Sergey Kapitonov, Analyst of the Project Center for Energy Transfer and ESG of Skoltech
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Central Asia has historically been one of the pillars of the formation of the gas industry of the USSR, along with Western Siberia, the Volga region and Ukraine. Oil and gas fields have been discovered throughout the region – primarily in Turkmenistan, but also in Kazakhstan and Uzbekistan. The Central Asia–Center and Bukhara–Ural gas trunk pipeline systems were built. As a result, Central Asian gas became an integral part of the Soviet energy system and was actively supplied to foreign markets until the early 2000s.
Since the late 2000s, the scale of cooperation between Russia and Central Asia in the gas sector has changed. The states of the region began to focus on China in the field of gas exports, and cooperation with Russia mainly concerned investments of Russian oil and gas companies in production projects, as well as exchange operations with gas.
All the more interesting were the statements of the Russian authorities in November 2022 about plans to create a gas union with Uzbekistan and Kazakhstan, nicknamed the “triple gas union” in the media. Tashkent and Astana almost immediately refuted the political dimension of the union, calling the ongoing negotiations the intensification of commercial cooperation in the gas sector.
In fact, the union cannot play a major political role, at least for the reason that it does not include the main gas producer in the region – Turkmenistan. In 2021, according to official data, it produced about 84 billion cubic meters of gas – this is the same as Kazakhstan and Uzbekistan produce together.
The vector for Astana and Tashkent is also clear – it is with these countries of the region that Gazprom has maintained the closest ties. With Ashgabat, despite today’s warm relations and the expansion of partnership, historically there have been different, including difficult, periods of cooperation.
In general, it is still difficult to talk about the political dimension of the project for the reason that in addition to producers, a large block of gas importing countries is also needed to give weight to the gas union. The Central Asian states are now virtually an isolated gas market; the only major consumer is China. Plus, there are niche gas supplies from Kazakhstan and Turkmenistan to Russia, and Turkmenistan also supplies it to Iran.
Thus, in the current configuration, it is impossible to create a block that could potentially influence the conjuncture of gas markets, since the scale is not at all the one that could develop, for example, when forming a “gas OPEC” on the basis of the Gas Exporting Countries Forum (GECF). At the same time, Gazprom’s theoretical control over the gas transportation system (GTS) is a potential control over gas supplies to China and partly to India, in case Russia joins the TAPI gas pipeline project (Turkmenistan–Afghanistan–Pakistan–India). And statements that there is a possibility of joining the latest project have recently been voiced by representatives of Turkmenistan.
However, it should be understood that the Central Asia–China gas pipeline system was financed and built by the PRC, and all three lines of the system with a total capacity of 55 billion cubic meters are jointly operated by the China National Oil and Gas Corporation (CNPC) and its Central Asian partners. In addition, gas supplies from Central Asia to China are carried out under long-term contracts calculated until the 2030s and 2040s. In this regard, Gazprom, of course, cannot acquire control over the main gas pipelines in order to receive the benefits of the operator company (representatives of Uzbekistan recently explicitly pointed out this impossibility). Potentially, Russia could meet domestic gas demand in Kazakhstan and Uzbekistan (where the gas balance is not developing in the best way today) so that Astana and Tashkent could smoothly fulfill their export obligations. However, this is an exceptionally niche story.
In general, taking into account the development of new reserves, production in Uzbekistan will grow until the early 2030s, after which a gradual decline will begin. In Kazakhstan, slow growth is expected in the long term, even if we are talking about small figures of absolute growth (plus 10-15 billion cubic meters in the next 20 years). Both Kazakhstan and Uzbekistan have contracts with CNPC for the supply of up to 10 billion cubic meters of gas per year from each country. At the same time, Uzbekistan has already stopped gas exports against the background of seasonal peaks in domestic consumption. Thus, of course, some volumes of Russian gas can be demanded by Central Asian partners to reduce their own gas balance. However, for Gazprom, this is a drop in the bucket, given the potential risks in the European direction (only in 2022 the company lost about 80 billion cubic meters of market in the EU, and this trend continues in 2023).
