Central Asia-China Gas Trade Running on Empty

Since Line A of the China-Central Asia Gas Pipeline went into operation in 2009, the Central Asian region’s gas exports to China have grown along with the hungry Chinese economy. As 2020 approached, trade through the pipeline was expected to strain its capacity limits; instead 2020 dealt the world a unexpected blow.

The question now is not whether the China-Central Asia Gas Pipeline will finally hit its upper limit but how much the trade through the pipeline will decline.

The China-Central Asia Gas Pipeline runs along the border between Turkmenistan and Uzbekistan, passes through Uzbekistan and Kazakhstan and enters China near Korgas (known as Khorgos on the Kazakh side), a much discussed linchpin along the Eurasian path of China’s Belt and Road Initiative.

In 2010, the first full year of the pipeline’s operation, it transported just 3.55 billion cubic meters (bcm) from Turkmenistan to western China. By mid-2014, three parallel lines had been competed and were in operation, plus a branch line from western Kazakhstan feeding into the network. The pipeline’s capacity was estimated as 55 bcm per year – setting an upper limit benchmark for possible trade through the pipeline.

In 2015, with all three lines in operation and plans in the works for a Line D,  gas traveling to China from Central Asia neared the 30 bcm mark, with Kazakhstan (0.4 bcm), Turkmenistan (27.7 bcm), and Uzbekistan (1.5 bcm) all contributing the the flow.

According to the BP Statistical Review of World Energy 2019, by 2018 China was importing 47.9 bcm of natural gas via pipelines. The majority – 45 bcm – entered China from Central Asia: Kazakhstan (5.4 bcm), Turkmenistan (33.3 bcm), and Uzbekistan (6.3 bcm).

In early 2020, the PetroChina West Pipeline Company – which operates gas pipelines in western China – said that in 2019, the China-Central Asia route alone delivered 47.9 bcm of gas to China. A Xinhua article in early January 2020 stated that natural gas imports via the China-Central Asia Gas Pipeline accounted for more than 15 percent of China's total consumption in 2019.

Expectations for 2020 were for further growth. But reality dealt those expectations a serious blow with the emergence of a deadly new coronavirus in late 2019 in China. Spreading out from Wuhan, the novel coronavirus and the disease it causes, dubbed COVID-19, has pushed the world – and global economies – completely off track. As of writing, China claims to have made it through the pandemic in which much of the rest of the world remains mired, but the damage has already been done.

In March, China suspended some of its natural gas imports, issuing force majeure notices to various pipeline suppliers. “Force majeure” is a clause typically included in contracts that provides an escape route: it suspends liability if a party is unable to fulfill its obligations due to unexpected catastrophes beyond the party’s control. A pandemic, for example.

When Reuters first reported on the notice, the involved parties remained tight-lipped:

PetroChina, China’s top gas producer and piped gas supplier, did not immediately respond to requests for comment.

A spokesman for state firm KazTransGas which handles gas exports had no immediate comment while Gazprom could not immediately be reached for comment.

A spokesman for Uzbekistan state energy firm Uzbekneftegaz had no immediate comment. Turkmenistan’s gas exporter Turkmenneftegaz could not immediately be reached for comment.

A Turkmen government source said he was not aware of the force majeure.

But more information has emerged since. Kazakh officials later said they were cutting natural gas supplies to China by 20 to 25 percent in response to the force majeure notice.

In early May, the CEO of Uzbekneftegaz – Uzbekistan’s state-owned oil and gas company – told energy publication S&P Global Platts that the three Central Asian gas suppliers were discussing shared cuts at Beijing’s request.

“China requested a cut, but indicated that any reduction in gas supplies would be carried out proportionally between Turkmenistan, Kazakhstan and Uzbekistan,” Mekhriddin Abdullaev said.

Abdullaev told S&P Global Platts that the country’s plan was to reduce its natural gas exports to zero over the next decade – refocusing on domestic processing for the production of various gas products, largely chemicals. This will allow Tashkent to move up the value chain, producing products with higher prices and greater demand.

Such efforts might be a boon for Uzbekistan given the current crisis, jump-starting a process that was planned for but not yet initiated. Unfortunately, Tashkent’s grand plan requires foreign investment and involvement, likely in short supply at least in the near term.

It’s unclear how easily any of the Central Asian states will be able to navigate the present predicament. Turkmenistan will be in a difficult spot. Not only is China Turkmenistan’s only major customer, but Turkmenistan’s only significant export is natural gas. While cuts to volumes flowing through the China-Central Asia Gas Pipeline may be proportional, that means Turkmenistan will see the largest cut in volume and therefore revenue.

In 2020, Central Asia was supposed to be pushing the limits of the possible when it came to exporting natural gas to China. Instead, the region’s energy producers will be scrambling to cushion the economic impact from a seriously interrupted trade, while also handling a massive public health crisis.