China-Central Asia “Twin-Track” Energy Cooperation

China International Studies | 作者: Xu Haiyan | 时间: 2014-01-26 | 责编: Li Xiaoyu
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by Xu Haiyan[1]

 

 

China’s large-scale investment in Kazakh oil and gas resource development ushered in a new era of China-Kazakhstan bilateral trade in the late 1990s. This lifted cooperation between China and the five countries in Central Asia to a new level, opening the China-Central Asia energy channel and bringing the “Silk Road economic belt” into being. Central Asia and China’s Xinjiang Uygur Autonomous Region, areas which are both abundant in renewable energy, should fully utilize their geopolitical advantages as neighbors by means of Xinjiang’s rapid growth. Projecting a twin-track mechanism of developing both renewable and non-renewable energy resources is of great significance to both China and Central Asia.

 

I. Concerns on Sustainability of China-Central Asia Energy Channel

 

China’s investment in Central Asia’s oil and gas development broadened the prospects for bilateral economic cooperation, expanding both sides’ energy channels and rejuvenating the historic Silk Road. Sino-Kazakh bilateral trade offers a good example of this. Kazakh crude oil exports to China totaled 11,036,400 tons in 2011, worth $8.602 billion, accounting for 52.8% of exports to China during the whole year. Petroleum and oil extracted from bitumen, sulfur and other byproducts from oil and gas processing totaled 3,414,800 tons, worth $1.261 billion, accounting for 7.5 % of exports to China in that year. The volume of natural uranium and uranium compounds totaled 10,900 tons, worth $1.288 billion, accounting for 7.9 % of the exports. The above statistics show that the energy resources for 68.2 % of Kazakhstan’s total exports to China. Other resources, such as refined copper, metal products and iron ore, totaled 9,850,800 tons, worth $3.783 billion, and accounting for 27.9% of total exports. In summary, energy and metal mineral commodities accounted for 96.1% of Kazakh exports to China, with non-resource commodities accounting for just 3.9%. Bilateral resource trade with energy resources at its heart is thanks to Central Asia’s abundant reserves and Central Asian countries strategy of rejuvenation by utilizing their oil and gas resources. However, these are finite resources and specific strategies could be changed. Massive sustainability challenges are concealed behind the rapid development of bilateral oil and gas resource trade.

Two decades ago, the Caspian Sea, which was thought to have energy reserves comparable with the Persian Gulf, attracted global attention and was hailed as “the second Persian Gulf” and the “energy base of 21st century”. However, according to scientific data, the five Central Asian countries have between 11.28 and 20.4 billion tons in petroleum reserves, not in the same league as the Persian Gulf’s hundreds of billions of tons of reserves. Central Asia has 5 billion tons of recoverable reserves, ten times less than those of the Persian Gulf. Meanwhile, Central Asia has 8.365 trillion cubic meters of gas reserves, compared to 72.66 trillion cubic meters in the Persian Gulf region. In 2012, Kazakhstan extracted 79.21 million tons of oil, Turkmenistan extracted 11 million tons and Uzbekistan extracted 3.165 million tons. In terms of natural gas production, three countries had 172 billion cubic meters in total, equivalent to 140 million tons of oil. Since Kazakhstan’s Kashagan oilfield became operational, the nation’s crude oil production is expected to reach 120 million tons by 2020. The Kashagan oilfield not only brings new vitality to Kazakhstan’s oil and gas production, but also giving new impetus to the operation of the China-Kazakhstan oil and gas pipelines. But it remains uncertain whether Kazakhstan can repeat the success of the Kashagan oilfield, as the total amount of Central Asia’s oil and gas resources is somewhat limited. The International Energy Agency reported that Kazakhstan’s oil production would peak in 2025-2030, after which the nation would be confronted with the new challenge of energy exhaustion. Central Asia’s oil and gas production peak period is inevitable.