At the same time, gas cooperation with Central Asian countries can be based not only on commercial operations for the sale of gas, but also on the modernization of the gas pipeline system, the construction of underground storage facilities (UGS), gas chemical facilities – Russian business has competencies in all this.
The most interesting result of the “triple alliance” could be the realization of the project of Russian gas supplies to the markets of South Asia. According to official plans, the share of natural gas in India’s energy mix should increase from 6.5% in 2020 to 15% by 2030. In absolute volumes, this may mean an increase from the current 60 billion cubic meters to 115 billion cubic meters in 2030, according to the conservative forecast of the International Energy Agency. Indian officials declare the possibility of demand growth up to 200 billion cubic meters per year for the same perspective.
In turn, Pakistan is currently facing a severe shortage of natural gas, while it cannot make up for it on the world market due to abnormally high prices for spot LNG.
Potentially, good opportunities for Russian gas could open up in South Asia. Until recently, gas from the Russian Federation was presented in the region only in the form of LNG, which was supplied by Gazprom’s European trader from the Yamal LNG plant. As a result of the sanctions war, Gazprom’s trading operations in Europe were placed under the control of national regulators, and the victim was the only long-term contract with India to date.
Of course, Russian LNG may well find its place in the Indian market. This, in particular, was stated by the head of Novatek Leonid Mikhelson during the Indian Energy Week. But, the import of pipeline gas can provide India and Pakistan with the necessary predictability of supplies, as well as an affordable price. This is especially relevant against the background of the cardiogram of prices on spot gas markets, which will remain scarce at least until the second half of the 2020s.
For Russia, this is a real opportunity to redirect significant volumes of gas from the European market to a new and promising region. Taking into account the implementation of the TAPI project, we probably cannot talk about supplies to the region of more than 30-40 billion cubic meters. m per year.
At the same time, from a technical point of view, such a project can be implemented. To do this, it is necessary to partially rebuild the Central Asia – Center gas pipeline system to reverse mode (and the capacity of this system is a fantastic 80 billion cubic meters). As a result, gas can be supplied from the Unified Gas Supply System (UES) of Russia to the south of Uzbekistan. On the subsequent sections of the route, the construction of new infrastructure is already necessary. For example, the route could be laid along the Termez–Mazar-I–Sharif–Kabul–Peshawar–Islamabad–Lahore-New Delhi highway. The length of the new route would be about 1400 km (for comparison, the length of the “Power of Siberia” is about 3000 km). In addition, there is a certain reserve of infrastructure on the border of Uzbekistan and Afghanistan, since the USSR bought gas from the latter.
As a result of the implementation of such a project, Russian gas can reach the largest consumption centers in the north of Pakistan and India. It is in these regions that the greatest shortage of gas is felt. And coastal provinces can be gasified at the expense of LNG coming to ports.
An alternative route could be the supply of Russian gas through the Central Asia –Center system to Turkmenistan, and further to the north of Iran – to the region where the Islamic Republic is experiencing the greatest difficulties with gas supply. Iran, as part of the swap operation, can supply gas from its southern fields to the border with Pakistan through the already built section of the frozen Iran–Pakistan–India gas pipeline project. Next, it will require the construction of a new infrastructure with a length of about 500 km to Karachi, after which gas can be delivered to the most needy areas of Northern Pakistan via the planned construction of the Pakistani Stream gas pipeline. However, in such a configuration, India is excluded from the supply chain, and the status of Uzbekistan as one of the parties to the “gas union” is also unclear.
Any of the Russian gas supply projects to South Asia will require significant efforts of domestic diplomacy, original technical solutions and multibillion-dollar investments. In return, Russia can gain access to a market for decades that relies on gas to solve its environmental, economic and social problems. /// Translated from Russian by nCa
Originally published at: https://itek.ru/analytics/trojstvennyj-gazovyj-sojuz/