China is planning to start work on a new gas route through Central Asia this year despite cross-border conflicts in the region that threaten transport and trade.
On March 10, state-owned China National Petroleum Corp. (CNPC) announced an agreement with Tajikistan's national gas distributor Tajiktransgaz to jointly manage construction of a new pipeline across the country's territory.
The deal clears the way for a fourth strand of China's Central Asia Gas Pipeline (CAGP) from Turkmenistan, known as Line D, following intergovernmental agreements with Uzbekistan, Tajikistan and Kyrgyzstan last September.
The project continues the rapid rise of China's gas imports from the region since the first 2,000-kilometer (1,242-mile) strand of the CAGP began deliveries from Turkmen gas fields through Uzbekistan and Kazakhstan in late 2009.
Last year, the CAGP system supplied 27 billion cubic meters (953 billion cubic feet) of gas to China's West-East pipelines through Xinjiang.
By 2020, the four lines from Central Asia will carry 80 billion cubic meters per year, accounting for over 40 percent of China's gas imports, CNPC said.
The route stretching over 7,000 kilometers (4,349 miles) to China's eastern cities and the growing volume may make it the longest and one of the largest in the world.
But unlike the first three branches of the CAGP, Line D will bypass Kazakhstan, taking a southern track through Kyrgyzstan and Tajikistan. The two republics are the neediest nations of former-Soviet Central Asia, which China avoided for transit in the past.
Unlike Kazakhstan, Uzbekistan and Turkmenistan, which are all petroleum exporters, the two countries are almost wholly dependent on imports, raising questions about gas transit risks.
China has been silent about the reasons behind its route choice and the challenges of clearing a new corridor through countries that have suffered through civil war, in the case of Tajikistan, and two revolutions since 2005 in Kyrgyzstan.
CNPC has also offered few details about the project, although the Bishkek-based 24.kg news agency has estimated construction will cost $1.5 billion in Kyrgyzstan alone. Completion of the Kyrgyz section is planned for 2016, Reuters reported.
More expensive
In any case, a new route is likely to prove far more expensive than one that has already been cleared.
One clue to motivation was suggested by a report last year in the industry publication Nefte Compass, citing China's concerns with alleged gas diversions from transit lines in Kazakhstan during winter shortages in early 2013.
Another possible reason is growing pressure in China to replace high-polluting coal with cleaner-burning gas to reduce smog that has choked major cities.
But CNPC's brief statement on the Tajikistan deal may raise doubts about both explanations.
According to the statement, plans for Line D "began to be prepared soon after" an agreement with Turkmenistan to boost deliveries by 25 billion cubic meters in November 2011. The timing predates both the alleged diversions and the recent smog crisis.
The statement suggests that China may have intended to include the two energy-deficient countries in its transit system to expand its regional presence all along.
Beijing's plans and the latest announcement with Tajikistan are all the more remarkable in light of cross- border tensions with Kyrgyzstan, which could be expected to magnify China's project and transit risks.
Tensions between the two Central Asian neighbors have risen to unprecedented levels since Jan. 11, when an exchange of gun and mortar fire in a disputed area wounded five border guards and a policeman on the Kyrgyz side and two border guards from Tajikistan.
The skirmish has led to the closure of the bilateral border for over two months, temporary withdrawal of the Kyrgyz ambassador to Tajikistan, and major disruptions to traffic and trade, regional news agencies reported.
At least one report suggests China used influence to protect its trade interests after the Kyrgyz side showed reluctance to uphold an agreement on reopening the border on March 5.
Chinese cargoes were allowed to pass through the Karamyk border crossing "at the request of the Chinese side,"
although it remained closed to citizens of Kyrgyzstan and Tajikistan, the Central Asia News agency reported, citing the Kyrgyz State Border Service.
Normal bilateral trade has yet to resume, reports indicate.
'Very powerful role'
CNPC's pipeline decision in spite of the tension may be a sign of the part that China plans to play in Central Asia.
"I think they do want to play a very powerful role in the region," said Mikkal Herberg, energy security research director at the Seattle-based National Bureau of Asian Research.
"They see this as their front door, and they worry about being hemmed in on the maritime side by the United States and others," said Herberg.
While China faces risks from passage through Tajikistan and Kyrgyzstan, they may differ from those that already exist on the route for the first three strands of the CAGP.
"The more you diversify the sources of risk, the more you reduce volatility in your portfolio," Herberg said. "They wouldn't be expected to both go bad at the same time. It's always possible, but it's a pretty low probability."
The cost of the new route may be a significant factor, considering that CNPC has previously complained about losing money on Turkmen gas, which it is forced to sell on China's domestic market at state-controlled rates.
The gas and pipeline business CNPC PetroChina only started to turn profitable in 2013 after the government raised prices for industry, the official English-language China Daily reported last week.
China is seen as gradually moving toward pricing reforms as it steps up its anti-smog campaign with efforts to promote gas as a partial replacement for coal.
The new route decision may also provide clues about China's intentions to seal a long-delayed gas import deal with Russia, although the signs remain mixed.
Missed deadlines
CNPC and Russia's Gazprom have been trying to reach an agreement on pricing for the past eight years and have repeatedly missed deadlines, most recently on Jan. 31, but Beijing has so far refused Moscow's demands to pay the equivalent of European rates.
The Russian side has held out hope for an agreement in time for President Vladimir Putin's scheduled visit to China in May.
The new CAGP project could signal that China has decided to make its big bet on Central Asian gas without waiting any longer for Russian concessions.
But Herberg said Moscow is increasingly motivated to strike a bargain for deliveries of Siberian gas.
"They're getting very nervous that this Chinese market may be gone forever if they don't move more quickly and come to a determination on price," he said.
If China does reach a deal with Russia, its sources of gas and import routes would be widely diversified, reducing its energy security risks.
China is likely to be watching closely to see whether Gazprom follows through on warnings that it may halt supplies to Ukraine due to late payments, as Moscow pursues its conflict with Kiev over Crimea.
But Herberg said China's investment in Central Asia and diversification of supplies will ease any concern about vulnerability to a Russian cutoff.
Ukraine has relied on Russia for nearly all its gas imports, accounting for over half of its consumption last year.