Utilizing oil and gas resources to achieve national rejuvenation is a distinct phase in the development of Central Asian countries. Directly after these nations achieved independence in the 1990s, they lacked the necessary funds for development. Due to their rich reserves of oil and gas, they all adopted the strategy of national rejuvenation through oil and gas, although this strategy could only exist at a specific stage. Due to this strategy, the five Central Asian countries entered a phase of rapid economic development in recent years, with their annual GDP growth rates ranging from 7-12%. Kazakhstan’s annual per capita GDP, which was just $700 when it embarked on its rejuvenation strategy in 1994, exceeded $9,000 by 2011. Kazakhstan’s National Statistics Office projects that this figure will surpass $16,000 in 2015, bringing the nation into the league of high-income countries. In this case, Central Asian countries deepened their awareness of resource protection. They re-examined their mode of development and adjusted their overall strategies for national rejuvenation. As these countries introduced protective resources exploitation policies ahead of their resource peak, resource exports will therefore get tightened.

As the country with the fastest economic growth in Central Asia, Kazakhstan took a lead in adjusting its development mode. In 2010, Nursultan Nazarbayev, President of Kazakhstan, announced the implementation of the “2010-2014 National Innovation Development Program”. The Program proclaimed significant improvements for manufacturing, restrictions on the mining industry, targets for the escalation of the labor productivity of the processing industry by 50% in 2014 and an increase in exports from the non-resources sector by 40%. Furthermore, Nazarbayev declared in his State of the Nation Address in 2011 that the growth rate of the processing industry should exceed or at least be equivalent to the growth rate of the mining industry by 2020. In 2011, Kazakhstan’s manufacturing industry grew by 6.2%; the mining industry grew by 1.3%; the machinery manufacturing industry grew by 16.8%; and the total output of the chemical industry grew by 21.5%. The results clearly showed how determined Kazakhstan is to adjust its development mode. Meanwhile, Kazakhstan attaches great importance to the development of agriculture. The target was set in the 2011 State of the Nation Address that agricultural labor productivity should double by 2014 and quadruple by 2020. On December 15, 2012, Nazarbayev stated that Kazakhstan should attach importance to the development of agriculture in order to make food a major export commodity of Kazakhstan, which implied that the export structure of Kazakhstan would change, with a decline in the share of non-renewable resource products.

After the completion of the project, the transportation capacity of the second phase of China-Kazakhstan crude oil pipeline will reach 20 million tons. China-Central Asian Gas Pipeline C’s transportation capacity will be 55 billion cubic meters after the completion of the project, which is equivalent to 46 million tons of oil. The two projects can transport approximately 66 million tons of oil in total. The China-Kazakhstan oil pipeline transported 10.4 million tons of oil in 2012. In April 2013, the annual gas transportation capacity of China-Central Asian natural gas pipeline reached 25 billion cubic meters, equivalent to 20.85 million tons of crude oil. With the two projects combined, the capacity reached 31.25 million tons of crude oil, which meant that a contract to import the remaining 34.75 million tons of crude oil could be made in recent years. Oil production in Kazakhstan has fluctuated slightly in recent years. The country produced 79.21 million tons of oil in 2012, 1.1 % less than 2011. It is planned that 82 million tons of oil will be produced in Kazakhstan in 2013, 3.5% higher than in 2012. With the Kashagan oilfield becoming operational in 2013, Kazakhstan’s crude oil production is expected to reach 120 million tons by 2020, indicating that a shortage of 34.75 million tons of oil could be filled. The amount of growth in the years to come still remains to be seen. In other words, serious attention should be paid to whether there will be any significant improvement. In 2011, the share of non-resource trade between China and Kazakhstan was 3.9 % of the total trade volume, a far cry from the target of 40%. The only solution at the moment in order to achieve an adjustment is by reducing exports of non-renewable energy and mineral resources. Kazakhstan announced that the annual output of oil would reach 1.2-1.3 trillion tons by 2015. However in April 2013, the goal was postponed until 2020.

