CentralAsia of any of the major powers. while moves toward greater economic integrationamong the region's countriesare seen to underminethe search for distinct nationhood." Europe-AsiaStudies 49:4 (1997). and counter the interests of other actors in the region such as the U. "Regionalism. 1996).Turkmenistan. and Azerbaijan.the lack of such infrastructure a major constrainton the realization of this potential boon. Europe. Caspian Pipelines (London:Royal Instituteof International Affairs. Turkey. economic development. little effort was expended on developing Central Asia's petroleum resources. "Chinaand CentralAsia's Volatile Mix". prevent Caspian exports from underminingRussian sales of oil and gas to Europe. an issue highlighted by the low oil prices in 1997 and 1998. Dorian.and export of crude oil as well as natural gas is an economic priority for these countries. John Anderson. and Realpolitik in Central Asia. On gaining independence. Wigdortz.political stability. For example.AND ANDREWS-SPEED VINOGRADOV 383 the potential dangers involved in overt supportof such an unpredictableregime. Russia's priorities have been to gain access to resourcesin the CaspianSea. England: ManchesterUniversity Press. John Roberts. Nationalism. influencethe choice of export routes. these states sought investment from the West and explored a wide range of possible export routes in all directions. pp. their economies and military security are still heavily dependent on Russia. and reducing their dependence on Russia. Dorian.17 These priorities are often in conflict with each other. Uzbekistan. Their landlocked position means that building the infrastructure needed to export petroleum is an exis pensive proposition. In the days of the Soviet Union.S. Key Political Issues in CentralAsia Four key issues form the core of the domestic and foreign policies of the new Central Asian governments:nationhood. The rapidexploration. the Central 17.18 In this context. and Gladney. Achieving the reintegrationof these states within the Commonwealthof IndependentStates (CIS) is a key componentof the Russian government'spolicy. 1997). John V. In the cases of Kazakhstan. and Iran. The New Geopolitics of Energy (London:Royal Instituteof International Affairs. and Paul Kubicheck.

"Futures 27:1 (1995). 1999)." Radio Free Europe/RadioLiberty Newsline 2:241. 207-23."Iranand Russia in 'StrategicAlliance'." Post-Soviet Affairs 14:2 (1998). Iran has three objectives: (1) to gain access to resources Teheranbelieves belong to it.23 Annual production reached a peak of nearly 1. 23. 20. December 16. Colorado:IRCEED. 137-64. BP Review of WorldEnergy 1999 (London:BP.384 2000 ASIANSURVEY.22 China's InternationalEnergy Policy A stable energy supply is a crucial requirement for sustained economic growth in an industrialnation such as China.19 Though neithera large economy nor a world-class militarypower. 2.S. 1998). Blum. "Eurasian ern Strategy. NO. 1998. pp. Iran has established a working relationship with Russia driven both by the practicalneed for arms and technology and the search for diplomatic support against the U. Forsythe. pp. (2) to import gas and oil for use in northernIran. pp.20 With unstable countriesto the west (Iraq)and east (Afghanistan). Forsythe. which consistently accounts for about 75% of the country's primary energy production and consumption. JulianLee. From an economic perspective. Tarock. 21. 198-201. cultural. 1997). MARCH/APRIL Asian states may see China as an importantoutside partner. China is the world's largest producer of the fuel. and political activities. The country's economy has long been heavily dependenton coal. "Iranand Russia.21 With respect to Central Asian petroleum. 1997). and Adam Tarock. most in notably throughits participation peace-makingprocesses. ChinaEnergyAnnualReview 1997 (Beijing: SETC. and British Petroleum(BP). China may be used as a counterweight to Russia. Stauffer." Energy Prospectsand Politics: Need for a Longer-TermWest22. Iranis a major player in Central Asia. "The Iranian Connection": The Geo-Economics of Exporting Central Asian Energy via Iran. pp. "Geopolitical Aspects of Transit for Caspian Oil and Gas" in Caspian Oil and Gas Summit(London: Centre for Global Energy Studies.2 Douglas W.good relationsto the north are vital to Iran.S. ThePolitics of Oil. 19. . International ResearchCenterfor Energy and Economic Development (IRCEED)Occasional Paper29 (Boulder. Politically. Paul Goble. China is a source of manufacturedproducts and investment and may be considered a model of successful transitionfrom a planned economy to a marketone. 111-34. and (3) to serve as a route for exports from the Caspianregion to the PersianGulf.XL. 37-65. It has sought to establish itself as a regional leader through a range of economic. "Domestic Politics and Russia's Caspian Policy. State Economic and TradeCommission (SETC). Mehmet Ogutcu. There is the added advantagefor CentralAsian states that closer relations with China are unlikely to irritateRussia as much as their contacts with the U. and Thomas R. "Looking West from Beijing." Third World Quarterly 18:2 (1997). The Politics of Oil. VOL. pp.4 billion tonnes in 1996. though it dropped to about 1.

