China to Import Natural Gas from Uzbekistan Amid Falling Demand

Strategic Insights -

China is set to import natural gas from Uzbekistan for the first time this year, as Beijing seeks to reduce its reliance on Russian gas and diversify its energy sources. The move comes as Uzbekistan seeks to offset declining revenues from its main export commodity due to falling demand. The Central Asia-China gas pipeline, which was commissioned in 2009, has a capacity of up to 40 billion cubic meters (bcm) per year and spans over 7,000 kilometers, making it a crucial energy corridor between the two countries.

Key Takeaways:

  • China will start importing natural gas from Uzbekistan this year, with the first delivery expected to take place soon.
  • The Central Asia-China gas pipeline, which has a capacity of up to 40 bcm per year, will be used to transport the gas from Uzbekistan to China.
  • The pipeline, which spans over 7,000 kilometers, passes through Turkmenistan, Uzbekistan, Kazakhstan, and China, with over 4,860 kilometers of it in China.
  • China's demand for natural gas has led Beijing to step up its purchase policies, despite the ongoing dispute over gas prices with Russia and Turkmenistan.
  • Uzbekistan's decision to start exporting gas to China is aimed at offsetting declining revenues from its main export commodity due to falling demand.
  • The country's gas production has declined significantly over the past few years, from 67.6 bcm in 2008 to 59.9 bcm in 2010.
  • China's CNPC will complete exploration in the Ustyurt and Bukhara-Khiva regions in early 2011, but experts believe that filling the pipeline with Uzbek gas may cause serious doubts, at least over the next five years.
  • Lukoil's plans to deliver about 10 bcm of gas per year from Uzbekistan to China are also hampered by the need for price negotiations, with China unlikely to pay more than $200 per 1,000 cubic meters of gas.

Statistics:

  • The Central Asia-China gas pipeline has a capacity of up to 40 bcm per year.
  • The pipeline spans over 7,000 kilometers.
  • Over 4,860 kilometers of the pipeline are in China.
  • China's demand for natural gas has increased significantly, with the country now seeking to import gas from other countries, including Uzbekistan.
  • Uzbekistan's gas production has declined significantly over the past few years, from 67.6 bcm in 2008 to 59.9 bcm in 2010.
  • The Kandym-Khauzak-Shady gas project in Uzbekistan has total reserves of 350 bcm and is estimated to cost $5.5 billion.
  • Lukoil owns 80% of the gas produced in the Kandym-Khauzak-Shady project, while Uzbekneftegaz owns 20%.

Sources:

  • Asia Pulse, Jan 15
  • China's Ambassador to Uzbekistan, Yu Hongjun
  • The Central Asia-China gas pipeline
  • Uzbekneftegaz
  • China National Petroleum Corporation (CNPC)
  • Gazprom
  • Lukoil
  • Interfax