Will Russia Outpace Kazakhstan in Chinese Gas Market?

Russia plans to lower the prices of the gas it supplies to China, resulting in more profitable prices for China, reports Orda.kz.

Russia's Plans?

According to BNN Bloomberg, Russia's refocusing of gas supplies to China is proving less lucrative than its former European export market. Until at least 2027, Russian prices for China will be 28% lower than for European countries that continue to buy Russian gas.

In 2024, The Russian Economic Ministry foresees gas prices to China at $257 per thousand cubic meters, whereas the price for European customers is expected to be $320.30 per thousand cubic meters. In 2025-2027, the Russian Federation plans to gradually reduce the cost of gas for China, while maintaining the same prices for Europe.

Russia is currently sending its gas to China through the Power of Siberia gas pipeline and expects to increase the volume of these supplies to an annual maximum of 38 billion cubic meters in 2025. The Russian Ministry of Economy predicts that Russia's total gas exports will continue to increase at least until 2026. 

However, even provided Russia's plans to lock in more gas supplies via The Power of Siberia 2 come to fruition, the utilized pipelines will transport notably less than what Moscow previously sent to European markets.

Expert: More Profitable for China to Buy Russian Gas 

Oleg Chervinsky, a journalist and expert on the oil and gas industry, notes that if the Russian Ministry of Economy's prediction becomes a reality, then it will be more profitable for China to buy gas from the Russian Federation than Kazakhstan.

According to the Bureau of National Statistics of the Republic of Kazakhstan, gas exports from the country to China in 2023 amounted to 5.8 billion cubic meters, which is 15.5% more than a year earlier. In monetary terms, QazaqGaz's export revenue amounted to $1 billion 467 million. Thus, the average price of supplies is 252 dollars 90 centers per thousand cubic meters, Oleg Chervinsky points out.

Kazakhstan's gas is currently a little cheaper than Russia's, but the situation may change. In 2025, the Russian Federation plans to set the gas price for China at $243.7 per thousand cubic meters. This figure could be reduced to $227.80 by 2027.

This increase in gas supplies to China along with reduced prices may be due to the lack of other options.

After the outbreak of the war in Ukraine, Gazprom lost the majority of consumers, supplies to Europe in 2023 fell to the lowest level since the 1970s - up to 45 billion cubic meters, Oleg Chervinsky notes.

Kazakhstan seeks to update its section of the Central Asia-Centre gas trunkline along with other pipelines and secure long-term supplies of Russian gas for its east and northeast regions according to UpStream. Upon modernization, Russian gas could make its way onwards to China. 

Problems Exporting Gas?

There have been reports that Kazakhstan may suspend gas exports to China to secure supplies for domestic demand this coming winter.

This export to China nonetheless remains a key direction for QazaqGaz. The company carries out deliveries to China under a purchase and sale agreement with PetroChina, which is valid until at least 2026. The available supply volumes are limited by the capacity of the Beineu—Bozoi —Shymkent gas pipeline, however. It will be necessary to resolve the matter of the construction of the second line of this gas pipeline to increase them.

Meanwhile, Kazakhstan's domestic demand has hindered export capacity. From December 2022 - January 2023, the export of natural gas to China was temporarily suspended, as there was a shortage in the domestic market. Some regions in Kazakhstan still experience insufficient gas supplies, thus QazaqGaz intends to cooperate with investors from Qatar on the construction of two gas transportation lines from the western regions of Kazakhstan to the south and north of the country.

Kazakhstan exports gas to China and transits Russian gas through its territory to Uzbekistan. Uzbekistan, having also experienced issues with gas production and supply, will reportedly increase Russian gas imports by 3x - from 1.28 billion cubic meters in 2023 to 3.8 billion cubic meters in 2024.

Russia has passed up China's long-time leading gas supplier Turkmenistan, though Ashgabat scored two preliminary agreements back in March to supply gas to Türkiye and onward to Europe. What is to come of this is yet to be seen. Turkmenistan and Kazakhstan have recently discussed strengthening cooperation in the gas industry as well.