China ends Russia's grip on Turkmen gas

With one flick of a switch, Russia's long-standing dominance and near monopoly over Central Asian natural-gas exports officially came to an end on Monday.

The Turkmenistan-China pipeline, which will carry natural gas from eastern Turkmenistan through Uzbekistan and Kazakhstan into China's northwestern Xinjiang region, went on line on December 14 during an inauguration ceremony attended by regional leaders.

As usual with pipelines in that region, it is almost impossible to know what actually happened beyond the ceremony and the speeches. The Asia Times article where the map above on the right is taken mentions only the construction of the Uzbekistan portion of that pipeline, which is strange because this is a portion which already existed, as the map extract below (from 2003) shows:

So what mattered was to build the Kazakh bit, from Almaty to the border with China, and this is not mentioned anywhere. The only bit that I know the Kazakhs built for sure is the Bishkek bypass (to avoid having their gas supplies to Almaty being held hostage by Kirgizstan...); beyond that, it's not clear what the capacity of the various parts of the pipeline is, and how much more gas can be shipped that was done in the past, when Turkmen gas was sent to Kirgizia and Kazakhstan... Articles mention a future capacity of 40bcm/y, which suggests that today's capacity is nowhere near this.

But the biggest question is, admitting that the Central Asian parts of the pipelines are ready, and that the cross-China section (more than 4,000km going East to the inhabited areas of China) is also fully operational: what kind of price are the Chinese paying for that gas? The main reason why the Russian-Chinese gas pipeline has not been built is that there has never been an agreement on price, given that Russia wanted to sell gas at market-driven prices (typically, using oil-driven indexes or, as with many parts of Asia, using even higher Japanese JCC indices) and that China was not willing to pay significantly more than the level which would make gas-fired power similar in cost to its own dirt-cheap coal-fired electricity (pun intended).

Gas prices thus need to be around 100$/tcm (thou. cubic meters) to be competitive in China. Oil-driven prices (which is what Gazprom gets) are probably around 250$/tcm right now. But these are end-user prices: you still need to deduct transport prices to get the "netback" to the producer: count 1-2$/tcm/100km. Turkmenistan is far from all markets and is never going to get as good a final price as suppliers closer to their markets, but with a 6,000km pipeline to Eastern China's markets, we're looking at a price of, at best 40$/tcm for Turkmenistan, unless China is willing to pay more for gas or to charge lower prices than would be economic for pipeline transport in their system. China has been willing to pay more for LNG supplies, but these are still relatively small volumes which go in priority to household and industrial uses which are not as easily substitutable as electricity generation.

So, at this point, it is still hard to conclude yet, in my view, that Turkmenistan has a real alternative to Russia as a market for its gas. But as the conclusions from the scant press coverage there was were that this meant a further nail in Nabucco's coffin (as that gas will for sure not be available to go West to Europe), I suppose it is good news of sorts if it makes European politicians stop wasting their energy on that pointless and impossible project.