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.