when total consumption was falling. from about 100.26 Consumptionhas been rising at rates in excess of 5% per year. . oil's share grew sharply to 23%. the state of the nationaleconomy.ANDREWS-SPEED VINOGRADOV AND 385 billion tonnes in 1998 as demand fell and stockpiles grew. 26. potential changes to government policy on domestic oil pricing and oil imports. while the growth of domestic crude oil productionhas remained stubbornlybelow 5%.3 million barrels per day.000 barrelsper day to below 500. International Energy Agency (IEA).000 barrels per day. the share of oil in the nation's total primary energy consumptionfell slightly." China Economic Information. 27. This is evidence that the efficiency gains and plant closures in the industrialsector that caused a fall in overall energy consumptionwere not accompaniedby an equivalent decline in demand for fuel in the transportand a reserves/production ratio of just 20 years. 1999).24 The country's proven reserves rank thirdin the world after the U. State Statistical Bureau. "China" WorldEnergy Outlook(Paris:IEA. 1999.27 The increased demand for oil in the 1990s has been driven mainly by the transportation petrochemicalsectors. BP. and Russia and stand at about 115 billion tonnes. from about 600.25 In contrast. "China"in WorldEnergy Outlook. which gives a reserves/production ratio of about 90 years. The level of oil imports rose tenfold in just eight years. the proportionremained steady at about 18%-19% of total primaryenergy consumption. SETC. China Energy Annual Review 1997. probablyas a result of factories and power stations switching away from oil as a fuel source (see Figure 1).S.000-500. China's currentlevel of oil productionstands at about 3. Throughout the mid-1990s.28 In and the late 1980s and early 1990s. Oil reserves estimates fall in the range of 20-30 billion barrels.BP Review of WorldEnergy 1999 (London:BP. fluctuations in internationaloil prices.China's oil and gas reserves are modest by comparisonto the potential future domestic demand for these sources of energy. China Energy Statistical Yearbook.March 3.such as the following: its ability to discover and bring into production new reserves.000 barrels daily in 1990 to more than one million in 1997. exports have shown an overall decline. BP Review of WorldEnergy 1999. Reserves/production ratios should never be used as an indicationof when a countrywill run out of a resource. Any attempt to predict the level of China's future oil imports is fraught with uncertainties. 1998). 25. in pp. because changes in price and technology can radically alter this ratio in a short period of time. At the same time. Today's proven reserves would last 90 years at present rates of production. 1998). which leaves a deficit of some 300. and "ChinaProduces 1. IEA.1991-1996 (Beijing: China StatisticalPublishing House. Then in 1997 and 1998.000 (see Figure 2).236 Billion Tons of Coal. 28. 273-97. and the extent to which petroleumproductsare 24.

.......... .: ... . ............. .......... ................ ...... ............000 Energy mrntoe ......... . ........... ...... . .. ... . ........ .000-800 600 2MI400 E 200 01990 -200 --400 -600 SOURCE: Ibid........... ....... ... ............ ....... ...... ...... . 3 0 0 ..... ........... ........... .......... ...... .............. ... .. .... ..... ......... .............. .... ...... . ..... .. O il % ................ .. . ...... .. ....... .. ................ 15 ... ... . FIGURE2 .. Net imports Imports China's Oil Importsand Exports.... ...... .. .......... ... ......... .... ............... . ...... .... ................. ...... ..... . ..... . . ... .... .. . ... .. . X . . . . ... 1987-99).... ....... .. ....... ...... .................... .............. . .. ........ ... . . ............... 4 0 0 ..... ........ .... .... ... .. ... .... .. ... . ........ ... .... ... . .. .... ......200-1....... 1. ...... ... ... . ....... ..... .. .................... .... . 1990 0 1986 SOURCE: British Petroleum ..... ................ ... ... ............ . . .. .. ... ...... .... ... ............. ......... .. 1..... . .. . ....... ...... .. ............ .... .... . ............. 1995 ......... .... ..... ........ ... ...... ..... . ... .. . .. :.... ....... ........... ............ .. ......... .. ... .. ... ....... . ........ ... . ...1986-1998 1... .... ............. ..400 ... ......... .. ......... ... . ...... ..... ........... . ... .. ............ ............. ..... . .. ... ...... . . 500 .. . ... .. ............. ..... .. 1990-1998 (thousands of barrels per day) Exports 1991 19 1993 1994 1995 1996 1997 1998 ...... ............ .............. .... .. . .............. .. . ..... ...... . ............. . . ..... ....... ... ............. ....... ............. ... .. ......................... .. ..... .... .. . ..... ................... ............. .. . . .. . .... .... .......... ....... .. . ..... ...... ............ ............... ............ ... .. ....... ................ .... .. ........ ....... .... ...... 9 0 0 X0..................... ............. . ............ . . .. .. ...... ..... ...... .................... . .. ......... ............. : ... ........... ............... 800 25 20 ................... ......... ..... ... 0 00 0 (BP).. ..................... .... .. . ........... ...... ...... ..... ........... ........ .... . ......... ...... .. .... .......... ... ... . :: :::: ............. .... .............. ................ . . . ..... ........ ..FIGURE I China's Primary Energy Consumption (million tones of oil equivalent) and Oil Consumptionas a Percentage of Primary Energy Consumption. ................. CL 10 5 ....... ......... .. .. .............. ..... ...... .......... ... ... ...................... . .... ... .. .... ........... ...... ... ....... . ..... ........... . . ..... ............ . ........... .. ......... . .... ... ... 200 ................ ... .. .. 6 0 0 . ....... .............. . . .. ... ... . ... ...... ...... .. ..... ....... ............ . ... ... .... .......... .. ........ ............ .......... ......... ....... ........ ........ ........ . ..... .. . . ... ........................................... .. . ......... ............................................................. ................... .. ... . . ........... .... .. ...... ..... .. ......-...... ............ . . . .. ...... .......... ..................... .......... .... ..... ...... .. .... .. ..... . ............. ........ .... ................... ... ...:: ... . .. ..... BP Review of World Energy (London: BP..... 1991-99........ . ................. ..... . .......... . .. 7 0 0 ....... ........ . .... ........... .... ...... .......:::: ..... ..... ........ ..... ........... .... ................. ................ .. . . .... ... ..... ... ....... ............... ... ........ . .... ........... . .. .... ........................ .. .... ... ..... . .... ...... .. .... ............. . ..................... ....... ....... . ...... .. ...

