Winter Projections in the Caspian Region
Jan 20, 2023
As harsher winter weather descends on the Caspian Region, Kazakhstan, Uzbekistan, Turkmenistan and neighboring countries are facing school and road shut-downs, the persistent threat of frozen water pipes, and grounded flights. The widespread weather-related challenges Central Asia must grapple with are currently elevated due to the high costs of diesel in the region. Uzbekistan's Energy Minister Jurabek Mirzamahmudov explained that the country "import[s] natural gas in winter to meet domestic needs and export it in summer to return the gas we have received." However, the impacts of cold weather and high-energy costs in the region are still being felt.
In early January, temperatures in Kazakhstan dipped to –25 degrees Fahrenheit, resulting in over 60 road closures and government warnings to avoid travel for risk of vehicle fuel freezing. Parts of the region, like in Dushanbe, are projected to see abnormal sustained below-freezing temperatures. In households throughout Kyrgyzstan, some people have resorted to keep warm and fuel stoves by burning household waste—a practice that poses significant health and safety risks.
Cold weather has also led to more technical complications in countries like Turkmenistan, which has had technical difficulties in a key gas field due to sharp drops in temperature. Turkmenistan has reportedly reduced exports to Uzbekistan, Iran, and China to ensure a stable supply for its domestic consumers.
This is not the region’s first encounter with cold weather and increases in gas prices. At this time last year, Kazakhstan and other Central Asian nations were met with a steep increase in liquefied petroleum gas (LPG) prices. Currently, LPG is used by about 70-90 percent of vehicles in the region. The high demand and costs for energy were met with protests in Kazakhstan, a country that was particularly hard-hit with elevated fuel prices last year. In Kazakhstan high costs were attributed, in part, to the “phased transition to electronic trading for LPG” that started in January 2019. The transition was met with increased LPG market volatility but the policy change was intended to end price subsidization for domestic consumers over time in order to implement market-determined prices.
This year, prices have again fluctuated as predicted. However, sanctions on Russian energy resources have increased global energy costs and demand, making higher costs more widespread and catalyzing a need for the West to turn to the Caspian and Central Asia for alternative energy resources. The impact on the region is twofold: In the face of energy cuts and the winter weather demand, countries like Kazakhstan and Uzbekistan are playing a balancing act to satisfy both domestic and foreign energy needs. On the one hand, they are capitalizing on greater opportunities for collaboration with the Europe and China over energy and trade. On the other, countries are facing pressure at home to manage fuel and energy supplies for domestic consumption.
Kazakhstan, who provided $270.6 million worth of gas to China at the start of the year, has reportedly put a halt on exports from the east to China in order to meet needed domestic supplies amidst domestic complaints that parts of the country were without adequate energy for heating. On December 7, Uzbekistan halted gas exports to China, which were previously amounting to about 6 million cubic meters of gas transfers a day. According to Energy Minister Jurabek Mirzamahmudov, domestic demand has increased to 25 million cubic meters a day.
Currently, China is considered to be one of the “region’s biggest trade partner[s],” and has committed to even greater engagement and cooperation, particularly when it comes to energy and other trade relationships. In meetings in Tashkent in early December, Chinese Vice Premier Hu Chunhua confirmed plans to increase annual China-Uzbek trade from $8 to $10 billion. The relationship between China and Central Asian countries centers primarily around energy resources like gas with through the Central Asia—China gas pipeline which runs from Turkmenistan, carrying gas through Kazakhstan and Uzbekistan to China. Just this past year, Turkmenistan has upped exports by 53 percent, and as of 2020—90 percent of those exports go to China.
Beyond China’s growing and evolving economic relationship with the region, increased investment by Western countries is yet another weight on the scale. Since Russia’s War on Ukraine, and the widespread sanctions on Russian energy resources, the region has stepped in to meet some of the crucial energy demands in the West. Currently, over 70 percent of Kazakhstan’s oil exports go to the European Union (EU).
Weather forecasts are only expected to get colder in coming weeks and fuel prices in countries in the region are projected to "remain volatile and elevated until 2025.” Previous issues with high LPG costs indicate that it could be a product of changing energy relations stemming from the ongoing Russo-Ukraine War on the one hand, and on the other, a general consequence of a growing energy economy in the region. Furthermore, this year’s regional winter projections serve as a reminder that Europe’s energy crisis may have taken the spotlight in news reporting, but the impacts of global increases in demand and cost of energy resources are certainly impacting neighboring countries who are, at the same time, providing energy reinforcements for West. Anticipating similar energy obstacles in coming years, monitoring evolving energy relationships, and domestic and foreign investment in the region’s energy and green energy infrastructures, will be crucial.