Basic Information

Chinese Name: 中亚天然气管道 A、B、C 线
Name: Central Asia–China Gas Pipeline (Line A, Line B, and Line C)
Location: Turkmenistan, Uzbekistan, Kazakhstan, and China
Type of Project: Energy
Project Developer(s):  Trans Asia Gas Pipeline Company (later merged into Sino-Pipeline International Company Limited, subsidiary of China National Petroleum Corporation)
Main Contractor(s): China Petroleum Pipeline Engineering Co., Ltd. (subsidiary of China National Petroleum Corporation); China Petroleum Engineering and Construction Corporation (subsidiary of China National Petroleum Corporation)
Known Financiers: China Development Bank, Bank of China
Cost: 14-20 billion USD
Project Status: Operational (Line A has been operational since 2009; Line B since 2010; and Line C since 2014)

Project Outline

Rationale

Since the mid-2000s, when China’s gas consumption exceeded the country’s production capacity, Beijing has been actively searching for potential sources of gas supply. Central Asian gas was seen as a good option to mitigate the risks related to dependence from liquefied natural gas from the Middle East. Geopolitical considerations aside, the Central Asia–China Gas Pipeline network has not only enhanced China’s ability to meet its growing energy needs, but also reduced the country’s excessive reliance on environmentally damaging coal. Since the beginning of its operations in 2009 and as of the end of March 2022, the network has delivered a total of 390 billion cubic meters (bcm) of gas to China.

The Soviet-era gas pipeline infrastructure made Central Asian gas exporters entirely dependent on Russia as the sole buyer and transit country. With the Russian authorities using their position of power as leverage against the region’s gas producers by applying a discriminatory pricing policy and then reexporting Central Asian gas for twice or three times as much, Central Asian countries were counting on the Central Asia–China Gas Pipeline to reduce their dependence on their northern neighbour and improve their bargaining power vis-à-vis potential customers.

Route and Capacity

The three lines of the Central Asia–China Gas Pipeline start at the city of Gedaim, on the border between Turkmenistan and Uzbekistan, and run through central Uzbekistan and southern Kazakhstan before reaching Horgos in China’s Xinjiang Uygur Autonomous Region. The 1,837-kilometre-long pipelines then connect to China’s Second West-East Gas Pipeline, further carrying Central Asian gas for another 8,704 km inside the country. Construction of Line A and Line B commenced in July 2008, with the former beginning to operate in December 2009 and the latter in October 2010. The construction of Line C was completed in 2014. The first two lines are designed to transport 30 bcm per year, while Line C has the capacity to deliver 25 bcm per year. A supplementary 1475 kilometre-long Beineu–Shymkent pipeline was commissioned in 2013 to deliver 15 bcm per year from Western Kazakhstan’s gas fields into the Line C.

Supply Sources

Lines A and B are exclusively dedicated to importing gas from Turkmenistan. In April 2006, under an intergovernmental framework agreement, China agreed to purchase up to 30 bcm of gas per year from Turkmenistan for 30 years starting in 2009. The terms of the agreement also granted China National Petroleum Corporation (CNPC) exclusive rights to explore and extract onshore gas fields on Amudarya’s right bank in Turkmenistan, later cemented under a 2007 production-sharing agreement between the national gas company Turkmengaz and CNPC. A subsequent framework agreement signed in 2008 increased the volume to 40 bcm per year to be reached by 2015. In November 2011, the then presidents of the two countries, Hu Jintao and Gurbanguly Berdymukhamedov, agreed to increase the annual volume of gas exports up to 65 bcm.

Line C is supplied with natural gas from Turkmenistan, Uzbekistan, and Kazakhstan. Turkmenistan and Uzbekistan both committed to delivering 10 bcm per year to China, the latter under the purchase and sale agreement between Uzbekneftegaz and CNPC signed in June 2010. Kazakhstan initially agreed to supply 5 bcm per year through the supplementary Beineu–Shymkent pipeline, as shown in the 2011 amendments to Art. 8 of the Intergovernmental Agreement, and later increased its commitment to 10 bcm per year from 2019 via a five-year contract signed in October 2018.

Legal Regime

The agreements underpinning Central Asia–China Gas Pipelines create a ‘national connected pipelines’ regime, where each pipeline section exists and operates under the host states’ domestic jurisdictions, as opposed to being considered a single unified asset (like, for instance, the Baku–Tbilisi–Ceyhan pipeline). Thus, agreements create bespoke rights pertaining to pipeline construction and operation, including transit and capacity access, in different states.

Legally, construction of the three pipelines is supported by a bundle of agreements that fall under two main categories:

1. Bilateral intergovernmental agreements (IGAs) between the government of China and each respective Central Asian government; and
2. Host government agreements (HGAs), also known as investor-state agreements, concluded between Central Asian governments and pipeline operating companies.