Nevertheless. The most optimistic predictionsforecast that China's domestic production of oil will reach 4. and Liaohe.4 million barrelsper day by 2010. 84-141. On this second occasion. pp. 33-45.0 million barrelsper day in 2010 before startingto decline. Low internationalprices have tended to lead to a substantialrise in crude oil imports along the coast as buyers shunned the more highly priced domestic supplies. In recent years. their remote location rendersmuch of it commercially unattractive. Shengli. Meanwhile. 1998. oil production has been corner. This chain of events occurredin 1994. eds. Chinese sources estimated that the productionshortfallwould be in the range of 2. The first of these items will have the greatest impact in the medium term. In 1995. and stockpiles accumulated. FereidunFesharakiand Kang Wu.29 Productionfrom these strategic fields has reached a plateau and is set to decline. Even in 1996. "RevitalisingChina's PetroleumIndustrythroughReorganisation:Will It Work?"Oil and Gas Journal.8 million. Large reserves are expected.30 The other great frontier lies in the remote parts of the South China Sea. plans to exploit this resource continue to be pushed forwardat great cost. pp. The government eventually was obliged to clamp down on not just illegal but also legal imports in order to protect domestic oil companies. but by 1999 this projection had fallen to some 2.0 million 29. or ratheranticipated.but unresolvedterritorial disputes are likely to prevent an assessment of the area's true potential for several years. and repeatedin 1998. one key short-termdeterminantof China's policy on oil trade has been internationaloil prices and their level relative to domestic prices. SETC. 30. "China'sEnergy Futureand Global Implications. Much of this tradehas been illegal. 1999).31 Thus.4-2. The drive to discover new reserves in Xinjiang in northwesternChina has met with only modest success-though substantialresourceshave been found. August 10."in China's Economic Security.8-3. bringing domestic prices more in line with internationalones. Since the emergence of China's modem petroleum industry in the 1960s. 31. The InternationalEnergy Agency (IEA) projects a higher level of net imports amountingto some 4. . domestic companies continued producing oil.ANDREWS-SPEED VINOGRADOV AND 387 substitutedby new or renewable forms of energy. Mehmet Ogutcu. These realities lie at the heartof medium-termforecasts of China's futuredomestic productionand net imports of oil. the government implemented a radical reform of the domestic oil pricing mechanism. the general trend toward a growing level of net oil imports has been punctuated by discontinuitiesresulting from changes in governmentpolicy. WernerDraguhn and Robert Ash (Richmond:Curzon Press. when the domestic price was far in excess of international levels. some 63% concentratedin the country's northeastern of total onshore and offshore domestic oil productioncame from three fields in the northeast:Daqing. China Energy Annual Review 1997.

