China is pressing ahead with a 7,000-kilometer (4,350-mile) gas pipeline from Central Asia to the Pacific coast, but experts say the massive project faces the same economic doubts that it did over a decade ago.
On Aug. 29, Turkmen and Chinese officials launched the ambitious project to pipe gas from eastern Turkmenistan to Shanghai, transiting Uzbekistan, Kazakhstan, and 13 Chinese provinces along the way.
Turkmenistan’s president Gurbanguly Berdymukhamedov called the effort, undertaken in cooperation with the China National Petroleum Corporation (CNPC), “the project of the century,” according to an Interfax report.
A Central Asia gas line to China was proposed as early as 1993, but the idea was abandoned several years later due to cost estimates of over $12 billion. Construction and steel costs have risen sharply since then.
Construction is scheduled to begin next year with first deliveries expected in 2010. But in interviews with Radio Free Asia, energy analysts said there are just as many reasons to doubt the project’s economic viability as there were in the 1990s.
Robert Ebel, chairman of the energy program at the Washington-based Center for Strategic and International Studies, said the pipeline’s enormous length will raise the cost of the gas it delivers.
“Pipeline costs have jumped tremendously over the recent months,” Ebel said.
“And what it would cost to build a 7,000-kilometer pipeline from the point of production to the point of consumption—it’s in the billions. And what would that mean about how the gas would have to be priced to the consumer to make it a financially viable operation?”
Philip Andrews-Speed, a China energy expert at Scotland’s University of Dundee in Edinburgh, agreed that cost is still a major challenge. “It is impractical from the point of view of conventional commercial analysis as it would be done by an international petroleum company,” Andrews-Speed said.
China’s and Turkmenistan’s calculations are “different,” though, he added.
“China wants more gas urgently to address its energy supply, to produce clean energy. And I think in the last year it’s realized that there is no such thing as cheap gas.”
Both Ebel and Andrews-Speed noted that China has been trying for years to come to terms with Russia over a price for gas imports. In choosing gas from Turkmenistan, where it will develop its own field, China appears to have opted for supplies that it hopes to control.
“The coming together of China and Central Asian countries politically over the last 10 years [has] allowed them to build trust and understanding, so this allows China to do deals with them more easily than in Russia,” said Andrews-Speed.
While trust between China and Russia may be a problem, Ebel said that piping gas from Central Asia could carry other risks.
“There has to always be that concern when you’re crossing any transit country, that the country can do lots of things against your interests when your pipeline passes across their territory.”
For Chinese consumers and industries, the question is whether they will have to take on the project’s high costs as end users. The Chinese government controls the retail prices of fuels, though, and may be pressured to pay large subsidies to prevent company losses.
Andrews-Speed said that China’s government has not said so far how it will promote the use of gas if its cost is too high.
“I would fully expect CNPC or PetroChina to be going either to the government or to the banks, saying, ‘Look, we want support for this right now in terms of capital, and maybe in the future if [we] make operating losses, if the prices are not high enough,’” he said.
Original reporting by Michael Lelyveld. Edited for the Web by Richard Finney.