As the advent of export controls on Central Asia’s exhaustible resources may be much earlier than expected, we should quickly seek a future development mechanism for the China-Central Asia resources channel before the deadline in order to ensure the sustainability of the energy supply of this channel. The changing situation requires decisiveness and a strategic outlook, which is important for the subsequent development of the China-Central Asia energy channel and the Silk Road economic zone.

 

II. Approaches on Twin-Track Energy Introduction Mechanism

 

Central Asia is rich in energy resources. It not only has a wealth of oil, gas, nuclear energy and other exhaustible energy resources, but also even more abundant renewable energy resources, such as wind, solar, biomass, hydro and other renewable energy resources, providing a new approach to dealing with the inevitable time when oil and gas exploitation in Central Asia reaches its peak.

Located in the northern hemisphere wind belt, Central Asia is one of the world’s best places for developing wind energy. Kazakhstan has the world’s richest per capita wind resources. Its wind electricity generation potential reaches 1.8 trillion KWH, 20 times equivalent to its current national electricity consumption. Thanks to its vast desert, Central Asia is fairly suitable for building large-scale solar power plants. Turkmenistan’s Karakum Desert covers an area of 350,000 square kilometers. As the world’s fourth-largest desert, it has 800 watts per square meter of solar radiation and 2,500-3,000 hours sunshine per year. Its total amount of radiation calculated is between 72 × 108 joules per square meter and 86.4 × 108 joules per square meter, higher than Qinghai-Tibetan Plateau, which has China’s most abundant solar power resources (70 × 108 joules per square meter). Other regions in Central Asia have a similar situation. Uzbekistan is known as the “sunny state” thanks to its Kyzyl Kum Desert, where solar radiation energy is equivalent to 50.973 billion tons of oil, 10 times Central Asia’s proven oil reserves. Moyinkumu Desert and the Aral Sea coastal deserts are both large deserts in Kazakhstan, with 2,200-3,000 hours of sunshine annually. Central Asia is also rich in biomass energy thanks to its extensive solar power resources. Kazakhstan’s annual biomass energy potential totals 35 billion KWH. Surplus grains and inferior wheat in Kazakhstan can produce 3.2 billion liters of bioethanol annually, within which about 3 billion liters is available for export. Central Asia is also rich in hydropower resources, as the water sources of the Amu Darya, River Panj and Vakhsh River in Tajikistan derive from the Pamir glaciers with an altitude of more than 4,500 meters. The rivers flow through the canyon in the mountains and down to the Rukeerji floodplain, accumulating 64 million kilowatts of hydropower potential throughout its drainage basin, almost three times as large as the Three Gorges Hydropower Project. These advantages make Tajikistan the world leader in terms of per capita hydropower resources. Kyrgyzstan has 252 rivers of various sizes, including the Syr Darya that originates from the western Tianshan glaciers, with the potential to generate 18.5 million kilowatts of hydro-electricity nationwide. In this regard the amount of exploited hydropower in the above-mentioned two central Asian countries has yet to account for one-tenth of their reserves.

China and Central Asia both enjoy their good foundations and prospects in terms of renewable energy cooperation. It is feasible for the two sides to start cooperation on the principle of gradual and stable development. In reality, it means that wind power cooperation comes first, followed by solar energy and biomass energy cooperation.

