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15 Dec, 2009 07:41

Turkmen gas pipeline to China opens

World gas giant Turkmenistan opened its first pipeline to China on Monday. It's a market that Russia is also trying to capture, with mixed results.

The Central Asian route to China. From Turkmenistan, through Kazakhstan and Uzbekistan, the new gas pipeline will feed energy-hungry China. Almost 2000 kilometers long, it will reach full capacity in 2012, and carry 40 billion cubic metres annually. VTB Capital analyst, Lev Snykov, says Chinese gas demand opens opportunities for Russia.

“This project is probably an important step, but it’s the first step in projects in this region. So I think Russia has a very good future in terms of relationships with China as a consumer of gas. We can see Chinese gas demand growing easily by 30-50% per annum.”

China has made several attempts to reach a gas deal with Russia, most recently in October. The new pipeline from Turkmenistan will take some of the stress off China to reach a quick deal. But it has implications for Russia, too. It used to buy 70% of Turkmen gas, with the price reaching European levels of $300 per 1,000 cubic meters. Since a pipeline blast earlier this year, supplies have been suspended while the two sides re-negotiate the volume and price.

Sergey Pravosudov, General director of the Institute of National Energy, says China may get an even better deal.

“China has been promised a cheap gas at a third of the gas price formula, or from $100 to $130 dollars over the next year. It is reasonable taking into account the fact, that from China's western border to the Chinese consumer in the east of the country, it's another 4 thousand kilometers, so transit going to increase the cost.”

Turkmenistan may easily double its gas production if government estimates of gas reserves are correct. It would gain a growing role as a strategic gas supplier – as talks continue with other pipeline projects, such as Nabucco.