China's Gas Supplies Shadowed by Stalled Pipeline [GGP]
After years of false starts and unexplained delays, China is still counting on completion of a new Central Asian gas pipeline by 2022 to meet its air quality goals.
The troubled cross-border gas project may be critical for China's plans to cut smog by reducing reliance on coal and boosting supplies of the cleaner-burning fuel.
But the lack of progress on the Central Asia project highlights China's growing dependence on oil and gas imports at a time of energy security threats in the Persian Gulf.
Last year, China's existing three pipelines from Central Asia delivered 46.9 billion cubic meters (1.6 trillion cubic feet) of gas, according to CNPC International Pipeline Co., an affiliate of state-owned China National Petroleum Corp. (CNPC).
The volume fell short of the planned transit of 51.3 billion cubic meters (bcm), outlined last April by Kazakhstan's Asia Gas Pipeline LLP, apparently due to technical problems in Turkmenistan, China's main supplier.
Even with the shortfall, the three operating strands through Uzbekistan and Kazakhstan provided nearly 40 percent of China's total gas imports with the rest coming almost entirely by tanker in the form of liquefied natural gas (LNG).
The pipeline deliveries have been in danger of bumping up against the 55-bcm capacity of the Central Asia-China Gas Pipeline (CAGP) system, prompting plans for a "Line D"project, first announced in 2013, to add 25-30 bcm per year.
Unlike the existing strands, Line D would follow a shorter but more difficult route through Uzbekistan, Tajikistan and Kyrgyzstan to China's border, bypassing Kazakhstan for reasons that China has yet to explain.
China's gas flows suffered from a reported winter diversion in southern Kazakhstan in 2012. But energy-needy Kyrgyzstan had a far longer record of tapping transit gas from the Soviet-era Central Asia-Center (CAC) pipeline system, raising doubts about the utility of China's decision to clear an entirely new route.
From the first announcement, the Line D project has been subject to postponements, delays and revised start dates that have proved to be largely ceremonial.
Completion dates were first reported as 2016, then 2020 and now 2022.
Earlier this month, the Paris-based International Energy Agency (IEA) said in its annual medium-term global gas forecast that it "assumes that the Central Asia-China system's Line D between Turkmenistan and China will start operations in 2022 with a design capacity of up to 30 bcm (per year)."
Completion would allow imports from Turkmenistan of up to 65 bcm per year, helping to make China the world's largest pipeline gas importer by 2022, the IEA said.
But a report in March from Azerbaijan's Trend News Agency quoting Kyrgyzstan President Sooronbai Jeenbekov, cited by the IEA, refers only to completing the 218-kilometer (135-mile) segment within Kyrgyzstan by that date.
Uzbekistan postponed construction "indefinitely" on its 210-kilometer (130-mile) segment in March 2017, due to unspecified "technical reasons."
The work in Uzbekistan "shows no sign of resuming," the website petroleum-economist.com reported this month.
Obstacles on the 400-kilometer (248-mile) route through Tajikistan, which have previously been blamed for delays, may also continue to stall completion of Line D.
Demands for revised terms
CNPC officially started construction in Tajikistan during a visit by Chinese President Xi Jinping in September 2014, but little activity followed the launch. The project was restarted in July 2017, Trend News Agency reported at the time, citing a government statement that completion was expected in two years.
In January 2018, Eurasianet, an independent news organization that covers the South Caucasus and Central Asia, reported that work in Tajikistan had resumed again thanks to funding from China after previous delays. But the same report cited hard bargaining with China over Tajikistan's insistence on a "technically more onerous route."
The route outlined by a Tajikistan government decree would require 47 tunnels through mountainous areas, Central Asia News service said. Construction had not started as of last August, according to the report.
State media reports during Xi's visits to Kyrgyzstan and Tajikistan this month made no mention of Line D, despite references to other cooperative ventures including road, rail and power projects. The omission of such a significant project for the region suggests that it may have been called off.
Demands on China for revised terms may also have weighed on the project and target dates.
Last month, Kyrgyzstan's deputy chairman of the State Committee for Industry, Energy and Subsoil Use, Zhyrgalbek Sagynbayev, said that talks had begun on the possibility of getting access to the pipeline to develop gas service in the country's southern regions.
"He noted that in order to resolve the issue it is necessary to conduct additional negotiations with all countries participating in the project," Azerbaijan's AzerNews service said.
Such demands may complicate the task of coordinating a project with multiple border crossings and impinge on the volumes for China, although some of the earlier delays may have resulted from CNPC's reluctance to add to its losses on importing Central Asian gas for sale at government-controlled prices.
In its "Gas 2019" report this month, the IEA projected that China's gas consumption would rise from 280.3 bcm last year to 392 bcm in 2022 and 450 bcm in 2024.
But it is unclear how the forecasts would be affected if Line D falls victim to further delays or cancellation.
With rising imports of LNG and the start of imports from Russia's giant Power of Siberia pipeline in December, China is likely to have access to diversified sources of supply, even if Line D fails. But 30 bcm per year could be hard to replace without consequences for gas markets and consumption growth.
In response to questions from RFA, the IEA listed the alternatives to Line D supplies, but it declined to say which would be likeliest to meet China's goals.
"Although the development of a fourth Central Asia-China pipeline is assumed as the baseline assumption, some delays could occur," a press official said.
"This could be partly balanced by additional LNG imports and/or faster ramping up of capacity from Russia's Power of Siberia, and could also be balanced by consumption adjustment," the official said.
Russia's Gazprom has been eager to fill the gap that may be left by Line D problems. But the Power of Siberia project is not expected to reach its peak flow level of 38 bcm per year until 2024, based on production schedules for its two main gas fields in East Siberia, reported by Interfax last month.
Sensing an opportunity
Gazprom is set to start filling the pipeline from the Chayanda field in August, but production will rise to only 19 bcm in 2022 from 6.9 bcm next year. The Kovykta field is expected to come on stream in 2023 with production of 5 bcm and 15 bcm in 2024.
Sensing the opportunity, Gazprom CEO Alexei Miller said on June 9 that the company has been in discussions with China about increasing Power of Siberia volumes by another 6 bcm per year, according to another Interfax report.
Miller did not say where the extra gas would come from, but Gazprom has been under pressure for years from rival Rosneft, which wants to break Gazprom's export monopoly over pipeline gas.
"We are bound by legislation that defines Gazprom as the sole supplier of export gas," said Igor Sechin, CEO of the state-owned oil giant, earlier this month. "But we think that our resource base can help Gazprom to fill the gas pipeline."
"We are ready to support Gazprom in all areas," Sechin said.
Gazprom may have complicated the calculations over the Line D deficit by negotiating a deal in April to restart gas imports from Turkmenistan after a lapse of three years.
The agreement has been seen as giving Turkmenistan needed cash, but it may also reduce volumes that could otherwise supply China.
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