PetroChina looking to resume Central Asia Gas Pipeline Line D construction in 2024: source

PetroChina expects to resume the construction of Line D of the Central Asia – China Gas Pipeline [CAGP] in 2024, which would open up another conduit for pipeline gas imports into China, after construction on the project has been suspended for many years, according to a source with direct knowledge of the plans.

"Construction of Line D can resume immediately if the upstream gas supply contract with Turkmenistan is finalized," the person said.

The person said the contract was still under final negotiations. The main disagreement remaining was over prices and the delay in finalizing the upstream gas supply contract was the main reason for the suspension of Line D's construction, the person added.

China imports more than 40% of its natural gas supply through pipelines and seaborne LNG, and the largest pipeline gas supply comes from the Central Asia Gas Pipeline that goes through Turkmenistan, Uzbekistan and Kazakhstan, bringing in gas production from upstream projects in all three countries.

With a length of more than 1,800 kilometers each, the CAGP comprises three sections -- Line A, B and C, with a transmission capacity of 55 Bcm/year. However, after a few years of strong growth, the three Central Asian nations have been forced to reduce exports to meet surging domestic demand, especially during the critical winter heating season.

CAGP's Line D takes a shorter route from Turkmenistan through southern Uzbekistan, Tajikistan and Kyrgyzstan to the western part of China's Xinjiang province. Line D was planned to tap Turkmenistan's Galkynysh gas reserves, which are among the world's largest, and where projects are being funded by China Development Bank.

Line D has been in discussions for several years and with a capacity of around 30 Bcm/year. It could take CAGP's total network capacity to 85 Bcm/year once it starts operation. A groundbreaking ceremony for the Tajikistan section of Line D was held on Sept. 13, 2014 and attended by President Xi Jinping and President Emomali Rahmon of Tajikistan, according to state media Xinhua News Agency, but there have been no reports on progress since then.

Turkmenistan gas supply

Turkmenistan is China's biggest pipeline gas supplier, which sent 34.09 Bcm of natural gas via the Central Asia gas pipeline in 2022, accounting for 54% of China's total pipeline gas imports, much higher than 17.1 Bcm or 27% from Russia last year, data from S&P Global Commodity Insights showed.

PetroChina's parent CNPC has asked for the contract price with Turkmenistan to be lower than the CAGP landed gas price from Kazakhstan because CNPC has been investing in Turkmenistan's upstream gas fields, but Turkmenistan has not agreed, according to other industry sources.

"President Xi has already called for accelerating the construction of Line D. I think both sides will reach a consensus for the contract soon -- either we will make concession or they [Turkmenistan] will do that. Afterall, the project must be done finally," a senior CNPC official said separately.

On May 19, 2023, at the China-Central Asia Summit, President Xi proposed a China-Central Asia energy development partnership and called for speeding up the construction of Line D, Xinhua reported.

More broadly, CAGP has become more significant geopolitically because it strengthens Beijing's presence in Central Asia through energy cooperation, and is an important leg of China's Belt and Road Initiative.

China is also considering Russia's proposal to supply gas via Kazakhstan, under a plan that will see Moscow supply gas to Central Asian countries to meet domestic demand, leaving CAGP with sufficient gas to supply China as well as reverse flows to carry Russian gas eastwards.

The main obstacle for Russia's Central Asian gas route to China is also the price at the border, as Beijing is currently unwilling to accept a gas price higher than that of the Power of Siberia 1 project, which is the cheapest among China's piped gas imports. The price disagreements have stalled Power of Siberia 2 and Kazakhstan's gas swap agreements, sources said.

"If China and Russia reach an agreement on gas supply prices, Russia may be able to supply natural gas to China through Kazakhstan by using the existing Central Asia-China pipeline as early as next year," the first source said.

China's total pipeline gas imports are estimated to be around 66.07 Bcm in 2023, up around 5% year on year, and the volume is estimated to be 74.48 Bcm in 2024, up 13% year on year, according to the latest forecast from S&P Global.