Gazprom: new partners and new formats of cooperation in Central Asia

Sharp reduction of activities on a formerly main market – European – made one of the leaders of the Russian energy industry PJSC Gazprom look for new partners and new formats for cooperation. One of the promising regions today is Central Asia where the Russian gas monopoly intends to invest heavily and on a large scale. An important event was the launch of a strategic project on Russian gas supplies to Uzbekistan in transit via the territory of Kazakhstan. With these two countries, as well as with Kyrgyzstan Gazprom planned areas of long-term cooperation. By mid-2024 Moscow, Astana, Tashkent and Bishkek are to elaborate the details of joint work and prepare a legally binding contractual framework for the nearest 15 years.

Unexpected turn

Talk about broad cooperation between Russia, Kazakhstan and Uzbekistan in the energy sphere began at the end of November last year after the meeting of President Vladimir Putin with his Kazakhstani counterpart Kassym Jomart Tokayev in Moscow. This initiative of the Kremlin was informally named «Tripartite Gas Alliance». The media space of these two post-Soviet countries did not make any positive comments on the said news at that time. The first reaction was restrained and rather negative which was motivated by the apprehension of both Astana and Tashkent to fall under the steam-roller of western sanctions for building an energy alliance with Moscow, as well as to become excessively dependent on Russia.

However, the Kremlin stated immediately that the Russian President’s proposal does not contain any political background and only pursues quite concrete economic objectives. Eventually pragmatism prevailed over excessive apprehensions. The sides did not waste any time and as early as January 2023 Gazprom, based on the results of the negotiations held, signed bilateral ‘road maps’ on gas cooperation with Astana and Tashkent. While implementing the latter the sides set up a working group which was tasked with examining the condition and technical capabilities of the gas transport infrastructure for Russian gas supplies to Uzbekistan via the territory of Kazakhstan.

In June on the sidelines of the Saint-Petersburg International Economic Forum (SPIEF-2023) the UzGasTrade company and Gazprom Export signed a contract for two years for the supply of Russian gas to Uzbekistan. The document provides for the gas export in the volume of 9 mln m³ per day, almost 2.8 bn m³ per year. In the same period at the SPIEF-2023 a road map was signed on the preparation of the Uzbek gas transport system to receive and transport Russian gas as well as an agreement between Gazprom and QazaqGaz of Kazakhstan on rendering transit services.

On October 7, 2023 Presidents Vladimir Putin, Kassym Jomart Tokayev and Shavkat Mirziyoyev gave a start to the Russian gas supplies to Uzbekistan. Natural gas comes there in the reverse mode through an allocated section of the system of main pipelines Central Asia-Center (CAC) in transit via the Republic of Kazakhstan (RK).

«This is the biggest trilateral energy project for the implementation of which use is made of the gas pipeline Central Asia-Center built as far back as the 60-s, through which Uzbekistan had supplied with gas eight union republics at a time. Now it begins to operate in the reverse mode and will provide the growing economy of Uzbekistan and partly of Kazakhstan. Kazakhstan will be able to resolve the problem of gasification in its northern and eastern areas», Vladimir Putin said.

Commencement of Russian natural gas supplies towards Central Asia is a big new page in the history of Russian gas industry and Gazprom which plans to develop long-term joint projects with the former Soviet republics. «While some time ago our cooperation in the gas industry could be called short-term, now we’ve set the mission of reaching a 15-year long horizon», Alexei Miller said. [1] 

At the Saint-Petersburg International Economic Forum (SPIEF-2023) held in early October Gazprom signed cooperation agreements with Kazakhstan, Uzbekistan and Kyrgyzstan. A legally binding contractual framework is expected to be ready by mid-2024.

Gazprom has already blueprinted the second stage of reconstruction of the gas transport system Central Asia-Center, which will make it possible to build up the volumes of Russian gas supplies to the region from November 2025. Besides, Gazprom intends to revive the gas transport system Bukhara-Ural that has existed since the USSR times and to lay new pipelines to Kazakhstan.

