[NGW Magazine] Central Asia Chases Customers
This article is featured in NGW Magazine Volume 2, Issue 19
By Dalga Khatinoglu, Ilham Shaban, Kama Mustafayeva
Kazakhstan is increasing its exports to China, reminding Turkmenistan that its sole remaining export market has plenty of other options for meeting its gas demand. China can only prosper from central Asian disunity.
Announcing a deal to export 5bn m³/yr to China from October 15 this year for delivery at Khorgos, Kazakhstan released the result of nine-month gas production, indicating a 17% growth year on year.
The agreement is between state-run KazTransGas and PetroChina and marks a major increase in the present contract of under 0.5bn m³ in 2016, KazTransGas said October 3.
The report put the unnamed fields in the west of country as well as its owned underground gas storage facilities as the gas source, but KazTransGas, controlled by state-run KazMunaigas, is responsible both for transiting gas and selling that to domestic and foreign markets. China National Petroleum Corporation (CNPC) is the controlling shareholder of PetroChina as well.
CNPC has been receiving central Asian gas through the three branches of Central Asia-China pipeline since 2009 and deliveries have slowly risen to about 35bn m³ in 2016. The pipeline passes through the east regions of Kazakhstan and carries gas from Turkmenistan and Uzbekistan as well.
Kazakhstan enabled gas delivery to China in the second half of last year when the 1477-km Beney-Bozoy-Shymket pipeline from west to south east became operational.
During the days of the Soviet Union, Kazakhstan’s southern regions, which are close to China, suffered from a shortage of gas infrastructure connecting them to the country’s gas-rich western regions; a situation that persisted until early last year. Kazakhstan was importing gas from Uzbekistan to supply this region.
The pipeline made southeastern regions independent of Uzbek gas and prepared the ground for significant gas deliveries to China from western sources such as the Kashaghan, Tengiz and Karachaganak fields. At the moment, all Karachaganak’s gas goes with the condensate stream to Orenburg in southern Russia, Gazprom buying the gas very cheaply as a by-product for distribution in the region.
But Kazakhstan’s energy minister Kanat Bozumbayev announced October 3 that the republic’s gas production rose 17% in the nine months of 2017 to 51.8bn m³. He did not mention the source of growth, but a day after that, his deputy Makhambet Dosmukhambetov announced during the 25th Kazakhstan International Oil & Gas Exhibition in Almaty that the country had produced 4.5bn m³ from Kashaghan since it re-opened in September 28, 2016, of which 4bn m³ was produced during the nine months of current year.
Last year, Kazakhstan exported 431mn m³ gas to China through the Central Asia-China pipeline, while Turkmenistan and Uzbekistan exported 30bn m³ and 4.3bn m³ respectively from this route to China. It is expected that KazTransGas’s export revenue from China will reach $1bn/yr, the company said.
Kazakhstan plans to increase raw gas production (including what is re-injected or flared) by 40% in 2020 to 65bn m³/yr and 240% by 2030 to 110bn m³/yr, compared with 2016, when it produced 46.33bn m³, of which 19bn³ was sale gas. However its gas consumption would increase only 38% to 18bn m³/yr by 2030.
Its neighbour Uzbekistan also plans to tender for the drilling of 400 wells, including 254 gas wells, to add 54bn m³/yr to its current 64bn m³/yr gross gas production by 2020. Lukoil is investing in Uzbek gas production as well, with exports to China as one option.
The new agreement seems to affect Turkmenistan as China remains its sole client after Russia stopped importing gas at the beginning of 2016 and Iran followed suit in 2017. The desertion of two customers combined with weak gas prices has left Turkmenistan in a weak position, as it has debts to repay to China related to upstream investment.
China increased its Turkmen gas intake very slightly in 2016, but it has doubled its Uzbek gas purchases and also started importing Kazakh gas. Kazakhstan and Uzbekistan export gas to Russia as well. Russia’s president Vladimir Putin visited the Turkmen capital Ashgabat October 2, but neither Turkmen nor Russian media or officials mentioned gas. Russia’s energy minister Alexander Novak announced October 3 in a conference in Moscow that gas purchases from Turkmenistan had been curtailed but he said the two sides were mulling joint ventures for the production and sale of Turkmen gas.
Turkmenistan started work on the $10bn Turkmenistan-Afghanistan-Pakistan-India (Tapi) pipeline project, in which it holds 85%, in 2015; but after 20 km were laid, work was suspended. Indian Gail, ISGS of Pakistan and Afghan Gas Enterprise (AGE) share the remaining 15% equally. The total length of Tapi will be 1,814 km, of which 214km runs through Turkmenistan, 774 km through Afghanistan and 826 km through Pakistan. None of them has started development of the project in their own countries. A senior gas official from Pakistan told NGW late September that until Turkmen gas was as cheap in India as is LNG now, India would have no interest in gas from Turkmenistan. Pakistan too is to be a big LNG importer, focusing on price.
Turkmenistan started exporting a restricted amount of gas to Azerbaijan via gas swaps gas with Iran in October 2016. Baku received 970mn m³ of gas from Turkmenistan in the first nine months of the year, in this way, the idea of building a link directly across the Caspian Sea perhaps setting a dangerous precedent for future transCaspian deliveries further afield. Iran needs gas in the northeast, far from its gas fields; but has excess in the northwest.
Kashagan expects more gas
Deputy energy minister Makhambet Dosmukhambetov told the KIOGE conference October 4 that Kashagan output was up by almost half again on earlier forecasts of 3.1bn m³/yr. Over the 9 months of 2017, Kashagan produced 5.9mn mt of oil and 3.5bn m³ of natural gas, he said.
“Currently daily oil production exceeds 200,000 barrels. With the optimisation of re-injection of raw gas into the reservoir, the volume of crude extraction is planned to increase to 370,000 b/d. The overall production for this year is expected at 8mn mt of oil and 4.5bn m³ of gas,” he said. Gas re-injection in Kashagan started in August.
Higher production forecasts hints that the gas injection has been slower than expected in Kashagan, where the sulphurous hydrocarbons have caused lengthy and expensive problems. Earlier, the energy minister Kanat Bozumbaev said that the North Caspian Operating Company which is developing the field had some difficulties with compressors. The gas and condensate Karachaganak field in western Kazakhstan produced 9.3mn mt of liquids and 14bn m³ of gas by the end of September, Dosmukhambetov reportedly said.
Dalga Khatinoglu, Ilham Shaban, Kama Mustafayeva