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Confrontation of energy interests in Central Asia

Verantwortlicher Autor: Carlo Marino Rome, 12.12.2019, 13:14 Uhr
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Rome [ENA] The EU, Russia and China all export energy technology to one another and to the rest of the world. Particularly successful has been People’s Republic of China in exporting coal-fired power plants. Since 2010, it has invested $45.5 billion in the coal sector and $3.8 billion23 in the solar sector abroad. The photovoltaic (PV) panel industry also plays an important role for China: in 2018, the total value of PV

products exported was $16.1 billion. This booming has been associated with foreign complaints about unfair trade practices – and has even led the EU to implement temporary protective measures on photovoltaic panels. Up to now, China’s wind and nuclear industries remain oriented to its growing domestic market. In the European Union there’s a sort of apprehension that greater cooperation between Russia and China on energy could be damaging the EU’s energy interests. For example, if Russia becomes less dependent on the EU as an end point for its energy exports, Russia might become more assertive in energy negotiations and also political negotiations.

Russia’s leadership has emphasized on various occasions the increasing importance of China for the Russian energy sector. Only about 10 percent of Russian oil exports go via direct pipelines to the European Union. Another 10 percent goes even now via pipelines to China. In the oil market, it is already largely possible for Russia to ship all its oil to China via the sea route. Nevertheless, refineries in China are not optimized for Russian oil grades and and whole business would implicate high transport costs. At the same time, the impact on the EU would be controllable because China would then have to import less oil from other countries – allowing the EU to buy elsewhere, though with higher transport costs

and with some intra-European disruption. Russia, China and the EU are interested in extracting the resources of Central Asia which has significant gas reserves, in particular in Turkmenistan (19,000 bcm), Azerbaijan (2,100 bcm), Kazakhstan (1,000 bcm) and Uzbekistan (1,200 bcm). In the past, Russia was the only country connected via pipeline to Central Asia. It used its exclusive access to manage the price and volume of exports from the region. China broke this monopoly by assembling the 55 bcm Central Asia-China gas pipeline to Turkmenistan in 2009. At present, Uzbekistan and Kazakhstan delivernearly 40 percent of China’s total gas imports through this pipeline.

A complementary pipeline from Turkmenistan to China (‘Line D’ bypassing Kazakhstan by going through Kyrgyzstan) was announced in 2013. But in 2019 Russia’s Gazprom began buying gas from Turkmenistan, obtaining gas volumes that Turkmenistan could otherwise export to China. The EU has also been trying to gain access to the region’s resources, while avoiding reliance on existing or planned Russian pipelines. The Transcaspian pipeline would bring Central Asian gas to Azerbaijan from where it could potentially flow to the EU through the Southern Gas Corridor. Russia has so far been able to frustrate this project.

The legal status of the Caspian Sea, one main obstacle, was resolved in 2018, but Russia and Iran continue to indicate that they will not make it easy for such a project to go ahead rapidly. Any confrontation of energy interests in Central Asia will involve Russia and China, rather than China and the European Union. In the interconnected energy world, unilateral actions and bilateral relationships have an impact on third parties. EU-Russia energy collaboration remains governed by Russian gas and oil exports to the EU. The emergence of China will not dramatically alter this picture. Russia’s dependence on oil and gas exports to the EU and People’s Republic of China continues to increase.

The globalizing energy market and the trend away from fossil fuels combined, should make that clear that there is little competition between the European Union and China for Russian resources. This implies that the Russian pivot to Asia in terms of energy exports is likely to continue but with limited negative consequences for the European Union. Both the EU and China have an interest in reducing Russian pricing power over oil and gas. As hydrocarbon markets are essentially global, the EU and China are on the same side. Economic opportunities are currently more limited in terms of connecting the power systems.

For this to happen, substantial technical and political challenges would have to be surmounted, and the benefits remain limited because the individual systems are already today quite large and diversified. There is strong competition between Russia, China and the EU on the global energy technology market. Currently, this competition is less about which of the three delivers a certain type of equipment (e.g. a coal plant), but whether one technology that Europe is good at, or another that China is good at, is being employed.

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