Launching the system of CAC gas pipelines in the reverse mode with organization of Russian gas supplies will facilitate the development of the entire Central Asia region. Moscow deems it expedient for Turkmenistan, which positions itself as Russia’s strategic partner, [2] to also join the evolving «gas quartet». However, Ashgabat which sets a high value on its neutrality prefers to act alone in the gas matters, too. It is hardly possible to expect that this position will change. Besides, Turkmenistan’s officials hinted that they do not welcome Russian activity on the gas market of Central Asia.

Tashkent wants more gas

Uzbekistan occupies the second place in the CIS in production and stands fourth in the natural gas resources. According to the official data, its confirmed reserves are estimated at 1 trillion 866.9 bn cu m. Quite recently Tashkent was a net gas exporter. Natural gas from that country was imported by Gazprom as well. However, in the recent years Uzbekistan has had barely enough of its own gas since its production is falling because the available resource base is depleted. Thus, in 2022 it dropped by 4% versus 2021 to 51.7 bn cu m. In 2023 reduction of gas production became even bigger. According to the data of Uzbekistan’s Statistics Agency on Industrial Production, in the first seven months of the current year gas production in the country amounted to just 27.47 bn cu m, which is by 9.5% less than in the similar period last year.

Against the background of falling production domestic demand for gas tends to increase sharply. This is related to the economic growth rates (about 6% annually) and population increase (about 1 million people annually) which causes energy consumption growth by 10-15% per year. According to Uzbekistan’s Ministry of Energy, in just the past 6 years consumption of energy resources in the country rose by 40% and until 2030 such growth rates are expected to remain. [3] Last year because of abnormally cold weather Uzbekistan faced an acute shortage of energy resources. Because of these circumstances the national authorities had to suspend gas export to China and limit the operations of the automobile gas filling compressor stations. However, these measures proved to be insufficient at that time and eventually gas had to be purchased from neighboring Turkmenistan.

Natural gas plays a key role in Uzbekistan’s energy balance. It constitutes 75% of electric energy generated in the country. In the long-term prospect Tashkent places emphasis on renewable energy sources (RES), but does not want to give up gas. At present, along with the additional capacity of RES new gas facilities are put into operation. Besides generation of electric energy, gas is also required for natural gas conversion which Uzbekistan has been developing throughout the whole past 30 years. As far as the latter is concerned, there are ambitions plans since it is much more profitable not to export gas, but to make products from it with added value for subsequent sales. In Uzbekistan there are five operational gas chemical complexes, and by 2026 another six chemical engineering clusters will be commissioned. [4] 

Russian gas will allow Uzbekistan to cover the deficit of domestic consumption in the current heating season of 2023-2024 and to avoid interruptions in power supply. Besides, the republic will be able fulfil its gas export contractual obligations to China. For this reason Tashkent is interested in building up gas supplies from Russia and is ready for long-term work in this direction. [5] At the meeting during the gas forum (SPIGF-2023) the Head of Gazprom Alexei Miller and Uzbekistan's Minister of Energy Jorabek Mirzamahmudov signed a strategic memorandum on cooperation in the energy complex. According to this document, the sides intend to develop interaction in gas supplies and transportation, as well as in geological exploration and production of hydrocarbons. Negotiations with Gazprom on the mid-term and long-term contacts on gas supplies already started in October this year during the official visit of Uzbekistan's President Shavkat Mirziyoyev to Russia. Earlier, in August, Kazakhstan's Minister of Energy stated that it is ready to provide transit from 1.5 bn to 10 bn m³ of Russian gas to Uzbekistan annually. The volume may be increased depending on the readiness of the Uzbek infrastructure and the respective decisions of the Russian side.

Gazprom is far from being a newcomer on Uzbekistan’s energy market. As far back as 2002 the Russian monopoly and the company Uzbekneftegaz signed an agreement on strategic cooperation in the gas industry which was renewed in 2017. At this stage Gazprom participates in two projects in the territory of Uzbekistan on the Ustyurt plateau: in further development of the Shakhpakhty field (provides for continued gas production to 2024) and in the development of the Jel field.

Kazakhstan: transit plus gasification

Gas industry opens great prospects in the relations between Kazakhstan and Russia. Astana believes that understandings on Russian gas transit to Uzbekistan via the territory of RK elevated energy cooperation on a whole new level.