1999. "China.May 23. "China's Looming Oil Crisis and Ways of Avoiding It.the world's third largest gas importerafter the U." China Daily. Currentproductionof 22 billion cubic meters per year gives a reserves/productionratio of 60 years. China's involvement in the petroleum industry beyond its shore largely was limited to importinga low volume of the resource. BP. and electricity.33 Until coherent long-term energy and environmentalpolicies are drawn up and put in place. it is impossible to assess the extent to which demandfor oil products will be constrainedby fuel substitutionin China's transportsector. accounting for just 2% of primaryenergy consumption. MARCH/APRIL 2000 barrelsper day by 2010. 11-16. or Western Europe. This is set to change as China tries to make better use of its own gas resources as well as examine the opportunitiesfor tapping into the vast reserves in Russia and CentralAsia.388 ASIANSURVEY. January1997. Alcohol Fuels in Cars Could Clean Up Fumes. Naturalgas. any substantialincrease in demand will require both an ongoing effort to discover and develop new gas reserves within China (both onshore and offshore) and the constructionof new infrastructure gas imfor portation.S. and pilot projects alreadyhave been set up in China."Petroleum Economist. 1998. unlike oil. and IEA. The technology already exists to power motor vehicles with a range of fuels such as alcohol."China Economic Information. 23-24.predom32. and Germany. February1999. "China Moves on Gas for Supplies and Environment. NO. 34. which could rise to 8. 3. Xiaojie Xu. has played an insignificantrole in China's energy mix. p.compressednaturalgas. Energy Imports. . Not only does Chinarequireadditionalsupplies of easily transportableenergy. The volume of annualnaturalgas imports could be as high as 60 billion cubic meters by the year 2020.35 which is equivalent to the current level of gas imports to Japan. The role to be played by China's governmentand state oil companies in facilitating these imports is a key issue to be evaluated in this article. 2. The State. September24.S.4 trillion cubic meters. liquefied naturalgas. Domestic reserves of naturalgas are estimated at 1.0 million by 2020. 35. "MoreOil Imports. Projectionsbeyond the year 2010 face the uncertainimpact of fuel substitution. BP Review of WorldEnergy 1999. pp.32 This is some 40% greaterthanthe currentamountof oil thatJapanimportsand about 85% of the currentlevel of imports to either the U.34 However. Keun-Woon Paik.and State EnterpriseAmbitions China is set to become one of the world's major importersof both oil and naturalgas. but the governmentis keen to substitutegas for coal where possible to reduce the level of atmosphericpollution." 33." OPEC Bulletin. VOL. methane. pp.XL. Before 1990.

In the 1990s. Algeria).AND ANDREWS-SPEED VINOGRADOV 389 inately from Southeast Asia. and Kuwait). CNPC retained its overseas investments. 47-58. In the late 1990s. 281-97.37 The earliestprojects were directedat such low-risk projects as oil field rehabilitation. pp. have signed majorexplorationand productioncontracts.40 The shortestpipeline route would take oil south from Kazakhstanthrough Turkmenistanto Iran and possibly on to the Persian Gulf. James P. 36. the Middle East (Iran. the main Chinese explorer and producerof oil and gas in China's offshore waters). the two majorupstreamoil companies. before continuingin to China and the other to carrygas from Turkmeni36."China:Evolving Oil Trade Patternsand Prospects to 2000. pp. pp.Azerbaijan). 40. and "China's Pipeline Plan for KazakhstanPoses Threatto Policies of Russia." China Economic Review. 1-2. while the China PetroleumCorporation(Sinopec) has enteredrefinery projects. "China's Outward-LookingEnergy Linkages.. Papua New Guinea. July 1998. Tang and Fereidun Fesharaki. Thailand.linking its fields in the west with refineries in the east. p.. The restructuringof state companies in 1998 divided these upstream assets between CNPC and Sinopec. it became clear that the volume of crude oil imports was set to rise dramatically.and the provision of services."Energy Policy 27 (1999).Malaysia). China made two strategic decisions. At the same time. pp.S. Turkmenistan. which until this time had been involved mainly in downstream activities. taking place in Southeast Asia (Indonesia. Of these. Kazakhstan. First.September29.Bangladesh. field development. China startedto import ever larger quantities of oil from the Middle East and further diversify its sources of supply." Geopolitics of Energy 20:9 (September 1998).5 billion barrels. Mehmet Ogutcu. CNPC committed about US$800 million on two field development projects in Kazakhstanat Aktyubinskand Uzen that have total oil reserves of about 2.39 The total investment requiredfor the Aktyubinskproject may exceed US$4 billion. 1997. "China's Search for Oil. northern and western Africa (Nigeria. the governmentcommitted its state-ownedenterprises(SOEs) in the oil business to undertakesubstantialinternationalinvestmentsrelated to the extractionof oil and gas resources in the ground as well as in transportnetworks. U. CNPC was responsible for nearly all onshore oil and gas exploration and development in China. Myanmar. . Dorian et al. Until 1998. CNPC has been seeking oil and gas development projects in both Azerbaijanand Turkmenistan. Frank C. 37. 39. Ethiopia." Natural Resources Forum 19:1 (1995). South America (Venezuela and Peru). Iraq.and at least three pipeline projects with CNPC involvement have been proposed.36 Second. CNPC and China National Offshore Oil Corporation(CNOOC. Two export lines to the east are under discussion: one for oil that would cross Kazakhstan.38 These activities span most of the globe. "Energyin CentralAsia and Northwest China:Major Trends and Opportunitiesfor Regional Cooperation. More recently. 2-8. Sudan. 38. and the CIS (Russia. the largest commitmentshave been those made in CentralAsia." Petroleum Intelligence Weekly.

