Kazakhstan is exploring ways to increase its natural gas exports to China, possibly through a new pipeline. The country is currently in talks with Beijing to bolster energy cooperation, according to Bloomberg, citing CEO of QazaqGaz Sanzhar Zharkeshov. This move underscores Kazakhstan’s growing importance as a key energy supplier in the region.
«Despite concerns about China’s economic growth, Kazakhstan remains optimistic about the continued demand for natural gas. The country is actively negotiating to increase its gas exports to China and is also exploring opportunities to expand sales to neighboring countries like Uzbekistan,» Zharkeshov said.
Given that QazaqGaz’s negotiations with China imply «significantly higher volumes» of gas exports compared to current levels, Kazakhstan is going to face intense competition with neighboring countries like Turkmenistan, Russia and Uzbekistan. Since Russia’s full-scale invasion of Ukraine in February 2022, which led to the loss of key gas buyers in Europe, China has become a crucial alternative market for Russia, despite facing an economic downturn. As a result, Gazprom, Russia’s state natural gas operator, has reported record daily volumes of gas exports to China throughout this year.
Kazakhstan is eager to boost its gas production to meet rising domestic demand and increase export revenues. Currently, the country exports about 4 billion cubic meters (bcm) of gas to China annually, while domestic consumption stands at around 21 bcm. In 2023, Kazakhstan renewed a three-year export contract with China.
QazaqGaz, a subsidiary of Samruk-Kazyna, is seeking to increase its foreign gas sales to offset losses incurred from selling gas at subsidized low prices in the domestic market. The company is collaborating with national producers such as KazMunayGas, also a subsidiary of Samruk-Kazyna, and the operators of key fields like Tengiz, Kashagan and Karachaganak to increase output.
As Zharkeshov noted, QazaqGaz is working on a new gas price formula to support producers and is collaborating with Qatari investors to raise production by another 3.5 bcm by 2029. Additionally, the company is working on exploration projects with Chevron Corp.
Furthermore, QazaqGaz is considering constructing a second pipeline to connect with an existing pipeline in China, which is currently operating at around 70% capacity. This indicates potential for Kazakhstan to increase its gas exports to China by utilizing the remaining capacity in the existing Chinese infrastructure. The new pipeline could cost between $3 billion and $6 billion, depending on capacity, with construction expected to take two to three years. A final decision is expected later this year.
«Although China has secured several favorable liquefied natural gas (LNG) contracts, LNG prices remain less competitive versus pipeline gas. Therefore, we are focused on meeting our commitments to China during this winter season,» said Zharkeshov.
To finance its projects, QazaqGaz may issue up to $1 billion in Eurobonds in 2025, depending on market conditions.
Between January and August 2024, Kazakhstan supplied 2.3 bcm of gas to China for $575.7 million, representing an 18.9% decline in volume and a 20.61% drop in value year-on-year (YoY), according to Kazakhstan’s State Revenue Committee under the Ministry of Finance.
The average customs price of Kazakhstan’s gas to China was $249.66 per 1,000 cubic meters. During this period, Kazakhstan did not export gas to any other countries.
In 2023, Kazakhstan supplied 5.857 bcm of gas to China, a 15.5% increase YoY. However, due to higher export prices, QazaqGaz, as the national gas operator, has had to cross-subsidize unprofitable domestic fuel supplies. Essentially, the company keeps domestic gas prices low through its export revenues.
Kazakhstan’s revenue from gas exports to China in 2023 totaled $1.467 billion, with an average price of $250.43 per 1,000 cubic meters. In 2022, Kazakhstan supplied 5.07 bcm of gas to China for $1.21 billion, at an average price of $238.73 per 1,000 cubic meters.
Kazakhstan has a contract in place for gas exports to China for 2023-2026, which was signed in Oct. 2023 in Beijing. In June, QazaqGaz entered into a long-term agreement with Russia’s Gazprom to allow Russian natural gas to transit through Kazakhstan to neighboring Uzbekistan and Kyrgyzstan. Gas from Turkmenistan and Uzbekistan also transits through Kazakhstan to China.
Starting July 1, 2024, QazaqGaz Aimaq, a subsidiary of QazaqGaz, began purchasing 19 bcm of gas at approximately $55 per 1,000 cubic meters. As a result, QazaqGaz is selling gas on the domestic market this year at $55.90 per 1,000 cubic meters. As the gasification rate in Kazakhstan increases and domestic consumption of low-cost gas rises, the company’s need to boost export sales to subsidize these low domestic prices will continue to grow.
