“Gazprom” will go to China through the steppes

Kazakhstan and Russia are discussing the construction of several gas pipelines to gasify the northeast of Kazakhstan and export to China. Including options for a pipe from Omsk or Barnaul to Alashankou are being considered. The Kazakh side sees the main problem in the cost of Russian gas, since the tariffs in Kazakhstan are significantly lower than domestic ones. Experts believe that Kazakhstan may need to subsidize tariffs or swaps with Gazprom for gas supplies to China.

The authorities of Kazakhstan confirmed that they continue negotiations on gasification of the northern and eastern regions of the country with Russian gas. According to Energy Minister Bolat Akchulakov, it is about the construction of the main gas pipeline from Russia Barnaul-Rubtsovsk-Semey-Ust-Kamenogorsk with a continuation to Alashankou for deliveries to China and a branch to Pavlodar. Another option is the Omsk-Pavlodar-Semey gas pipeline with a branch to Ust-Kamenogorsk and a continuation to Alashankou.

According to Kommersant’s sources in the industry, the choice should be made by Gazprom, based on the state of the gas transmission network and the availability of resources.

In addition, the creation of a main gas pipeline along the route from Ishim through Petropavlovsk to Astana (approximate length – 644 km, capacity – 0.4 billion cubic meters) is being discussed.

Another option is to provide these regions with Kazakhstan’s own gas with the construction of two new branches of the existing Saryarka gas pipeline. The current capacity of the already launched part of the pipeline is 2.2 billion cubic meters of gas (the cost is $0.7 billion). The volume of supplies from Russia, as the Kazakh side specified, could be about 10 billion cubic meters per year, and in the case of additional supply of raw materials for export to China, the pipeline capacity could reach up to 20-30 billion cubic meters. Astana expected to receive calculations of the cost of routes from the Russian side as early as the second quarter of 2022, but, as Bolat Akchulakov clarified, there are no final amounts yet. Gazprom did not comment on the situation.

Gas from Russia is needed by Kazakhstan due to the lack of its own resources against the background of active growth in consumption (by 2 billion cubic meters over the past two years). According to Kommersant’s interlocutors in the market, we can talk about reducing exports to China in order to meet domestic demand. In 2022, Kazakhstan produced 27.8 billion cubic meters of marketable gas, of which 4.6 billion cubic meters were exported. In 2023, production is projected at 28 billion cubic meters, and by 2029 it is planned to increase it to 30 billion cubic meters through the construction of new gas processing plants (Kashagan, Zhanaozen) and connecting the Urikhtau, Pridorozhnoye and Rozhkovskoye fields to commercial production.

At the same time, negotiations with Russia on supplies have been going on for more than a year, but now they have intensified taking into account Western sanctions and the need for new sales markets for Gazprom, as well as a possible gas shortage in Kazakhstan by 2024.

But, as Bolat Akchulakov explained, the limiting factor in negotiations with Russia is the issue of the resource base and the cost of imported gas (in Russia, even domestic tariffs are two to three times higher than in Kazakhstan).

In Kazakhstan, unlike the Russian Federation, until 2022, the population and industry received raw materials at the same tariff. From 2023, an increased tariff will apply for large consumers.

Russia is now also negotiating the transit of gas through Kazakhstan to Uzbekistan via the Central Asia-Center gas pipeline. Delivery parameters have not yet been determined.

According to Sergei Kondratyev of the Institute of Energy and Finance, regulated prices in Kazakhstan remain low and the government is unlikely to be ready to raise them sharply in gasified regions. Thus, wholesale gas prices for commercial consumers in most regions of Kazakhstan are $50-55 per 1,000 cubic meters, which is 25% lower than prices for consumers in the Omsk region. “I think that Gazprom is unlikely to agree to deliveries at prices below $120–150 per 1,000 cubic meters,” the expert says. In his opinion, the government of Kazakhstan can go for direct subsidization of supplies, but this will require significant resources, therefore, as an alternative, a scheme can be used to organize gas supplies from Russia to Kazakhstan in exchange for pumping in the direction of Uzbekistan and China (including within the framework of swap agreements). The expert estimates investments in full-scale gasification of the central and eastern regions of Kazakhstan at more than $2 billion.

Olga Mordyushenko; Alexander Konstantinov, Kommersant-Astana