For example. The fall of oil prices in 1998 broughta dose of realism to these ambitions. calling into question its promised investments in both the Aktyubinskfield and the pipeline to Xinjiang. "ChinaTargets 300 Million Tonnes of Onshore Oil and Gas by 2010. Energy Policy and SOEs It is not easy to identify clearly the objectives and prioritiesfor this program of overseas investment."PetroleumArgus. the future level of prices remainsvery uncertainand only the most favorable projects are moving ahead. 41. VOL.0 million barrelsper day of oil and 50 billion cubic meters per year of gas by the year 2010. 2. April 1997. 43. October30. These two easternpipelines (to run possibly as far as the coast of China) would be substantial undertakings. MARCH/APRIL 2000 Stanto China. and J.000-7. this would amount to 25%-40% of net oil imports. the transportnetwork. See also Ye Qing. May 29.43 In the case of oil. Whalen. The most senior governmentofficials have publicly exhorted China's oil industry to invest in overseas oil and gas resourcesin orderto make up for the domestic shortfall.June 1. Even CNPC has had to rethinkits extravagantplans in Kazakhstan. their aims are not identical. "Relationswith China:Not Yet the Best of Friends. The oil and gas resources of the Caspianregion startedto look less attractive to all internationalinvestors. 9. Ye Qing was at the time vice-chairmanof the State Planning Commission. where relevant. reportedin GuangmingDaily. Beijing). To date. the only eastward transportof petroleum from Central Asia has been the carriageof crude oil from Kazakhstanby train to northwesternChina. 4.41 Though the rise of international oil prices during 1999 and early 2000 provided a more favorablecommercial environmentfor investors in the Caspian region. 1999. 1997. 1999. NO. The difficulty is enhanced by the probabilitythat. p.July 1. p. "China'sCNPC to Renege on Kazak Investment. "China'sEnergy Policy and Energy Development Prospects" (paper presented at the World Energy Council Meeting on New Energy Technology for Asia Pacific. .XL. The key driving force from the government'spoint of view is the desire to enhance the security of the country's petroleumsupply throughowning both the resource in the ground and." China Economic Information.42 Specific production targets have been set for this overseas productionof 1. with total lengths in the 4."Financial TimesSurvey: Kazakhstan. 42. though the Chinese government and the SOEs appear to speak with one voice. a speech by Premier Li Peng in May 1997.390 ASIANSURVEY. 1999. Cost reduction and elimination of all but the most attractiveexport options became central to the strategiesof the international investors.000 km range and price tags of US$5-10 billion.

the appropriate management of energy mix in domestic raise energy efficiency. 1997). In contrast. China's Energy DevelopmentReport (Beijing: Economic and Management Press. In the case of oil. many in the Chinese government. Two complementaryapproachesto mitigate the effects of such crises are to build up a strategicreserve of oil and to hold sufficient foreign exchange reserves crisis. whetherthe petroleumis transported China or sold for dollars. The lowest cost and most effective way of achieving this is throughthe physical and regulatory integration of the national market for oil and gas with the wider marketsfor those resources-at the regional level for gas and the international level for oil. p. internationallytraded natural gas tends to be sold on long-term contracts. preferablythroughthe market. . while the latter is likely to be global in impact. Though pipelines have to be constructed.and a large proportionis sold on spot markets or shortterm contracts. Such an approach does not requirethe ownership of overseas resources in the groundby either the governmentor a state company. the effective use of domestic resources of oil and gas. all gas transportsystems require very large investment. as well as Chinese academics and commentators. Chang-le Yan. China is seen to be in a competition with other countries that is perceived as being one of capital investment. Indeed. Integratingnational markets with broader ones abroad should be supplemented by enhancing the physical security of sea-lanes and pipelines. The former may be specific to a country. The marketfor crude oil and oil products is essentially international. First. However.391 ANDREWS-SPEED VINOGRADOV AND The term "securityof supply" is sometimes used in a very emotive way. Second. thatwould allow the affected countryto buy its way out of a short-term The focus of most governments is on long-term security of supply. ed.they generally deliver to the marketratherthan to a specific contractedcustomer. This relates to peculiaritiesin both the transportand the consumptionof gas.take the view that such ownership should be an essential component of the country's energy to policy. whether for pipelines or for liquefiednaturalgas (LNG) carriedby sea.44 Such a formulationof the issue ignores the facts that most internationaloil companies are financedprivately 44. and the measures pursued. 70. It is importantto note that oil and gas marketsoperate in quite different ways. short-termcrises may result in either the physical interruption of supply or a massive increase in price or both. because otherwise there will be none available. the infrastructurefor using gas is poorly developed in most countries and therefore the supplier of gas needs assurancethat an operatingmarket exists. and it is essential to clarify what it means and what may be done to achieve it. some authorsportrayit as a matterof urgency and national pride that China must access acreage now.