Further extension of the Russian-Kazakhstani partnership in this field will be facilitated by the strategic cooperation agreement signed on November 1 by the Head of Gazprom Alexei Miller and Kazakhstan’s First Deputy Prime Minister Roman Sklyar during the international gas forum in Saint-Petersburg. The document is aimed at developing interaction on supply, transportation and processing of natural gas, as well as on geological exploration and production of the latter.

At this stage the main item on the Russian-Kazakhstani gas agenda seems to be gasification of Kazakhstan’s northern and eastern areas. Moscow expressed readiness to assist in this matter which has long caused Astana’s concern. One of the possible solutions is the import of gas from the RF which could come to the RK directly via the Russian gas transport system (GTS). Earlier, in June this year, Almasadam Satkaliyev, Kazakhstan’s Minister of Energy, said at the meeting with the citizens of the North Kazakhstan Region that his ministry is evaluating an option of ring connection of the Saryarka Gas Pipeline with the Russian gas pipeline. According to the minister, Gazprom is to complete the development of a preliminary feasibility study. After defining the gas pipeline route and setting the price for gas an optimum variant will be selected to gasify Kazakhstan’s northern and eastern areas. According to the information presented by Almasadam Satkaliyev, the gasification project will cost 1.9-2 trillion tenge (4.2-4.4 bn dollars), design capacity will be 40 bn m³ per year. [6] In turn, Alexei Miller said on November 9 this year that «currently a technical and economic analysis is being made, not yet a feasibility study, but an analysis which will be completed within the nearest month’s time and will give an answer on technical feasibility of this project and its cost effectiveness».

The Saryarka Gas Pipeline runs from the Kyzylorda region in the South to the cities of Zhezkazgan, Temirtau and Karaganda in the North-East of Kazakhstan and reaches Astana. Connection of this gas pipeline to the Russian GTS will relieve the Kazakhstani authorities from the necessity to build new pipelines from the West where the majority of the gas field is concentrated.

Note than the RK is a gas producing country and in gas reserves it takes the third place in the CIS (after Russia and Turkmenistan). The state commission estimated extractable reserves of gas at the level of 3.8 trillion m³. Similarly to Uzbekistan, demand for gas in Kazakhstan is constantly growing. According to the data of Kazakhstan’s Ministry of Energy, in the past five years its consumption grew by 35%. Thus, while in 2020 gas consumption volume was about 17 bn m³ and last year it exceeded 19 bn m³, by 2023 this figure may reach 20 bn m³. Kazakhstan’s gas company QazaqGaz forecasts that by 2030 demand for natural gas in the country will increase to 40 bn m³ per year. One of the main reasons is gasification which is in full swing. By 2030 Kazakhstani authorities plan to provide with gas 13.5 mln people – 65% of the population. The trend towards demand is also attributed to the fast rates of development of the gas chemical industry. Besides, natural gas plays a key part in the energy transition. According to the forecasts of Kazakhstan’s Ministry of Energy, by the middle of the current century 25-30% of electric energy in the country will be generated using gas.

Against the background of growing domestic consumption export supplies of Kazakhstani gas to China have been decreasing steadily in the recent years. Under the ongoing Chinese-Kazakhstani gas agreement dated 2018 Astana assumed commitment to annually transport to China not less than 10 bn m³. However, in reality such volumes are not supplied since Kazakhstani authorities have to send the gas produced to national consumers and this happens despite the fact that supplies to the domestic market are now lossmaking for QazaqGaz. Thus, while in 2021 Kazakhstan had transported to China 7.2 bn m³ which was 85.1% of the plan, last year export dropped down to 4.6 bn m³. In 2022 gas production in Kazakhstan was about 26 bn m³, consumption was 21.7 bn m³. During the eight months of the current year supplies to China barely reached 2.84 bn m³.

