Geopolitics could push more Russian gas to China via Central Asia [Gas in Transition]
The sale of Russia’s natural gas to Europe has fallen by around four fifths since the beginning of the war in Ukraine last year, pushing the Kremlin to look for alternative routes and customers. Infrastructure going through its Central Asian neighbours could be the key for a re-routing of gas exports, especially given the increased domestic energy needs in the region.
Serdar Berdymukhamedov, who became Turkmenistan’s president succeeding his father in March 2022, went to Beijing in his first foreign visit of 2023. One of the few pieces of data he used to celebrate the 31st anniversary of diplomatic relations between the two countries was that to date, Turkmenistan had sent at least 350bn m3 to China.
Berdymukhamedov and his Chinese counterpart Xi Jinping issued a joint statement specifically regarding Line D, the construction of which they wish to accelerate, in an effort “as to intensify cooperation in the gas industry.”
One month before resigning last year, Gurbangyly Berdymukhamedov, Serdar’s father, during another meeting with Xi, had linked the potential new developments in Turkmenistan’s upstream to the construction of an additional pipeline through Central Asia and a more profitable fee structure with China.
Line D represents an expansion of the Central Asia-China Gas Pipeline (CAGP) network that will bolster its capacity by 25-30bn m3/year. CAGP’s existing three pipelines originate in Turkmenistan and cut across Uzbekistan and Kazakhstan to reach China. But Line D would pass through Kyrgyzstan and Tajikistan and end in China’s Xinjiang province.
A harsh winter and increased domestic demand
In December 2022, a failure at a power plant in a mining town in central Kazakhstan left residents without heating for 11 days. At an outside temperature of -30 oC, residents of Ekibastuz had to face an emergency situation that the director of the plant “hoped wouldn’t happen.” Ageing infrastructure and a gasification plan that lags behind have put pressure on old power plants in Kazakhstan, pushing the authorities to demand that less gas is exported.
In Uzbekistan, something similar happened last November-January when Tashkent and some of the largest cities witnessed blackouts and lower-than-usual heating pressure. In an unexpected turn of events, powerful Tashkent mayor Jakhongir Artikkhodjayev was fired because of the capital’s energy crisis. But for China, the consequence was the intermittent disruption of gas supplies, because of mounting domestic demand within Uzbekistan.
At the beginning of March, Uzbekistan’s state-owned gas transit network, Uztransgaz, said that it would allocate some of its capacity for Russian gas, in transit towards China and other destinations. With Russian gas no longer wanted in the West, a potential outlet towards new markets without the need to build new infrastructure could have been a lifesaver. Except Uztransgaz’s press release was dramatically wrong and the company recalled the information and instructed all local news outlets to amend their reporting accordingly.
China’s ever-growing demand
China is the world’s largest importer of natural gas. Since 2015, it has imported more gas via LNG seaborne shipments than via pipeline. LNG is more flexible and modular, and thus susceptible to expansion or contraction as needed.
Having invested billions of dollars into gas production in Turkmenistan, China also poured money into the construction of transit infrastructure, the CAGP, to bring Turkmen, but also Uzbek and Kazakh, gas to its western Xinjiang region and then further east.
The CAGP came online 2009, yet its potential for expansion, in fact, never really materialised. In 2015, Turkmen authorities said they planned to export 55bn m3/yr of gas to China, around 15% above the original plan and more than twice than in the previous year. But that goal was never reached.
For almost a decade, Line D has been a recurring topic among diplomatic missions and in specialised magazines. The construction of Line D, however, was constantly delayed. In March 2017, China’s CNPC and Uzbekneftegaz, the state-owned companies in charge of the project, indefinitely postponed construction work of Line D.
There are often celebratory announcements that accompany construction projects related to Line D. In January 2020, just before the COVID-19 pandemic hit Central Asia, Tajikistan said the first major tunnel for Line D was being completed. The government said this would be the first of 42 similar tunnels across the mountainous regions of Tajikistan, a project that would cost the Chinese budget around $3bn, the largest investment in the Central Asian country at the time of its planning in 2015.
Enough pipeline gas for China?
In recent years, Turkmenistan and Uzbekistan have found new gas fields and started new extraction ventures aimed for export, Chinese demand for gas has grown, and Russia has increased capacity in its export infrastructure to China. So why is the current contingency with Western sanctions against Russian gas not propelling eastward export from Russia and Central Asia?
The answer to this question is seemingly simple: there is not enough gas. Turkmenistan sells almost all of its gas to China already, while Uzbekistan and Kazakhstan have decided to curtail gas exports to meet domestic demand after the shortages of winter 2022-2023. The need for additional infrastructure, therefore, would not be triggered by a burgeoning Central Asian market, as much as by the need for Russia to find alternative routes.
Should Central Asia allow for more Russian gas to transit through their pipeline system, then a Line D would make sense and create a southern vector towards China.
Yet, Russia’s options are more varied. The Kremlin is in talks with the Chinese government to increase capacity via the existing Power of Siberia 1 pipeline linking directly Russia and China.
With the Yamal peninsula gas basin in Russia needing customers outside of Europe, in September 2022, Russia also proposed a new pipeline cutting across western Siberia, through western Mongolia, into northern China.
If these new infrastructure projects are built, the winner would certainly be China, as it would set in stone a number of long-term, cheaper contracts with Russia and Central Asian countries, that the sellers will have to try to renegotiate in case the price of gas jumps to unprecedented levels as it did in 2022.
For suppliers, being even more physically linked to China could be convenient, mostly because Beijing pays for construction costs. But as highlighted by the Turkmen case during the 2015-2019 window, when China was essentially its only buyer of gas, the Chinese government could use the opportunity to obtain convenient prices at the border.
While the rerouting of Russian gas that could breathe new life into Line D, a decision to build a pipeline should be made considering its feasibility across two or three decades. The current uncertain times could lead to hasty choices.