The first.5 million workforce who might otherwise be unemployed.45 Overseas investmentis particularlyappropriate least in size and range of activities. given the likely for limited scope for furtherlarge discoveries within China. Before this reform. This explanation of international corporatestrategy contains no mention of national interests. Across the world. NO. the profit motive. The view of China's oil companiesmay be somewhatdifferent. that would be of international stature. In addition to. MARCH/APRIL 2000 and not obliged to supply their home states. many state oil companies wish to use their privileged positions at home to become major players in the internationalpetroleum industry. China is no exception. CNPC and Sinopec. See China Petroleum Industry Yearbook1997 (Beijing: China Petroleum IndustryPublishing Company. VOL. Here CNPC strategywith respect to international investmentis stated as being aimed at "two naturalresources" (oil and gas). an ambition supportedby governments often for nationalistic rather than economic reasons. and CNPC is in the forefrontof this expansion as documented above. one can speculate that there are indeed two views on the internationalinvestmentprogram.XL. 239. Indeed. This apparent convergence of governmentenergy policy and industrystrategymay not 45. The second. is based on a commercial vision of how the present situationmay be used to promote the corporateinterest. . no frameworkfor competitionbetween the two has been drawn up. Such questions aside. there is the need to maintain or expand the company's revenue and find work for the large proportionof CNPC's 1. and possibly more importantthan.392 ASIANSURVEY. althoughinternalstrategydocuments are not available for examination. focuses on security of supply and is based on a combinationof militaristicthinkingand a poor understanding how the of internationalpetroleum industry and markets operate. held by the oil companies themselves.CNPC was predominantly active in explorationand productionand Sinopec in refining and distribution. p. On the basis of this analysis. To date. as the investment commitments grow a number of questions remain unanswered:who is driving the strategy? who will bear the financial risk? and how much is China preparedto pay to gain its objectives? These questions are especially pertinentin the light of the high level of the bids being submittedby CNPC in international licensing rounds and the recent volatility of internationaloil prices. one of the objectives of the 1998 reforms of the country's oil sector was to produce two vertically integrated companies. 2. it is clear that the objective of the international investmentprogramis to project CNPC into the top 10 oil companies in the world. However. CNPC in northernand western China and Sinopec in the south and east. Both are now involved in both upstreamand downstreamactivities. 1997). "two markets"(domestic and international)and "two currencies"(domestic and foreign). and that productioncost as much as capital availability lies at the heart of internationalcompetition. held by many governmentofficials and academics.

. The Viewfrom China Two key considerationsare driving China's involvement in the exploitation of Central Asia's petroleum resources: energy policy and foreign policy. such as CNPC and Sinopec.possibly drastically. Second. there would be the immediateand substantialcost of constructinga pipeline that does not provide the least expensive route for oil imports. the governmenttakes the view that its coastline is sensitive to blockade.the existence of this pipeline will act as a disincentive to develop economically viable and environmentallyfriendly substitutesfor oil products in the transport sector. If such a policy is followed through. Third. China would then be tied to a source of oil that will never be among the cheapest in the world and may even be rendereduncompetitiveif oil prices fall to US$10 per barrelagain. China has a long coastline.the companies will have to cut costs and be much more selective in their investments. Kazakhstan'soil resources are attractiveas an alternativesource of supply in an immediately adjacentcountry. Despite the return of oil prices to levels above US$20 per barrelin 1999 and as high as US$30 per barrelin early 2000. This section firstevaluatesthe interestsof the differentpartiesin China and then examines the interests of the Central Asian states in the light of China's aspirations. generallyhave higher unit costs for any given oil or gas field than the international companies. and transportinland by pipeline are clearly the least-cost strategy. Assessment of Interests The previous sections have reviewed some of the key issues in foreign and energy policy that are raised by China's petroleum investments in Central Asia. the strategic need to secure long-termsupplies is much less for oil than for gas. Should the Chinese governmentdecide eventually to supportCNPC's ambition to build an oil pipeline from Kazakhstanto the heart of China. large-scale import of oil to coastal ports. their low level in 1998 has placed pressure on all oil companies to improve their technical and financial performance.ANDREWS-SPEED VINOGRADOV AND 393 be long lived. However. the countrywill incur a numberof costs. First. State companies. In this context. If the Chinese governmentis determinedto reformits state enterprises and enhance profitability. as are the sea-lanes through the Malacca Straits and the South China Sea. integrationwith the internationaloil markets. Given the contrasting nature of oil and gas markets.the scope for Chinese oil companiesto invest overseas is likely to be curtailed. Provided certain reforms are made to the Chinese domestic oil market.