Nevertheless, China expects Kazakhstan not only to provide stable gas supplies under the contract, but also to build up its volumes in the winter period. Meanwhile, Kazakhstan’s Ministry of Energy is afraid that in 2025 the country may face gas deficit altogether. In February this year QazaqGaz announced possible termination of gas export to China in the autumn and winter season of 2023-2024 to avoid shortages in the said period. [7] 

By importing Russian gas Kazakhstan will be able to meet the constantly growing domestic demand, which, in turn, will allow it to fulfil the contract with China completely. Speaking about potential volumes of Russian natural gas export to Kazakhstan, earlier its Ministry of Energy had stated that this volume may be 10 bn m³ to supply the country’s northern and eastern regions. If a decision is made to supply additional volumes to the South of Kazakhstan, the volumes may be increased to 20-30 bn m³ per year. [8] 

On the sidelines of the recently held international gas forum Kazakhstan’s First Deputy Prime Minister Roman Sklyar said that the RF and RK plan to sign an agreement on supplies of 3 bn m³ of gas. Astana expects that Russian gas will be transported on mutually beneficial conditions with regard to the friendly relations between the two countries. [9] Sklyar noted that transit of Russian natural gas to third countries is also under consideration, but did not go into details. «It is a process we are at the negotiations stage. We discuss all directions», the Deputy Prime Minister said adding that China is meant, too.

Kyrgyzstan entrusts its energy sector to Gazprom

Gazprom has already been operating on the Kyrgyz market for almost ten years through its 100% subsidiary LLC Gazprom Kyrgyzstan. The company is an exclusive importer of natural gas to the Kyrgyz Republic (KR) and the owner of its gas transport and gas distribution systems. Gazprom Kyrgyzstan was established on the base of the national operator JSC KyrgyzGaz which Gazprom had bought for a token price of 1 dollar in April 2014. [10] The said deal was made in accordance with the Russian-Kyrgyz inter-governmental agreement on cooperation in transportation, distribution and sale of natural gas. The document was signed in 2013 for 25 years. Gazprom then received all the gas transport assets of Kyrgyzstan, including gas pipelines, gas distribution stations, underground gas storage facilities etc. In turn, the Russian company guaranteed investments into the modernization of the KR’s gas infrastructure in the amount of not less than 20 bn rub. for 5 years.

Along with the assets of the JSC KyrgyzGaz Gazprom also got the debts in the amount of more than $56 m that had accrued for years. Of these the company owed $46 m to Kazakhstan for the supplies of natural gas; without prompt repayment of this debt it was impossible to provide further gas supply to the country’s northern regions. The remaining part of the debt consisted of credits that the JSC KyrgyzGaz had received from the KR’s Ministry of Finance to provide its activities. Gazprom Kyrgyzstan paid all the debts during the very first year of its operations. Besides, the company managed to solve another problem related to the interruptions in gas supply in a number of Kyrgyz regions. Thus, the southern regions of the KR remained without natural gas for 9 months in 2014. By 2015 supplies were renewed. Gazprom Kyrgyzstan passed its first heating season of 2014-2015 in its history successfully.

Pass into the control of Gazprom became a timely and salutary step for Kyrgyzstan’s gas industry. At that time the Kyrgyz gas infrastructure that had been put into operation in the 60-70-s of the past century was in a miserable state and required huge investments into reconstruction. [11] The main and street pipelines that Gazprom Kyrgyzstan inherited from KyrgyzGaz were worn, the majority of the company’s fixed assets used up their service life and were evaluated by the audit company as unreliable. There were also tangible gas transportation losses which in the South of the KR were as high as 47%. In 2016 the LLC Gazprom Kyrgyzstan commenced large-scale refurbishment and development of the gas facilities. As of 2021 the company invested more than 28 bn soms into the development and modernization of Kyrgyzstan’s gas infrastructure. As a result of implementation of investment projects and renewal of fixed assets the margin of safety was secured for 40 years ahead.

