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Uzbek Gas for Export: Will Political Maneuvering between China and Russia Result in Higher Export Price?

Kakhkharov, Jakhongir (2008): Uzbek Gas for Export: Will Political Maneuvering between China and Russia Result in Higher Export Price? Published in: Central Asia and the Caucasus No. № 6 (54) / 2008 (2008)

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The main research question is “Will political maneuvering between China and Russia result in higher export price for Uzbek gas?” In 2008, the price of gas exports from Uzbekistan was US$160 per 1,000 cubic meters. On the other hand Gazprom used to charge its European customers an average of US$350 per 1,000 cubic meters.

On July 1, 2008, Uzbekistan and Kazakhstan has begun laying their respective stretches of the Turkmenistan-China gas pipeline. The construction began at the settlement of Saet in the Bukhara region. The cost of the Uzbek stretch of the gas pipeline is estimated to be over USD 2 billion. The total cost of the 1,818-kilometer long gas pipeline Turkmenistan-China is about USD7 billion. If implemented, the Turkmenistan-China pipeline might undermine Russia’s ability to manipulate the Central Asian gas market and stir up energy competition between Russia and China. It should be noted that with estimated natural gas reserves of 66.2 trillion cubic feet (Tcf), Uzbekistan is the third largest natural gas producer in the Commonwealth of Independent States (after Russia and Turkmenistan) and one of the top fifteen natural gas-producing countries in the world.

According to the schedule approved by the decree of the Uzbek President, the first line of the gas pipeline and compressor station is expected to be completed by the end of 2009. According to schedule, the first stage will end in January 2010. The second line of the gas pipeline and two more compressor stations are expected to be launched by January 2012.

Gazprom’s reaction to this development was almost immediate. Therefore, the purchase prices in these countries more than doubled in 2009 compared to the levels at which Gazprom has bought gas in 2008

The conclusion of the research is that alternative pipeline to China will strengthen the bargaining power of Turkmenistan and Uzbekistan and may result in higher export gas prices. However, given the fact that Chinese themselves are unwilling to match the price that Europeans are paying for gas, the increase will not be very significant. Therefore, Uzbekistan, as well other Central Asian countries, should continue their efforts to construct and participate in other alternative gas pipelines, such as Trans-Caspian, Nabucco, Trans-Afghan, and Iran-Pakistan-India pipeline projects.

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