the only commercial gain available to Chinese petroleumcompanies in CentralAsia is likely to be restrictedto development. China is not the only Asian countryassessing the gas resources of Central and East Asia. pp. both inside and outside the region. NO. productionand sale of oil into the local. cooperationwith China could form the basis of a major gas transportnetwork in Central and East Asia.XL.and the provision of services. In addition to piped gas from these regions. "GazpromOpens Some Projectsto Foreigners-Provided They Help Build a Pipeline to China. regional. In the context of foreign policy. 2. 31-35. and Prospects (London:Royal Instituteof International Affairs. there exists a strong convergence between China's foreign policy and its current energy policy. maintaining regional stability. These interests are accentuatedby the presence of a large regional petroleumresource. From this perspective. Chinahas a wide variety of options for import. this provides two parallel challenges: to prevent the other parties from gaining excessive influence in the region. Against these alternatives. they may be categorized as establishing regional influence.46 These include the proven and producinggas fields of West Siberia as well as less developed reserves in East Siberia and the Russian Far East. Russia."Russian PetroleumInvestor (February 1999). The recent Asian for recession will limit the ability of these countriesor their industriesor both to fund infrastructure projects that are not commercially viable. For China. Both Japanand South Korea have a keen interest in securing long-term access to new gas reserves for themselves. Projects. 1995). VOL. Gas and Oil in Northeast Asia: Policies. In the short and medium term.394 ASIANSURVEY. or international markets. the pipeline from Turkmenistan startsto look expensive and time-consuming. the importof liquefied naturalgas to China's coastal provinces is also a realistic proposition. However. MARCH/APRIL 2000 In the case of naturalgas. the cost of such projects will be very high because of the need for infrastructure both transportand distribution. China has clear political and strategicinterests in CentralAsia that are quite independentof petroleum. As discussed above. while continuingto develop bilateralrelations with these parties. Both would be supportedby massive Chinese investments in resources as well as transportsystems in 46. All of these activities are subject to the influence of internationaloil prices. and Iran.which in turnhas enhancedthe attentionpaid to CentralAsia by three other parties: the West. Keun-Woon Paik. The constructionof substantialexport lines eastwardinto China will be driven more by political and strategic concerns than by the need to secure low-cost supplies of oil or gas. One event that would change this assessment would be the discovery of large and China. . The cost of commerciallyviable reserves of oil or gas in northwestern the pipeline network from Central Asia to China's heartlandcould then be partly born by these new discoveries. and engaging in economic cooperation.

the recent volatility of oil prices will constrain the scope for achieving this. However. Governmentsand companies will both prefer the export option with the lowest cost and shortest completion time. it is essential to understandthe prioritiesof both these countries and the foreign companies.especially for long pipelines. as indeed it could do once U. foreign policy in the region could become the servant of energy policy once such investments had been made. construct the transportnetworks. and. domestic and external political conflicts of interest have to be resolved.Were China to make strategicinvestmentsin oil and gas pipelines eastwardfrom Kazakhstanand Turkmenistan. the soft budgetary constraints on Chinese state companies. marketshave to be developed. The Viewfrom CentralAsia Securing export routes for their petroleumis a key priorityfor most Central Asian states. In the early 1990s. time is requiredfor construction. Governments and companies alike wish to develop the fields. in the case of gas.for oil.S. For example. Given the present volatile and uncertainnature of oil prices and the drive to make its state companies profitable. and the ample potential for financing from Japan and Korea meant that finance was not a critical issue. the . sanctions are lifted. In addition. Serious political drawbacksmight appearonly later. and Turkmenistan. Such a partnership energy and foreign policy is viable as long as someof body is preparedto pay the cost. A number of factors constrain the speed with which they can move: providers of finance have to be persuaded of the commercial viability of the projects.395 ANDREWS-SPEED VINOGRADOV AND would be acting against the interests of Iran or Russia. Russia is keen to provide substantialgas supplies to China and these supplies would be cheaper than any from Turkmenistan. and start productionas soon as possible. the relatively high oil prices.for natural gas. of Furtherconstraintson the partnership energy and foreign policy in Central Asia are providedby China's relationshipwith Iran and Russia. However.the Chinese governmentwill need to reassess to what extent it can afford to use petroleumas a tool of foreign policy in CentralAsia. The two countries for which China provides a potential export route for petroleum are Kazakhstan. Both will want at least one export route from any one country in order to prevent themselves being held hostage by a transitstate. respectively. Petroleum could become a tool of foreign policy and establish China as a majorplayer in Central Asia. China's political presence and influence would be enhancedat the same time that it secures new supplies of energy. all other things being equal. Iranhas the ambition to act as the main low-cost export route for Caspian oil. which provide most of the investment.