With the advent of Gazprom to Kyrgyzstan gasification was given a strong impetus. While in 2014 22% of the Kyrgyz population were provided with gas, today this figure is 38% and by 2030 it is expected to increase to 60%. As of today, more than 42 populated points were gasified in Kyrgyzstan in which over 1,100 km of gas distribution networks were laid. «Blue flame» natural gas came to over 200 thousand households. [12]

Last year gas consumption in Kyrgyzstan was 387 mln m³. For comparison: volumes of supplies to Armenia exceed 2.5 bn m³ of gas per year, to Belarus 20 bn m³. For Bishkek a very favorable purchasing price for natural gas was fixed: 140 dollars for 1,000 m³. [13] 

Kyrgyzstan’s authorities plan to increase purchases of natural gas. Gasification now underway in the country requires more gas. Plans are made to fully gasify Bishkek and localities of the Chüy Region. Currently the authorities work on conversion of the Bishkek thermal power plant from coal to natural gas. It generates 2 bn kW of electric energy, but at the same time is a source of smog. Besides, plans are underway to build a gas-fired power plant in Chaldovar with capacity 500 mW. Owing to launching Russian gas supplies in the reverse mode through the CAC system it will not be difficult to build up volumes of export to Kyrgyzstan.

Bishkek has no objections against Gazprom’s producing oil and gas on its territory as well. This was mentioned by the Minister of Energy Taalaibek Ibrayev at the plenary session of the Saint-Petersburg international gas forum. Back in 2019 Gazprom and the Kyrgyz Government signed a road map for participation in buying the property and assets of the biggest oil-and-gas production enterprise JSC Kyrgyzneftegaz where the state owns more than 85% of shares. This company performs geological exploration, drills development and exploratory wells, as well as exploits 35 small oil-gas fields which are concentrated in the South of Kyrgyzstan. Annual oil production ranges from 75 thousand to 80 thousand tons. Last year 29.9 mln m3 of natural gas were produced.

It seems that after successful experience of transferring gas supply to the reliable manager Gazprom Bishkek also intends to transfer the electric energy sector. This is prompted by the memorandum of understanding on cooperation in the development of the KR’s gas industry that the Chairman of the Management Committee of Gazprom Alexei Miller and Kyrgyzstan’s Minister of Energy Taalaibek Ibrayev signed in early November during the Saint-Petersburg international gas forum. Along with the long-term cooperation on gas, this document is also intended to study possible cooperation on electric energy.

Kyrgyzstan has rich reserves of water resources. Of these, a big part is made up of lakes and glaciers. However, only 10% of their hydroelectric potential is used and for this reason the republic feels a chronic energy deficit. Kyrgyzstan compensates for the shortage of electricity through supplies from Turkmenistan, Russia and Kazakhstan. About 2.5-3 bn kW/h of electric energy are imported annually. In 2023 Bishkek will buy from Russia 1.5 kW/h of electric energy. In the three nearest years to come Kyrgyz authorities plan to build generating capacities that will fully meet the domestic demand for electricity and will even allow them to begin its export. [14]

Cooperation prospects

During the past year the Russian side managed to do a lot to make the idea of the «Tripartite Gas Alliance» not just realistic, but also to put it into practice. Supplies of Russian gas to Uzbekistan became a kind of a bid to implement Gazprom’s ambitious plans in Central Asia. The fact that Bishkek also joined the emerging informal energy alliance, besides Astana and Tashkent, can be deemed a big success.

Russia and Central Asia countries have a great potential for energy cooperation which, however, was not used in full measure up till now. The current situation on the world energy market, as the energy supply situation inside each of the post-Soviet republics create optimum conditions for extension of interaction in this area, especially on gas. Cooperation with Gazprom will make it possible to resolve a number of important tasks simultaneously. Thus, the import of Russian natural gas will help Kazakhstan and Uzbekistan to meet the constantly growing domestic demand for natural gas and completely discharge their contractual obligations to China. Besides, Astana and Tashkent with the help of Russia will be able to modernize the national gas transport infrastructure, to build underground gas storage facilities and gas chemical complexes, as well as to discover other opportunities.

In the light of the rapidly changing geopolitical picture of the world, energy cooperation with Central Asia has become strategically important for Russia. In particular, the Central Asia region may become a «bridge» for the entry of Russian gas into the markets of such large countries as China, India, Pakistan etc. A huge role in this belongs to the system of main pipelines Central-Asia-Center which interconnects the gas transport infrastructure of Russia and post-Soviet republics of Central Asia.