Putin's birthday gift: Russia kicks off gas supplies to Uzbekistan via Kazakhstan

Putin's birthday gift: Russia kicks off gas supplies to Uzbekistan via Kazakhstan
President Kassym-Jomart Tokayev of Kazakhstan, President Vladimir Putin of Russia and President Shavkat Mirziyoyev of Uzbekistan / Kremlin website
By bne IntelliNews October 17, 2023

With Gazprom suffering an unprecedented drop in output after losing most of its market share in Europe, it is no surprise that Russia’s premier gas producer is turning its eyes to growing markets in Central Asia to ease the pain on its revenues.

Russia officially launched natural gas deliveries to Uzbekistan via Kazakhstan on October 7, taking advantage of a squeeze in Central Asian gas supply to partly offset its loss of market share in Europe.

The start of shipments was marked by a ceremony attended by Russian President Vladimir Putin, Uzbek President Shavkat Mirziyoyev and Kazakh President Kassym-Jomart Tokayev, at Putin’s presidential residence in Novo-Ogaryovo, outside Moscow. It coincided with the Russian president’s birthday.

Over the next two years, Russia will supply 2.8bn cubic metres per year of gas to Uzbek consumers via Kazakhstan, using the Soviet-era Central Asia-Centre (CAC) gas pipeline. Built in the 1960s, the pipeline was traditionally used to deliver Turkmen and Uzbek gas through Kazakhstan to Russia. But those supplies had been gradually declining for years before finally ceasing at the start of 2022.

Russia used to need Central Asian gas to supplement its own production for exports to Europe. After investing heavily in its own production, Gazprom no longer had any requirement for this supply. And after losing 80-85% of its pipeline gas market share in Europe over the past year and a half, the company now needs new export options.

Meanwhile, Central Asian gas consumption has been rising in recent years, with Uzbekistan and Kazakhstan finding themselves without enough supply to meet their own needs, let alone support exports. The lack of supply was highlighted last winter, when both countries suffered blackouts due to spikes in power demand.

As such, the flow direction of the CAC pipeline has been reversed. At the ceremony, Putin explained that Uzbekistan would secure an extra source of energy supply guaranteeing uninterrupted heat and electricity. Kazakhstan will also receive supplies, which it can use to support the gasification programme underway in its northern and eastern regions.

The three countries initially considered two routes for the reverse-flow of Russian gas – the Bukhara-Ural pipeline and one string of CAC. The first route was abandoned as an option because of its state of disrepair, and the parties decided to use parts of two CAC strings for the supplies. Transmission facilities in all three countries were upgraded and new ones built to enable this. The gas flows from Russia’s national pipeline system through Kazakhstan to the Uzbek border, where it is received at the newly-built Karakalpakia gas metering station and then delivered through a new section of the Bukhara-Ural pipeline to demand centres.

The project, informally referred to as the “triple gas union,” was first announced in November 2022. Concerned with the perception that this meant a loss of sovereignty, Uzbek authorities avoided referring to it as a “union,” however, instead referring to it only as a “technical contract.” Negotiations continued, and in January this year Gazprom reached co-operation agreements with Uzbekistan and Kazakhstan on the project. Binding contracts on Russian supplies were signed in June 2023.

Commonly referred to as the Kremlin’s “gas weapon,” Gazprom’s might has been significantly subdued over the past year. It suffered a 25% year-on-year drop in production in the first half of this year to 179.5 bcm, on the back of the drastic fall in its exports to Europe. Central Asia offers a new market, albeit much smaller and less lucrative.

And the market is growing bigger. Economic growth and rising population has seen gas demand in Uzbekistan and Kazakhstan grow in the past two years. The pair have also endured abnormally cold winters, and have seen domestic production fall, even while having to fulfil export obligations to China. The situation was particularly acute for Uzbekistan in December 2022 and January 2023, but Russian supply should mean the country fares better this winter.

Meanwhile, Kazakhstan will gain from steady transit fees, not to mention gas supply itself if it chooses to enact that option in the contract it has signed. The country is years into a long-running gasification programme, primarily focused on its northern and eastern regions, in order to increase energy access to its population and reduce the use of more polluting coal.

Both Kazakh and Uzbek politicians have played down the political implications of reliance on Russian gas, as they seek to distance themselves from Moscow in other ways, in response to the conflict in Ukraine. Whether or not Russian gas will translate into greater Russian influence remains to be seen.


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