Analysis: Kazakhstan to fail deliver promised gas amount to China

Oil&Gas Materials 30 September 2019 16:23 (UTC +04:00)

Baku, Azerbaijan, September 30

By Nargiz Sadikhova - Trend:

Kazakhstan’s core gas exports to China will not exceed 0.8 billion cubic feet of gas per day (22.65 mcm), Trend reports with reference to Wood Mackenzie agency.

“Kazakhstan’s gas sector is coming of age. Last year, state-owned KazTransGas (KTG) signed a five-year export deal to deliver up to one billion cubic feet of gas per day (cfd) – roughly 10 billion cubic meters per year - to China,” the report said.

“The volumes committed represent nearly one-third of Kazakhstan’s marketed gas output and are almost on par with current domestic demand of 1.5 billion cfd (4.2 mcm),” said Ashley Sherman, principal analyst, Caspian and Europe upstream at global natural resources consultancy Wood Mackenzie.

But can Kazakhstan deliver on its commitments?

“At present, Central Asia meets about 15 percent of China’s growing gas demand. By signing the Kazakhstan contract, China is looking to hedge its bets against future under-performance from its anchor Central Asian gas suppliers, Turkmenistan and Uzbekistan. The five-year deal will also allow China to test out Kazakhstan’s supply capacity before it commits to a longer-term agreement,” said the report.

“Seasonal domestic demand will challenge Kazakhstan’s ability to respond in full to China’s peak winter needs. And high delivered costs will persist because of the vast distances that need to be covered to reach China’s coastal regions. While China’s gas demand grew in 2018, it now faces downward pressure from economic slowdown,” Sherman said.

He further added that the company anticipates Kazakhstan’s core gas exports to China not to exceed 0.8 billion cfd.

“To reach the agreed over billion cfd (28.3 mcm) would require stronger Chinese gas demand growth and much clearer commercial incentives for gas in Kazakhstan’s own upstream sector.”

He added that unfortunately, commercial incentives are no clearer than they were five years ago.

“A range of commercial obstacles means that Kazakh domestic gas prices are generally on the low side, with some exceptions. And under the current commercial framework, neither upstream producers nor the national operator can be confident of near-term profits,” Sherman said.

“By our analysis, a standalone non-associated gas development in west Kazakhstan will struggle to break even. For Kazakhstan to realize its potential, much clearer commercial incentives are needed. This will require collaboration. Operators and state entities must work together to trial new approaches and maximize the utilization of existing gas processing capacity. Without change, Kazakhstan risks not being the reliable long-term gas partner that China hopes and needs,” he concluded.


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