(Bloomberg) -- Kazakhstan is in talks with China about increasing gas exports and is even considering building an additional pipeline to boost flows, underscoring the growing significance of its role in the region’s fuel market.
Kazakhstan will be competing with neighboring countries including Turkmenistan and Russia for Chinese demand. Moscow’s invasion of Ukraine nearly three years ago led to it cutting off major buyers in Europe, with China becoming a key alternative market even amid sputtering economic momentum.
“Despite reports of an economic slowdown in China, the demand for gas continues to grow,” said Sanzhar Zharkeshov, chief executive officer at national gas operator QazaqGaz NC JSC. “We hope to reach a consensus on increasing our export volumes to China and possibly other countries like Uzbekistan.”
The operator’s discussions with China involve “significantly higher volumes” than current Kazakhstan exports, he added.
The world’s largest landlocked country is seeking to boost gas production to cover growing domestic demand as well as increase revenue from exports. It sends about 4 billion cubic meters of gas to China at the moment, while consuming about 21 billion cubic meters itself. In 2023 the two countries renewed a three-year export contract.
Boosting fuel deliveries abroad could help QazaqGaz compensate for unprofitable domestic sales, where selling prices are kept low by the government.
The operator is working with major producers — including state-owned KazMunayGas National Co JSC and the Tengiz, Kashagan and Karachaganak fields — to raise output. QazaqGaz will introduce a new gas price formula aimed at supporting producers, Zharkeshov said.
It’s also working with Qatari investors on projects that will add another 3.5 billion cubic meters of gas output by 2029, as well as on exploration activities with Chevron Corp., he said.
In addition, QazaqGaz plans to build a second pipeline alongside its Beyneu-Bozoy-Shymkent link, feeding into a larger pipe to China.
The latter is currently operating at about 70% of capacity, leaving some room for additional deliveries, he said. The new pipe feeding into it would cost between $3 billion to $6 billion, and could take two to three years to complete, with a decision due later this year.
QazaqGaz may issue a Eurobond next year to finance its projects, Zharkeshov added, with a potential issuance of as much as $1 billion depending on market conditions. He said the operator remains on track for an initial public offering by 2026, potentially listing in London, New York, and Kazakhstan.
“Although China has secured some good liquefied natural gas contracts, the price of LNG is not competitive compared to pipeline gas,” he said. “Therefore, our focus is on fulfilling our obligations to China during this winter season.”
--With assistance from Anna Shiryaevskaya.
(Updates with additional details in penultimate paragraph.)
©2024 Bloomberg L.P.