Despite loud statements and reports, alternative routes for transporting oil from Kazakhstan and Central Asia to Europe remain only intentions.

The desire of the EU to diversify its hydrocarbon suppliers is running into internal bureaucracy and a lack of understanding of how things work in Central Asia, which is in fact seeking to ship its energy in different directions.

Lost gas

To start, it is worth recalling the Turkmenistan-Russia gas dispute of 2009. Before that, Gazprom bought gas from Central Asian countries at the border, swapping some volumes of domestic supplies with Kazakhstan, Turkmenistan and Uzbekistan, and buying gas at prices lower than EU export rates.

Gazprom explained this practice rather simply: there is no economic sense in transporting the gas through Russian territory, so at the border the price cannot be European (minus transportation) – this gas was consumed in Russia or supplied at preferential prices to Ukraine, while Russian gas was sent to Europe.

In 2008, Turkmenistan produced 70.5 billion cubic meters (bcm) of gas, exporting 47 bcm, with an increase in production and exports planned for 2009. According to the Energy
Institute, gas consumption by European countries in 2022 amounted to 498.8 bcm, meaning Turkmenistan alone, assuming export volumes stabilized at 50 bcm per year, could cover 10% of Europe’s needs.

That amount, 50 bcm of gas, is the annual consumption of Switzerland, Sweden, the Czech Republic, Greece, Portugal, Slovakia, Slovenia, Bulgaria, Croatia, Denmark, Estonia, Finland, Ireland, Latvia, Lithuania, Luxembourg, Norway and North Macedonia combined.

However, Turkmen gas would never reach Europe.

When an agreement on the volumes and prices of gas purchases by Gazprom failed to be reached, 15 years ago, on April 9, 2009, there was an explosion and fire on the eastern branch of the Central Asia-Center (CAC) gas pipeline, at CAC-4. Subsequent negotiations to resume the transport of Turkmen gas between Russian President Dmitri Medvedev and Turkmen leader Gurbanguly Berdimuhamedov, which took place in September 2009 in Moscow, could not resolve the dispute.

All these years, the media and European leaders have been talking about building the so-called Nabucco gas pipeline, which was to go from Central Asia, along the bottom of the Caspian Sea, through Azerbaijan and on to Germany and Austria. Its design began back in 2002. Note that by 2009, had the project been energetically implemented, Nabucco could have been built and the first deliveries would have begun.

In 2022, gas consumption in Germany and Austria amounted to 77.3 bcm and 7.9 bcm, respectively, meaning supplies from Central Asia could cover at least half of their needs.

This seemed like the perfect opportunity for a large-scale gas pipeline. The Central Asian countries wanted to supply gas to Europe via alternative routes, receiving European prices for their commodities, and Europe could have significantly diversified its gas imports. Another player, however, was closely watching Europe’s red tape and indecision – China.

Hidden dragon

China understands how to work with Central Asia, and in 2007 construction of the first line of the large-scale Central Asia-China gas pipeline was launched, while gas started flowing in record time, on December 14, 2009. The initial capacity was about 40 bcm per year, rising to 55 bcm per year after expansion. The source for the pipeline – one of the largest in the world with a length of over 8,000 km – was the gas fields of Turkmenistan, Uzbekistan and Kazakhstan.

While Europe was talking about Nabucco, China was acting and building. In exchange for gas, Chinese state-owned companies took stakes in gas fields and transport infrastructure, while big government loans were extended to the Central Asian countries. Turkmenistan, Uzbekistan and Kazakhstan, in turn, pledged to supply gas for 20-30 years at significant discounts to world prices, which was not surprising given the lack of alternative gas pipelines to Europe.

Hence what I call the “Great Gas Pivot”: the gas exported to Russia, Ukraine and Europe since Soviet times eventually turned eastward, which deprived European countries of a way to diversify their gas supplies.

What about oil?

In 2023-24, we have seen many reports and statements about the need to set up exports of Kazakh oil bypassing Russia. For example, potential supplies of Kazakh oil to Germany were widely covered as a way to replace oil from Russia, or so the story goes.

To understand the scale: in 2022, Germany consumed 97.3 million tons of oil, meaning 1.0-1.5 million tons per year from Kazakhstan would obviously not be able to change the picture, much less “replace” Russian supplies, which amounted to about 22-24 million tons per year.

The Trans-Caspian route, which Kazakhstan and Azerbaijan earnestly have been trying to build, at the end of 2023 was still only a complement, not an alternative:

Supplies were also carried by rail, both through the territory of Russia and to other countries of Central Asia.

Despite the major bump in oil transport through the Aktau port, by 48% year-over-year, the share of these supplies in total exports is less than 5%. Meanwhile, some of the Kazakh oil is supplied to an Azeri refinery, while some goes by rail through Georgia.

Through the Baku-Tbilisi-Ceyhan (BTC) oil pipeline, whose shareholders include BP, Socar, MOL, TPAO, Eni, TotalEnergies, Itochu, INPEX, ExxonMobil and ONGC, almost 1.5 million tons were exported, a sixfold increase versus the 2022 level.

In the next 2-3 years, oil exports across the Caspian Sea are planned to increase to 5 million tons per year amid growth in oil and gas condensate production in Kazakhstan to 100 million tons per year (about 2 million barrels per day).

Nevertheless, oil pipelines passing through Russia will continue to be the main transport artery for Kazakh oil. Moreover, in the context of heightening geopolitical tensions around China and attacks on tankers at sea, Beijing could easily “flip” Kazakh oil supplies from the Caspian, since the Kazakhstan-China oil pipeline still has free capacity of at least 7 million tons per year.

It also stands to bear in mind the decline of oil production in Azerbaijan, which amounted to 30.2 million tons in 2023, down from the 2010 peak of 50.8 million tons. By 2027, the Azeri energy ministry forecasts a drop in production to 27.0 million tons.

European countries need to realize that Central Asia does not really believe in words and loud statements – money and jobs today are always better than something ephemeral in the indefinite future. Without European investment in infrastructure, transport and oil production projects and plans to diversify hydrocarbon imports will remain just that – plans.

  Olzhas Baidildinov is an
oil and gas industry expert