IGAs outline general commitments regarding financing, construction, operation and (where applicable) transit of natural gas via the pipelines, as well as assign authorised entities responsible for overseeing the project. While, as mentioned above, there exist separate purchase-and-sale agreements drawn between CNPC and Central Asian energy corporations to secure annual supplies of specified gas volumes, publicly available intergovernmental agreements also have provisions outlining supply obligations by the respective exporters (Arts. 4 and 8 in the China-Kazakhstan IGA and Art. 2 in the China-Turkmenistan IGA). You can find a list of available IGAs with unofficial translation into English enclosed in the in-depth readings included at the end of this profile.

HGAs provide further details pertaining to the rights and obligations of the investor company and the host government, such as the enforcement of tax and customs regimes, transit tariff, pipeline capacity access, dispute settlement, etcetera.

The role of investor company in each country is fulfilled by the respective joint venture, formed on a 50/50 basis by China’s developer and special purpose vehicle Trans Asia Gas Pipeline Company with Kazakhstan’s and Uzbekistan’s state-owned enterprises, KazMunayGas and Uzbekneftegaz. Each company is responsible for the financing, construction, and operation of the pipeline sections within its country.

Trans-Asia Gas Pipeline Co., Ltd., the company initially set up by CNPC in 2007 to manage the Central Asia-China pipelines, was merged into the Trans-Asia Pipeline Company in 2016, which in turn was merged into Sino-Pipeline International Company Limited in 2017. In 2015, CNIC Corporation Limited, a Hong Kong-based subsidiary of China Reform Holdings Corporation Ltd., acquired 50% of the equity in Trans-Asia Gas Pipeline Co., Ltd.

Cost and Financing

The cost for Lines A and B was originally estimated at 7.3 billion USD in total, while only fragmented accounts were provided for the costs of Line C. According to a 2017 interview with a Chinese official with the China-Kazakhstan joint venture company, the total investment for all three lines amounted to over 14 billion USD. However, financial statements show that only in Kazakhstan loans for the construction of Lines A & B and Line C provided to the joint venture Asia Gas Pipeline amounted to 7.5 billion USD and 4.7 billion USD, respectively. The supplementary Beineu–Shymkent line required a further 2.8 billion USD. Other sources have given even higher estimates.

China’s CNPC covered half of the cost as its own share, while China Development Bank and Bank of China provided loans covering majority of the construction costs in Uzbekistan and Kazakhstan, which would be recouped through gas sales.

Project Impacts

CNPC officials portray the Central Asia–China Gas Pipeline as a symbol of solidarity and mutually beneficial cooperation. China counts on Central Asian gas to enhance its energy security, while revenues from exporting resources are expected to boost socioeconomic development in the region. Some issues, however, complicate the picture.

• Limited energy export capacity: All countries along the pipeline are grappling with problems related to their limited export capacity.

1. Turkmenistan: With less than 40 bcm of gas export capacity,Turkmenistan is trying to keep up with Chinese gas demand by reducing exports in all other directions. This is making Turkmenistan highly dependent on one single gas market, a situation that the country was striving to avoid in the first place.
2. Uzbekistan: Natural resources, particularly gas, account for over 50% of Uzbek export to China. However, outdated and inefficient natural gas transportation systems, growing internal energy demand, and the fact that no major natural gas reserves have been developed in recent years have limited the country’s capacity to increase its gas export. Furthermore, Uzbekistan cannot considerably increase gas export to China without compromising domestic gas consumption. An attempt to keep up with the growing Chinese demand will constrain Uzbekistan’s ability to meet its own energy needs. For instance, due to domestic gas shortages in the winter of 2020, Uzbek authorities were forced to cut gas exports to China. In early 2020, Prime Minister Abdulla Aripov said that by 2025 Uzbekistan would stop exporting natural gas and start processing it domestically, mainly due to a shortage of gas in the domestic market and growing discontent among the population.
3. Kazakhstan: The Beineu–Bozoy–Shymkent gas pipeline, designed to supply 10 billion cubic metres of Kazakh gas to the southern regions of the country, is also expected to fill the Central Asia–China Gas Pipeline with additional 5 billion cubic metres of gas. While the amended China and Kazakhstan intergovernmental agreement creates safeguards for the latter’s energy needs by prioritising domestic consumption over export to China and allowing emergency extractions—according to Arts. 4 & 9 of the China-Kazakhstan IGA—fluctuations in energy demand in Kazakhstan’s southern provinces may weaken the stability of supplies for the Chinese market. Chinese interests in moving gas out of the region may also compromise Kazakhstan’s capability to supply a sufficient amount of gas to its southern regions.

