Turkmenistan – China energy partnership needs additional investments Does Ashgabat have a new roadmap?

On January 5, Turkmenistan president Serdar Berdimuhamedov started his first official visit to China since assuming power. Although the local media did not provide specific information regarding the main agenda of the meeting in Beijing, another major energy agreement will likely be signed between Ashgabat and Beijing.

It should not come as a surprise considering that Turkmenistan is China's biggest natural gas supplier, with nearly 31 bcm exported in 2021 through the Central Asia-China gas pipeline. The pipeline currently consists of three active parallel lines that run from Turkmenistan through Uzbekistan and Kazakhstan and into China.

Overall, the pipeline consists of three lines while the fourth line, Line D, is under construction and will run from the Galkynysh gas field in Turkmenistan along a different route, through Uzbekistan, Tajikistan, and Kyrgyzstan and then into China. While the first three lines were financed with loans from the China Development Bank and Bank of China, Line D is reportedly funded by China National Petroleum Corporation (CNPC).

China has been buying more Turkmen gas. For the first 11 months of 2022, China's imports of Turkmen gas were valued at $9.3 billion, up from $6.79 billion in the whole of 2021. China is estimated to have imported 23.03 million tonnes of gas from Turkmenistan in the first 11 months of 2022, equivalent to more than 50% of China's piped gas imports.

Moreover, in 2022, the Turkmen authorities unveiled plans to double natural gas exports to China and increase supplies to 65 billion cubic meters per year after it built a fourth gas pipeline between the two countries. The statement came after Turkmenistan and China reached an agreement on developing the second stage of the Galkynysh gas field. The Galkynysh gas deposit, located in Mary province in the southeast, is considered one of the biggest in the world and may hold more than 27 trillion cubic meters.

Last time Turkmen and Chinese leaders discussed cooperation in energy and other areas on the sidelines of the 22nd meeting of the Council of Heads of State of the Shanghai Cooperation Organisation (SCO) in September 2022. In recent years, China has increased its economic presence in Turkmenistan and is currently heavily involved in the Central Asian country's natural gas sector. Chinese companies are actively cooperating with Turkmenistan's fuel and energy complex.

Hence, China is not only Turkmenistan's biggest energy client but also the main investor in the energy field. Indeed, given its steadily growing domestic consumption, Turkmenistan's importance as an energy supplier is essential for China. Therefore, Beijing heavily invests in Turkmenistan's gas field. As such, in early 2022, Beijing announced plans to sign additional agreements to the existing contracts to install specialized equipment and provide relevant services at Turkmenistan's gas fields.

In this vein, before Berdimuhamedov’s one-on-one meeting with Xi Jinping in Samarkand, the Turkmen leader approved the roadmap for developing the international cooperation of Turkmenistan in the field of hydrogen energy covering 2022-2023. In investment in the Turkmen energy field, China can compete only with Japan, another essential client of Turkmen gas, though not as significant as Beijing.

In December 2022, Japanese state-owned companies signed cooperation agreements with Turkmenistan for joint energy infrastructure development. However, the cooperation scope of Ashgabat and Tokyo is far from overshadowing the influence of Beijing in Turkmenistan.  

Although the current meeting agenda of Turkmen and Chinese leaders will unlikely be revealed in public media, it is safe to note that the discussions will undoubtedly cover the construction process of the D line. Amid severe economic crisis and inflation, Turkmenistan eyes more gas exports to China while exploring additional potential markets. When the war unfolded in Ukraine in 2021, European nations began actively promoting the idea of bringing Turkmen gas closer to the European Union through the Caspian Sea.

Nevertheless, due to technical and financial issues, Turkmenistan's European market access seems unrealistic. Moreover, China will likely push for a new gas agreement with Turkmenistan in light of the depletion of Kazakh exports. Beijing needs increasing natural gas imports, and Turkmenistan may provide it shortly. Turkmenistan is just one of many suppliers — via pipeline and LNG — to China, which enables it to dominate s Turkmenistan’s largest customer — the only others of note being Russia and Iran, at far lower volumes than China.

President Serdar Berdimuhamedov's trip to China is likely to yield positive results in terms of deeper engagement in energy partnerships and additional investments in Turkmenistan's shrinking economy. However, it will bound Ashgabat even more to China, increasing the dependence of the national energy industry more on Chinese investments with limited abilities of diversification in the near future.