UZBEK GAS FOR EXPORT: WILL POLITICAL MANEUVERING BETWEEN CHINA AND RUSSIA RESULT IN HIGHER EXPORT PRICE?

Jahangir KAKHAROV


Jahangir Kakharov, Lecturer at Westminster University in Tashkent and the National University of Uzbekistan (Tashkent, Uzbekistan)


Executive Summary

The main research question is Will political maneuvering between China and Russia result in higher export price for Uzbek gas? This is especially peculiar given the fact that many analysts consider the price that Russia pays for Uzbek gas to be lower than a fair market price. Currently, the price of gas exports from Uzbekistan is $160 per 1,000 cu m. On the other hand, Gazprom charges its European customers an average of $350 per 1,000 cu m.

On 1 July, 2008, Uzbekistan and Kazakhstan has begun laying their respective stretches of the Turkmenistan-China gas pipeline. The construction began at the settlement of Saet in the Bukhara region. The cost of the Uzbek stretch of the gas pipeline is estimated to be over $2 billion. The total cost of the 1,818-kilometer long gas pipeline Turkmenistan-China is about $7 billion. If implemented, the Turkmenistan-China pipeline might undermine Russias ability to manipulate the Central Asian gas market and stir up energy competition between Russia and China. Some analysts argue that this would presumably secure higher profits for Uzbekistan, as well as give it a greater degree of political freedom. It should be noted that with estimated natural gas reserves of 66.2 trillion cubic feet (Tcf), Uzbekistan is the third largest natural gas producer in the Commonwealth of Independent States (after Russia and Turkmenistan) and one of the top fifteen natural gas producing countries in the world.

According to the schedule approved by the decree of the Uzbek President, the first line of the gas pipeline and compressor station is expected to be completed by the end of 2009. According to schedule, the first stage will end in January 2010. The second line of the gas pipeline and two more compressor stations are expected to be launched by January 2012. The project will be carried out in line with the intergovernmental agreement on principles of construction and exploitation of Uzbekistan-China gas pipeline with 530 km length. The Uzbek-Chinese Asia Trans Gas JV is the construction contractor of the project and it will implement the project with the help of foreign loans. The Company has to design, construct and further operate this gas pipeline. The co-founders of the joint venture are Uzbekneftegaz National Holding Company and Chinese National Petroleum Corporation (CNPC) with 50% share each.

Turkmenistan and Uzbekistan reached the agreement on building this pipeline in 2006. In 2007, the state-owned company Turkmengaz and CNPC signed an agreement on purchase-sale of natural gas. Turkmenistan took the obligation to supply 30 billion cubic meters (bcm) of gas to China every year. Turkmen President Gurbanguly Berdymukhammedov said in June 2008 that the gas transportation to China via Kazakhstan and Uzbekistan would begin in 2009. The 188 kilometer-long Turkmen stretch of


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