Chinese Natural Gas Deals in Central Asia Foreshadow Expanded Pipeline Project

On June 18, CNPC Chuan­qing Drilling Engi­neer­ing Com­pa­ny Ltd. (a sub­sidiary of CNPCwon a ten­der from Turkmenistan’s state-owned enter­prise, Turk­mengaz, to devel­op new wells at the Galkynysh gas field (which is among the world’s largest).  In a sep­a­rate devel­op­ment, on June 21, Kaza­khstan-based Sozak Oil and Gas JSC was report­ed­ly close to final­iz­ing a $1.2 bil­lion EPC con­tract with China’s CAMC Engi­neer­ing for a nat­ur­al gas project that involves well drilling, explo­ration, and pipeline work in the Kaza­khstani regions of Turk­istan and Kyzy­lor­da.

These two recent agree­ments could be indi­ca­tors of renewed momen­tum for the con­struc­tion of the long-delayed Line D of the Cen­tral Asia-Chi­na Pipeline, which runs from Turk­menistan through Uzbek­istan, Tajik­istan, and Kyr­gyzs­tan.  Con­struc­tion of Line D, the fourth line of the pipeline, has been pro­ceed­ing only halt­ing­ly in recent years and is report­ed­ly still “sev­er­al years away” from com­ple­tion (with oth­er reports indi­cat­ing it had been sus­pend­ed or can­celled).  If com­plet­ed, Line D would increase the pipeline’s capac­i­ty by 30 bcm and increase sig­nif­i­cant­ly Turkmenistan’s annu­al gas exports to Chi­na, from the cur­rent 40 bcm to 65–70 bcm.

The Galkynysh project calls for CNPC to be com­pen­sat­ed over a three-year peri­od with gas deliv­er­ies of 17 bcm per year (when the exist­ing pipeline is already at or near its capac­i­ty of 55 bcm).  The project is expect­ed to take 30 months to com­plete, around when Line D has been fore­shad­owed as pos­si­ble.  Togeth­er with the Kaza­khstan project, these devel­op­ments appear to indi­cate momen­tum in – or at least rein­force the argu­ment for – the con­struc­tion of Line D.

An expand­ed pipeline would add fur­ther to China’s diver­si­ty of nat­ur­al gas import options, which include the recent­ly oper­a­tional­ized Pow­er of Siberia 1 project that brings gas from Rus­sia and amidst dis­cus­sions about Pow­er of Siberia 2.  As Chi­na expands its options for meet­ing its domes­tic ener­gy needs, an expand­ed pipeline would improve Beijing’s abil­i­ty to nego­ti­ate with its sup­pli­ers (includ­ing Rus­sia), but also lever­age its mar­ket for geopo­lit­i­cal gain when nec­es­sary.  The recent lim­its placed by Chi­na on pur­chas­es of LNG from Aus­tralia is a demon­stra­tion of this lever­age and flexibility.