Growing population and capacity degradation in Central Asia exacerbate the problem of energy shortages in the broad sense of the word. Will the new sanctions against the management of the state corporation Rosatom play out, will the Central Asian countries be able to seize the chance to redirect gas flows, and why has the transition to the Single Market of oil, oil products and gas in the EAEU been postponed?
Current developments in the energy sector of Central Asia pose difficult questions for the authorities in the countries of the region. Comprehensive strategic solutions obviously necessitate that energy issues be brought to the supranational level, as Russia continues to act as a large external powerbank, a sort of safety net for oil, oil products, gas and electricity supplies.
At the same time, the contours of a unified energy space remain unclear due to the reluctance of Central Asian countries to join integration associations (or actively participate in them), as well as due to their ties with external investors. Kazakhstan is linked to American and European oil and gas companies, Turkmenistan and Uzbekistan to Chinese companies, and then there are plans to lay an energy cable under the Caspian Sea between Azerbaijan, Kazakhstan and Uzbekistan to integrate their energy systems and supply green energy.
Gas boomerang
It should be noted that in a rather short period of time, from a historical point of view, we have seen fundamental changes in the gas sector of Central Asia:
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Since the events of April 2009 between Gazprom and Turkmengaz, Beijing’s state-owned China National Petroleum Corporation has consistently redirected gas which once flowed from Central Asian countries to Russia by financing the construction of four branches of the 6,400 km-long Central Asia-China gas pipeline , investing in field development, and providing multibillion-dollar loans to the countries of the region. Since the launch of the first branch in 2009, a total of about 500 billion cubic meters of gas has been delivered to China (taking into account data for 2024).
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The CAC (Central Asia – Centre) gas pipeline started operating in reverse mode in October 2023. To be honest, if someone had told me five or ten years ago that the gas pipeline, the first string of which was built in the USSR in the sixties, would resume operations, but deliver gas to Central Asia from Russia rather than vice versa, I would not have believed it. But this is our reality – everything can change, and quite quickly.
On October 7, 2023, Vladimir Putin, Kassym-Jomart Tokayev and Shavkat Mirziyoyev launched the supply of Russian gas through the CAC gas pipeline. At the same time, under a fifteen-year contract, Gazprom will increase supplies sent via the pipeline from 3.3 to 11 billion cubic meters per year starting from the end of 2025.
I should note that for Gazprom, which prior to the anti-Russian sanctions hysteria supplied 180-200 billion cubic meters of gas per year to Europe, supplies to Central Asia do not solve the issues of falling volumes, and the prices for these exports are about half what was charged European customers, but the benefit for Russia and Central Asia is obvious.
For both Uzbekistan and Kazakhstan, imports have been important since natural gas shortages began. For example, during periods of winter consumption growth, Kazakhstan suspends its gas exports to China, which is, to put it mildly, not welcomed by the country’s Chinese comrades.
It can be said that natural gas in Central Asia has started to move in the opposite direction like a boomerang. At the same time, a rhetorical question arises for the Central Asian countries: if Russian gas turns out to be more expensive than their supplies to China, why did they need to sign such contracts?
On the whole, there was no escape from Gazprom. Supplies to China have had a positive effect on the economies of Central Asian countries, but increased consumption and the lack of new projects in the upstream sector have made it necessary to turn to the Russian state-owned company again. Moreover, the agenda of the transition to carbon neutrality requires a gradual phase-out of coal and oil products in favour of cleaner forms of energy.
Priceless black gold
The oil and oil products sector is more predictable and is unlikely to change in the foreseeable future: Russia supplies hydrocarbons to all Central Asian countries, while of these nations, only Kazakhstan has significant oil reserves (although it does not own most of the extracted oil).
In 2024, oil and gas condensate production in the Republic of Kazakhstan amounted to 87.8 million tonnes, of which two thirds are produced at Tengiz, Kashagan and Karachaganak. The largest fields (called “whales”) are developed by American and European companies under production sharing agreements and stabilised contracts (for Tengizchevroil). Of the remaining “non-whale” production, 18 million tonnes is sent for domestic refining (at subsidised prices of $20-25 per barrel). About 12 million tonnes are exported by private companies mainly to Europe, which allows the balancing of the economics of domestic supplies, to some extent.
At the same time, refining volumes are insufficient for Kazakhstan's growing economy, and Russia supplies about 1 million tonnes of various oil products (gasoline, diesel and jet fuel, bitumen/hydrone, and in the coming years, most likely, liquefied gas). Obviously, without Russian fuel supplies, it would not be possible to meet the needs of either Kazakhstan or other Central Asian countries.