Developing wind energy could be the first choice in all development investment options in Kazakhstan thanks to its most mature investment environment. Kazakhstan adopted the “Law on Support of Using Renewable Energy Sources” in 2009. It also put forward its Wind Power Market Development Initiatives in 2011, preparing well for domestic development and foreign investment. In 2012, Kazakhstan’s Sam Rook Energy Corporation started to build a 300,000 kilowatt wind farm in the Shekik Corridor of Almaty Province. The technology demonstration of this wind farm was made by China Guangdong Nuclear Energy Corporation. It is scheduled to be completed in 2018. Kazakhstan’s breakthrough in wind energy was the prelude to the nation’s large-scale development of renewable energy. A total of 56% of the country’s wind energy resources are concentrated in the strong wind belt (with a wind speed of 7 meters per second) covering only 2% of the nation’s land area, which includes Djungar Gate, Shekik Corridor, Yermentau, Zhuzhymdik, Atyarao, Ft.Shevchenko, Arkalik, Astana, Korday and Karakalinks. Exploitable wind energy resources total approximately 320 million kilowatts, while its initially planned exploitable wind energy resources are 3.2-16 million kilowatts, accounting for only 1-21% of its potential. As a result, it has huge potential for development and investment. Many international wind energy companies are now players in the Kazakh market. German company Vestas Wind Technology Company has gained an advantage, investing around 200 million euros in developing Yermentau’s wind energy project in October 2011, and obtaining 500,000 kilowatts of the total installed capacity. In addition, Finland, Sweden, India, South Korea, Japan and other countries have also entered Central Asia’s wind energy development market.

Regarding the solar energy development investment market, Turkmenistan or Uzbekistan could be the first consideration. Turkmenistan has started to build solar development test stations, and opened photovoltaic power stations, solar desalination plants and wind energy and solar energy waste treatment projects. In 2009, Uzbekistan established the Renewable Energy Technology Park, and opened its solar development investment market. Therefore, China has the opportunity to cooperate in constructing photovoltaic power plants or establishing photovoltaic cells production bases in Central Asia.

Kazakhstan is preferred in terms of investment in the biomass energy development market due to its 9 million tons of annual production of fiber crops including crop stalks, stems and leaves and husks. Owning the technology to cold press straw biomass into high-density granular fuel, China could choose to invest in building factories in Kazakhstan.

In terms of water resources development, China should bear in mind not to get itself involved into water resource disputes involving the five Central Asian countries. Tajikistan and Kyrgyzstan lie in the upper reaches of the Amu Darya and Syr Darya rivers, where hydropower potential is the largest. In order to meet high power demand in the winter, the two countries have to store water in the spring and summer, whereas spring and summer are the best time for agricultural irrigation in the downstream countries of Uzbekistan, Kazakhstan and Turkmenistan, resulting in contradictions and conflict between upstream countries storing water and downstream countries using the water. When cooperating with the Central Asian countries in developing water resource, China should take all relevant factors into account. The proportionate action is to provide technical support for the rational development of water resources that could be accepted by both downstream and upstream countries sharing transnational rivers in Central Asia.

The ultimate goal of introducing a twin-track mechanism is to replace exhaustible energy resources with renewable energy resources. However, this will be a very long process. The European Union took the lead in clearly stating its timetable to replace fossil and nuclear energy with renewable energy. According to its timetable, the proportion of renewable energy in its power source should reach 20% before 2020, 45-50% in 2030, and 100% by 2050. Electricity from renewable energy currently accounts for less than 1% of the total in Central Asia. The process will get tougher and become longer as Central Asian countries have a low starting point and limited economic strength. The overtaking of exhaustible resource requires a long transition period when both types of resources compete with each other. As a result, the twin-track energy introduction mechanism is meant to exist for a long time. In addition, nuclear power is also clean energy. Nuclear energy reserves in Kazakhstan have reached 620,000 tons, ranking first in the world. During the transition period, increasing imports of nuclear energy resources from Kazakhstan to compensate for the possible lack of oil and gas resources is also a good solution.

Although international competition in Central Asia’s renewable energy resources market is taking place, the application of renewable energy resources is mostly constrained by geographic locations. Out of the five Central Asian countries, China adjoins four and therefore has an incomparable geographical advantage.