• No longer profitable gas trading arrangements: Construction of pipeline networks to move energy resources in a landlocked Central Asia requires significant upfront investments. Central Asian gas producers were not capable of covering the construction cost (50% of each pipeline), and China stepped in to offer financial support in the form of loans. Central Asian exporters agreed to return the loans in resources. With the falling price of gas amid the crash of the global oil prices, the gas trading arrangements are no longer as profitable as the Central Asian authorities expected them to be when they signed the contracts. For instance, in 2017 Turkmenistan was selling gas to China at the price of 185 USD per thousand cubic metres, compared to the 340 USD of 2012. Other sources suggest that Turkmen gas has been sold at prices as low as 60 USD per thousand cubic metres. Not only is the country now paying off its debt to China by selling gas at depressed prices, but the recent changes in the market have also significantly impaired the ability of the Turkmen authorities to generate revenues.
• Socioeconomic impacts: The loss of revenue due to falling gas prices is having an impact on society at large in the Central Asian countries involved in the pipeline. This is particularly evident in Turkmenistan, where revenues from gas export have fallen from an average of 43% of the GDP from 2000 to 2009 to 18% in the following decade. This has directly affected the economic development and social welfare of the country.
• Asymmetrical dependence: The terms of the gas trading arrangements were supposed to be attractive for the Central Asian exporters as long as the volume of export via the Central Asia–China Gas Pipeline constituted only a fraction of the total export. The downside effect of the Central Asian producers’ energy export diversification policies is that they have basically swapped dependence on Russia into excessive reliance on China, as almost all Turkmen and Uzbek gas export is now heading in the Chinese direction. Such dependence on a single customer puts regional suppliers in a very vulnerable position both economically and politically.
• No effective conflict-settlement mechanism: It is unclear whether the terms of the arrangements between China and Central Asian exporters have ‘take-or-pay’ clauses, that is an agreement that protects the seller in case the buyer refuses to buy or take delivery of the items, for instance by requiring the buyer to accept the delivery of the goods at a specified date or otherwise pay a fine. In contrast, the China–Kazakhstan IGA (Arts. 4 & 8) includes ‘ship-or-pay’ provisions for the Beineu-Shymkent pipeline obliging Kazakhstan to transport unused capacities to China or pay a fine. Even if ‘take-or-pay’ clauses exist, given the relative geopolitical and economic weakness of the Central Asian states, they have little leverage to ensure Beijing fulfils its obligations, while ‘ship-or-pay’ obligations were seemingly a condition under the BoC and CDB loans. Should disputes arise, there is no effective conflict-settlement mechanism, either bilateral or within multilateral institutions such as the Shanghai Cooperation Organisation, as intergovernmental agreements (Art. 14 of the China-Kazakhstan IGA and Art. 12 of the China-Turkmenistan IGA) prescribe to settle disputes via ‘negotiations and consultations’.

In-depth Sources

• AidData Research Lab at William & Mary’s Global Research Institute. Undated. ‘Projects #54489, #39997 (Kazakhstan); #54528 (Uzbekistan).’ AidData website. Link.
• Aminjonov, Farkhod. 2017. ‘Re-thinking Central Asian Energy Security: Pitfalls of Export Diversification Policies.’ Central Asia Institute for Strategic Studies. Link
• Aminjonov, Farkhod. 2018. ‘Central Asian Gas Exports Dependency: Swapping Russian Patronage for Chinese.’ The RUSI Journal 163, no. 2 : 66–77.
• Aminjonov, Farkhod, Alina Abylkasymova, Anna Aimée, Bahtiyor Eshchanov, Daniyar Moldokanov, Indra Overland, and Roman Vakulchuk. 2019. ‘BRI in Central Asia: Energy Connectivity Projects’. Central Asia Regional Data Review, no. 22: 1–14.
• Hess, Maximilian. 2020. ‘Central Asia’s Force Majeure Fears: Impact of COVID-19 Outbreak on China’s Natural Gas Supply Demands.’ Foreign Policy Research Institute. Link.
• Wang, Han. 2016. ‘Towards a Cooperative Framework for a China-Central Asia Energy Transit Community.’ Brussels: Energy Charter Secretariat Knowledge Center. Link.

Agreements:

• Turkmenistan: China–Turkmenistan Intergovernmental Agreement (Генеральное Соглашение между Правительством Туркменистана и Правительством Китайской Народной Республики о реализации проекта газопровода Туркменистан-Китай и продаже природного газа из Туркменистана в Китайскую Народную Республику)
• Kazakhstan: China–Kazakhstan Intergovernmental Agreement (Соглашение между Правительством Республики Казахстан и Правительством Китайской Народной Республики о сотрудничестве в строительстве и эксплуатации газопровода Казахстан-Китай (Астана, 18 августа 2007) с изменениями и дополнениями по состоянию на 27.07.2011)
• Uzbekistan: China–Uzbekistan Intergovernmental Agreement (Full: Agreement on the Principles of Construction and Operation of the Uzbekistan-China Gas Pipeline, from 30 April 2007; Original: Соглашение о принципах строительства и эксплуатации газопровода «Узбекистан — Китай»)
• Kazakhstan: KazMunayGas-CNPC agreement (Original: Соглашение об основных принципах строительства и эксплуатации газопровода Казахстан-Китай” между АО «Национальная компания «КазМунайГаз» и Китайской Национальной Нефтегазовой Корпорацией)

Updates & Corrections

7 February 2023: The profile has been extensively revised and updated to include information about the legal agreements that underpin the pipelines. Olesya Dovgalyuk has been added as co-author.