Taking into account the growth of consumption in Kazakhstan, it is planned to expand the capacity of the Shymkent refinery (a joint venture of the national company KazMunayGas and the Chinese firm CNPC) from 6 to 12 million tonnes per year with an investment of $5 billion, but the project will require additional free volumes of crude oil, which Kazakhstan does not have. In this regard, it was planned to “persuade” large foreign consortia to start supplying the domestic market, which is certainly not in their interests - neither geopolitical nor economic.
The postponement of plans to create a single market for oil, oil products and gas from January 1, 2025 by two years is due to a number of factors: Kazakhstan's unpreparedness to equalise domestic fuel prices with EAEU countries (now 20-50 percent cheaper), sanctions restrictions on Russian exchanges where energy resources were to be traded, as well as the lack of elaboration of integration documents of the member countries in the fuel sector.
I should note that one of the key goals of creating a single market was transparent pricing on exchange platforms. At present, unfortunately, both exports and even domestic supplies are based on quotations from the foreign price agencies Argus and Platts. The launch and full-fledged functioning of EAEU exchange trading on the platform of the Saint-Petersburg International Mercantile Exchange could become a real mechanism of price formation both within the region and in foreign markets. It should be recognised that the mechanism of unilateral sanctions and the fear of the region's countries to fall prey to secondary sanctions may postpone the introduction of a single market and exchange trading until a more distant future.
The power of energy
The situation in the region's power sector looks challenging. Kazakhstan is facing a growing deficit. In the article Let's Thank Russia for Our Bright Present I cited some data. In December 2024 the total generation in Kazakhstan amounted to 15.6 GW. At the same time, over 1.4 GW was imported. Thus, imports exceeded 9 percent of generation.
According to the official forecast of the Ministry of Energy of Kazakhstan, by 2030 the country will face a capacity deficit of over 6 GW (22 GW of generation and over 27.2 GW of demand), while the entire Central Asia region will face a deficit of 9 GW. This is the capacity of about four nuclear power plants, each with two Russian VVER-1200 reactors.
I note that relying on overflows from Russia may not save the country during peak periods of consumption growth, as the capacity of transmission lines from north to south is no longer able to support the increasing volumes. Hence, it is easy to predict an increase in the number of large-scale outages and blackouts, similar to 2022, when an outage affected the power systems of three countries at once: Kazakhstan, Uzbekistan and Kyrgyzstan.
The main emphasis in overcoming the deficit in Kazakhstan is placed on the RES sector, mainly on large-scale gigawatt projects in solar and wind power with foreign partners (Europe, Middle East, China), while delaying the construction of a nuclear power plant, although it has already become clear to everyone that it is necessary to build at least three nuclear power plants in parallel - in the south, north-east and west of the country. In my opinion, the recently imposed personal sanctions against the management of Rosatom State Corporation may serve as a reason for Kazakhstan to choose other technology suppliers (is this what the country has been waiting for?)
Against the backdrop of impending energy problems in the region, unique ideas are emerging. For example, the construction of a power transmission line to import electricity from China. The authors apparently do not understand the energy picture as a whole – does it make sense to sell gas and then buy electricity from thousands of kilometres away? Sent through the mountains? Then there is the project to lay an underwater energy cable under the Caspian Sea between Azerbaijan, Kazakhstan and Uzbekistan, about which a trilateral memorandum was signed in Tashkent on May 1, 2024.
Summarising the first material on the situation in the fuel and energy complex of Central Asia, I would like to highlight the main theses and proposals:
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Central Asian countries in the fuel and energy sector continue to rely on Russia as a big external ‘powerbank’ that will always be able to balance the consumption and deficit of fuel and energy resources.
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The transition to fully functioning common markets for oil, oil products, gas and electricity should be completed by 2027, which requires the intensification of integration processes in the EAEU countries.
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Increasingly complicated conditions regarding cooperation and even bank payments raise the question of empowering/creating a bank for settlements in the EAEU and Central Asia. A link in the form of exchange trading and a bank specifically in the energy sector can become a tool for the formation of their own shop quotations and settlements.
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Sanctions hysteria and the threat of secondary sanctions may lead to a decrease in Central Asian imports of Russian fuel and energy resources, which would create difficulties for further economic growth in the region (similar to the EU countries).
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Currently, various national strategies for the development of industries in the countries of the region and the EAEU are built without taking into account the strategies of neighbouring countries, including in the energy system.
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The population of the Central Asian countries continues to grow and is projected to increase from its current 81 million to 100 million by 2050, which, against the background of depleting hydrocarbon resources, will require increased imports of fuel and energy from Russia.