The Risø National Laboratory for Sustainable Energy in Denmark installed four 1,000 kilowatts-level test fans in Djungar wind zone in the late 1990s, having in hand reliable data: wind speed is 9.7 m/s at an altitude of 50 meters; wind energy is one kilowatt per square meter and effective generation time is 4,400 hours. Based on this data, UN experts calculated that the Djungar wind zone is one of the world’s most suitable areas for developing wind energy. The region is well connected with the Alashankou-Ebinur Lake wind belt, one of the four wind gaps in Xinjiang, China. It is also part of the valley between Alatau Mountain and Tarbagatai Mountain. China and Kazakhstan both occupy one end each of this wind belt. The end of the Chinese side is about 100 kilometers long and 30 kilometers wide. In April 2009, Chinese company Guodian Xinjiang began to build a one million-kilowatt “Alashankou wind farm”. This year the project entered its fourth phase. At the Kazakh end, China and Kazakhstan could negotiate to jointly construct a wind power station and build an international wind power grid in order to share the wind energy and achieve mutual benefits. The Shekik Corridor, one wind spot that is smaller than the Djungar portal, has a wind speed of 7.77 meters / second at a height of 50 meters. Its valid wind power generation time is 3100 hours per year. Kazakhstan has already constructed its wind power test site in the corridor, which now is a good choice to invest for further development. This wind zone is located at the southeast side of the Kapchagay reservoir, approximately 200 kilometers from China’s Yili Prefecture. Therefore it is possible to set up high-voltage cable to transmit the required quota to Yili Prefecture along the Yili River Valley. In addition, in terms of hydropower, parts of the Murghab River in Tajikistan and and the upper reaches of the River Naryn in Kyrgyzstan are close to Chinese border areas. If cascade hydropower stations are established on these two rivers, it would take only a short distance to transmit electricity to China’s Kashi and Aksu prefectures.

China’s Xinjiang Uygur autonomous region is similar in natural conditions to the five Central Asian countries, with which its wind turbine and photovoltaic components are already compatible and could be the choice of those regions. In this context, Xinjiang’s experience in building large-scale wind and photovoltaic power plants offers direct reference to Central Asia. Wind turbines and photovoltaic cells produced in Xinjiang could adapt well to the environment of Central Asia, providing favorable conditions for the region’s renewable energy development. Xinjiang’s energy industry construction can rely on the the twin tracks of energy introduction from Central Asia and its own energy resource development. Meanwhile, China and Central Asia could achieve win-win benefits through cooperation by making full use of Central Asia’s abundant raw materials. Central Asia also contains rich reserves of quartz sand, e.g., Kyzylorda Province of Kazakhstan has more than 50 million tons of reserves. Being the world’s largest producer of photovoltaic cells, China has experienced “dual suppression” from the EU and the US in recent years. As quartz sand is the necessary raw material for the production of photovoltaic cells, transferring the production capacity of photovoltaic cells to Central Asia could help China’s PV industry overcome this “dual suppression”.

 

III. Conclusion

 

On December 14, 2009, Chinese President Hu Jintao, Turkmen President Berdymukhamedov, Kazakh President Nursultan Nazar-bayev and Uzbek President Islam Karimov attended the China-Central Asia gas pipeline ventilation ceremony. The participation of top leaders in the ceremony illustrates the huge economic and political significance of this cooperation project under the framework of the Shanghai Cooperation Organization.

The launch of China-Central Asian oil and gas channels showcases the appearance of a new landlocked non-Gulf mode of production and supply center, and has a far-reaching influence on both sides. First, the Silk Road energy channel is not only an energy channel connecting China, but also a channel leading to Northeast Asia and Southeast Asia. Second, China-Central Asian energy channels not only maintain mutually beneficial economic relations among the five Central Asian countries and China, but also maintain political ties of mutual trust, equality and consultation through economic cooperation. The sustainability of the Silk Road economic belt is conducive for the lasting peace of the region. Finally, China longs for a stable Central Asia when it is engaged in territorial or maritime disputes with some of its neighbors. Growing economic mutual benefits with Central Asia will bears significant geo-security implications for China.

 

Source: China International Studies November/December 2013 p126-137



[1]Xu Haiyan is Associate Research Fellow at the Center for Russian and Central Asian Studies, Fudan University.

 

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