China Moves Closer To Caspian Amid Trade Tensions With U.S.

China’s government is eager to strike more deals with neighboring Kazakhstan, as Washington and Beijing keep up tightening the screws on each other in the form of tariffs.

China’s top oil and gas producer, PetroChina, and Kazakhstan’s national gas shipping company, KazTransGas, signed a five-year deal last week to double exports of Kazakhstani natural gas to China, or up to 10 billion cubic meters per year starting in 2019.

The deal comes amid President Trump’s protectionist trade policies, which have resulted in steep tariffs imposed on Chinese goods. As a result, Beijing has responded with similarly sized tariffs on American-made products.

Earlier this year Chinese officials threatened Washington with a 25 percent duty on American natural gas exports, but then announced the government’s intention to slash the rate to 10 percent.

“The proposed 10 percent tariff as opposed to 25 percent is not as harsh, but will still push Chinese buyers to other potential sellers in Asia and the Mideast,” said Madeline Jowdy, a senior director at S&P Global Platts in New York, according to reports by Bloomberg.

What have been dubbed “trade wars” by the media between the U.S. and China have created an opportunity for some exporting nations to foster their relationship with Beijing, and boost their economies at the same time.

Energy-rich Kazakhstan intends to strengthen its $160 billion economy by increasing its gas exports worldwide. Officials from KazTransGas expect the recent deal with China to bring the country more than $2 billion per year.

Kazakhstan has already exported five billion cubic meters (bcm) of its gas to China under a one-year agreement inked in 2017. Before 2017, Kazakhstan was forced to sell its gas to Russia’s Gazprom for further resale to the post-Soviet countries.

“While previously we were to export gas via Russia, now we have new directions, we deliver a significant share [of total exports] to China directly, via direct contracts,” Kanat Bozumbayev, Kazakhstan’s Energy Minister, said after signing the deal last year, according to reports by Atameken.

At the same time, officials from KazTransGas announced plans to expand the country’s internal pipeline infrastructure to help facilitate increased supplies to China.

“In the nearest future, three new high-tech compressing stations will be commissioned to increase the capacity of the Beineu-Bozoi-Shymkent pipeline to 15 billion cubic meters per year from 10 billion cubic meters per year,” Kairat Sharipbayev, who chairs KazTransGas, said on October 12, according to a statement published by the company.

The Kazakhstan-China gas pipeline technically consists of two parallel pipelines that run 2,000 kilometers (1,242 miles) from the Uzbekistan-Kazakhstan border to the Chinese border town of Khorgos, which lies along Kazakhstan’s far eastern frontier and is considered a duty free zone. The project was announced in 2007 when then-Chinese President Hu Jintao and Kazakhstani President Nursultan Nazarbayev signed an agreement on the construction of the pipeline. 

Meanwhile, China sees Russia as one of its energy security guarantors. In 2014, Gazprom and China National Petroleum Corporation signed an agreement for Russian gas to be supplied via the 3,000 km-long (1,864 mi) Power of Siberia line, which extends from the Irkutsk and Yakutia gas production centers in Russia and is designed to supply Far Eastern countries. Thirty-eight bcm is to be pumped through the line per year for 30 years.

Gazprom began construction of the first section of the pipeline, running from the Chayandinskoye deposit in Yakutia to Blagoveshchensk on the Chinese border. The pipeline has not yet been completed.