A tripartite gas union between Russia, Kazakhstan and Uzbekistan that Russian President Vladimir Putin started pushing last year is beginning to take shape. Initially reluctant to join, fearing becoming energy dependent on Russia, the necessities of developing their energy infrastructure have changed the minds of the leaders in the two ‘Stans.
In May Uzbekistan agreed to buy gas from Russia to alleviate a recent painful energy crisis by reversing the flow of Soviet-era gas pipelines connecting the two countries and this week signed a deal to import 2.8bn cubic metres a year from Russia. The price Uzbekistan will pay for the gas was not disclosed.
Central Asia has come under considerable pressure to break off relations with Russia. US Secretary of State Antony Blinken was there earlier this year to warn the ‘Stans not to facilitate sanctions-busting trade, but despite paying some lip service to the US demands it seems all five countries in the region have maintained business as normal.
“Following Russia’s invasion of Ukraine, any closer co-operation with Russia looks both risky and inconsistent, since Central Asian countries have been trying to distance themselves from an increasingly aggressive Moscow for the past year,” Temur Umarov, a fellow at the Carnegie Russia Eurasia Center, said in a note.
“But viewing revanchist Russia as the main threat to Central Asian states is more of an outside perspective. Local regimes are far more concerned by smouldering domestic discontent than by Moscow’s geopolitical ambitions, since the former could translate into socioeconomic protests at any moment. The events of this winter have demonstrated that gas shortages may well become the final straw,” Umarov added.
Kazakhstan has over 3 trillion cubic metres of natural gas reserves, while Uzbekistan has 1.8 tcm. The countries annually produce over 30 bcm and 50 bcm of gas respectively, which should be enough to cover domestic demand.
But the problem is that the rapid growth of domestic consumption, population growth and industrial development are increasingly straining their gas output.
Uzbekistan’s former energy minister, Alisher Sultanov, claimed in 2021 that the country had enough gas “for three Uzbekistans.” But last winter inadequate heating and gas shortages caused blackouts in Tashkent in the depths of winter and countrywide disruptions that sparked protests.
The share of gas in Kazakhstan’s energy balance is constantly growing, says Umarov: 57% of people there had gas-supplied homes by the end of 2021, as opposed to 30% in 2013. In Uzbekistan gas accounts for over 80% of the national energy balance.
“Other reasons for the annual 7-10% increase in domestic consumption in Uzbekistan and Kazakhstan are population growth (1.5-2% a year), growing construction and industrial development. Industrial outputs are projected to increase by 4% in Kazakhstan and even more in Uzbekistan, which saw a record 9.5% growth in 2021,” says Umarov.
Early last year, the lack of gas sparked Kazakh protests in which over a million people took part. And last winter the energy crisis triggered local protests in Uzbekistan, costing many high-ranking officials their jobs as the otherwise popular regime of Uzbek President Shavkat Mirziyoyev took its first public relations knock.
Both Kazakhstan and Uzbekistan need more gas and the only countries they can turn to are Russia and Turkmenistan.
Turkmenistan has plenty of gas – annual production is over 80 bcm – but it has proved to be an unreliable partner, run as it is by the eccentric Turkmen President Gurbanguly Berdimukhamedov. In contrast, Russia not only has ample gas reserves but after being cut off from its European gas business is very keen to develop export routes running south and east.
The conflict in Ukraine has complicated Russia’s relations with Central Asia as the two try to find a new equilibrium that maintains economic ties, but avoids bringing down US secondary sanctions on the ‘Stans. For example, President Kassym-Jomart Tokayev was a guest of honour at last year’s St Petersburg International Economic Forum (SPIEF), but told Russian President Vladimir Putin to his face that Almaty refused to recognise the independence of the Donbas Republics, which caused a stir. Tokayev didn’t go to SPIEF at all this year, another slight. But the new gas hub the three counties are building shows their economies remain as tightly bound as ever.
Russia’s state-owned gas giant Gazprom continues to have significant influence in Uzbekistan’s energy sector through partnerships with local oligarchs.
“A recent investigation by Ozodlik radio revealed that Gazprom and Uzbek oligarchs control Uzbekistan’s key oil and gas fields through a network of offshore companies,” reports Umarov.
Sanctions on Russia and the end of its westward deliveries of over 150 bcm a year have opened the opportunity to negotiate favourable gas prices. It is now a buyer’s market and prices for Russian gas are potentially lower than what China pays for gas it imports from Central Asia. Currently undersupplied, Uzbekistan could easily expand its imports from Russia’s massive surplus of gas. In public Tashkent said last winter that it had to break its gas export commitments to China in the winter due to its energy crisis. However, Umarov reports that a $380mn-$450mn discrepancy in Chinese trade statistics suggests that Tashkent actually continued to export the gas to China, but hid this fact from the public.
Importing Russian gas for domestic use at low Russian prices could allow for increasing more expensive exports to China in what should be a lucrative business, Umarov speculates.
However, the public remains wary of deals with Gazprom. Reports suggesting that Gazprom was seeking ownership of the Central Asian countries’ gas pipelines sparked controversy and were quickly denied by the governments.
The tripartite gas deal is an economic win for all three parties, but it presents a problem diplomatically, as it further increases Russia’s clout in the region at a time when the ‘Stans are seeking to distance themselves a bit more as a result of the new geopolitical realities. Russia is due to start gas shipments to both Kazakhstan and Uzbekistan this month.
Source : Intellinews