while the Central Asian state would increase its foreign exchange earnings from petroleum and strengthenan importantpolitical relationship. and economic development.396 ASIANSURVEY. If China persists in its approachto achieving security of energy sup. MARCH/APRIL 2000 CentralAsian governments. given that the Chinese parties appeared to have the funds and that normal commercial criteria did not seem to apply. respectively. such as Iran and Saudi Arabia.XL. A furtherchallenge for CentralAsian oil producers is that a numberof Gulf states. albeit at a cost. That being said. As the largest marketfor petroleumadjacent to Central Asia. the involvement of Chinese companies in the exploitation of CentralAsian petroleum resources and the construction of export networks eastward to China initially held a strong appeal for both political and economic reasons. NO. China's attractivenessas a destination for petroleum exports has been enhanced. would prefer to avoid dependence on transitthroughRussia. as discussed above.and possibly some of the companies. Pursuing such a strategymay have been the case two or three years ago. This will place even greaterpressureon CentralAsian producersto develop only the lowest cost fields and use the least expensive export routes. then the interests of both China and the respectiveCentralAsian state could be served by constructingan exportpipeline that conventionally would be described as being uneconomic. are planning to open their upstreamindustries to foreign investors. This raises the question of whetherthe CentralAsian states are just using the discussions with China as a bargaining chip in negotiations with other states or as an excuse for developing closer ties with China. the CentralAsian states have a wide range of political reasons to build close relationswith China that relate to regional stability. In additionto the need for petroleumexportroutes. ply and is preparedto pay for it. For these states as well as for China. if a particularCentralAsian state finds that it is unable to sell a large proportionof its potential productionof oil or gas to the anticipated markets-as a result of oversupplyor low prices-it may be obliged to develop an alternative strategy to prevent its economic development being stifled. . VOL. 2.balancingoutside influences. but the low oil prices of 1998 have shown the Caspiangovernmentshow uncompetitive their petroleumresources are. In this respect. both Kazakhstanand Turkmenistanwere bound to respond positively to Chinese approachesin the mid-1990s to constructexport pipelines to the east for oil and gas. China would enhance both its long-term security of energy supply and regional political influence. The export routes throughChina are unlikely to satisfy the need for speed and low cost. The recent volatility and uncertaintyof oil prices and the potential availabilityof new sources of petroleum supply in the Gulf may together force the Central Asian states to focus on commercial rather than political criteria in their choice of export routes.

the newly independent CentralAsian states would have become a battlegroundfor competing outside interests seeking to establish their influence. Europe. . China's ability to implementits ambiin tious plans for investmentin petroleumresources and export infrastructure the CaspianSea region are likely to be temperedby a numberof factors. Iran.This asymmetryof interests between China and the CentralAsian states is likely to prove a major stumblingblock to both constructionof export routes to the east and other involvement of China in CentralAsia's petroleumindustry. may undermineCNPC's investment plans for Central Asia. However. From this perspective. China's promised investments suddenly become not only attractive but potentially important componentsof nationaldevelopmentfor Kazakhstanand Turkmenistan. and securityconcerns.. it would appearto be predominantlypolitical and strategic concerns that keep China's oil companies in CentralAsia. If investment in exploration and development dwindles in the Caspianregion and grows in the Gulf. export routes to the east throughChina are far from being the lowest cost options.political. economic. The Chinese government considers the sea-lanes from the Gulf to the Chinese coast to be vulnerableto attackor blockade. Likewise. from the point of view of the CentralAsian states. and China. Even without the presence of substantialpetroleum reserves. China has a range of motives for its involvement in Central Asia. including the U. CNPC. and economic interest for many parties.ANDREWS-SPEED VINOGRADOV AND 397 Conclusion CentralAsia has become a focus of strategic. At present. The confused and conflicting natureof the motives for investing in overseas petroleumprojectswill probablybe broughtto the fore in these times of volatile oil prices and Asian recession. Petroleum has only heightened the stakes. The purchase of petroleum resources in the ground and subsequent exploitation by CNPC is not the lowest-cost way to achieve security of energy supply. The search for security of petroleumsupply is complementedby a range of political. the greater the uncertaintyover future oil prices. Oil price volatility. a pipeline networkfrom CentralAsia would provide a viable complementarysource of supply as well as enhance Beijing's political standing in the region. combined with China's desire for its state companies to returna profit. the interest of the Central Asian states in China's involvement in their field development and export projects is enhanced by lower oil prices. Russia.S. the less attractivedo the CentralAsian projects appear. The sheer scale of funds needed for the pipeline projects running eastward to China seems certain to render them unattractive to commercial lenders and this would place the risk firmly on the shoulders of the Chinese governmentor the state oil company. Conversely.

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