21 Dec 2023 19:07

Central Asia Gas Pipeline's Line D construction could resume in 2024 - S&P

MOSCOW. Dec 21 (Interfax) - PetroChina expects to resume the construction of Line D of the Central Asia Gas Pipeline or CAGP in 2024, S&P Global Commodity Insights said, quoting a source with knowledge of the plans.

This would open up another conduit for pipeline gas imports into China, after construction on the project has been suspended for many years, it said.

"Construction of Line D can resume immediately if the upstream gas supply contract with Turkmenistan is finalized," the source said.

China imports more than 40% of its natural gas through pipelines and seaborne LNG. The largest pipeline gas supply comes from the Central Asia Gas Pipeline via Turkmenistan, Uzbekistan and Kazakhstan, all major producers.

The CAGP comprises three lines, A, B and C, each more than 1,800 km long with transmission capacity of 55 billion cubic meters per year. However, after a few years of strong growth, the three Central Asian nations have been forced to reduce exports to meet surging domestic demand, especially during the critical winter heating season. S&P Global Commodity Insights said.

Line D takes a shorter route from Turkmenistan through southern Uzbekistan, Tajikistan and Kyrgyzstan to the western part of China's Xinjiang province. Line D was planned to tap Turkmenistan's Galkynysh gas reserves, which are among the world's largest, and where projects are being funded by China Development Bank.

Line D has been under discussion for several years and with capacity of around 30 bcm per year it could lift CAGP's total network capacity to 85 bcm per year once it starts operation.

A groundbreaking ceremony for Tajikistan's section of Line D was held on September 13, 2014 and attended by Chinese President Xi Jinping and Tajik President Emomali Rahmon, China's Xinhua News Agency said, but there have been no reports on progress since then.

Turkmenistan is China's biggest pipeline gas supplier, sending 34.09 bcm of natural gas via the Central Asia gas pipeline in 2022, accounting for 54% of China's total pipeline gas imports, according to S&P Global Commodity Insights data. This is much higher than the 17.1 bcm of 27% imported from Russia last year.

PetroChina's parent company CNPC has asked for the contract price with Turkmenistan to be lower than the CAGP gas price from Kazakhstan because CNPC has been investing in Turkmenistan's upstream gas fields, but Turkmenistan has not agreed, S&P Global Commodity Insights quoted other industry sources as saying.

"President Xi has already called for accelerating the construction of Line D. I think both sides will reach a consensus for the contract soon - either we will make concession[s], or they [Turkmenistan] will do that. After all, the project must be done finally," a senior CNPC official said.

President Xi proposed a China-Central Asia energy development partnership and called for speeding up the construction of Line D at the China-Central Asia Summit on May 19, 2023, Xinhua reported.

S&P Global Commodity Insights said that more broadly, CAGP has become more significant geopolitically because it strengthens Beijing's presence in Central Asia through energy cooperation, and is an important leg of China's Belt and Road Initiative.

"China is also considering Russia's proposal to supply gas via Kazakhstan, under a plan that will see Moscow supply gas to Central Asian countries to meet domestic demand, leaving CAGP with sufficient gas to supply China as well as reverse flows to carry Russian gas eastwards," S&P Global Commodity Insights said.

"The main obstacle for Russia's Central Asian gas route to China is also the price at the border, as Beijing is currently unwilling to accept a gas price higher than that of the Power of Siberia 1 project, which is the cheapest among China's piped gas imports," it said. The price disagreements have stalled Power of Siberia 2 and Kazakhstan's gas swap agreements, its sources said.

"If China and Russia reach an agreement on gas supply prices, Russia may be able to supply natural gas to China through Kazakhstan by using the existing Central Asia-China pipeline as early as next year," one of the sources said.

S&P Global says in its latest forecast that China's total pipeline gas imports could rise 5% to 66.07 bcm in 2023 and 13% to 74.48 bcm in 2024.