OREANDA-NEWS. October 19, 2012. Central Asian natural gas reserves are unlikely to reach Europe but will instead flow to Asia, where there is sufficient demand growth and an easier environment to expand pipeline capacity, energy consultants Wood Mackenzie said.

In order to reduce dependency on Russian gas, the European Union is keen to tap new reserves in Central Asia - including in Turkmenistan, Kazakhstan and Uzbekistan - but the gas would have to be pumped across the Caspian Sea.

"There has been much discussion about the Trans-Caspian pipeline, which could offer Turkmen export independence into Europe. However, the practicalities of the project are challenging and without any significant progress in the last decade, the proposed pipeline has been overtaken by competing projects," said Stephen O'Rourke, senior gas supply analyst for Wood Mackenzie. Legal obstacles have hampered Caspian Sea oil and gas developments, chiefly because it has never been decided whether the Caspian is an ocean or a lake, which means it is unclear whether maritime law applies.

Additionally, a trans-Caspian pipeline would mean unwanted competition for gas producers that already supply Europe. For Russia and Azerbaijan Europe is the biggest gas export destination and a trans-Caspian pipeline bringing Turkmen gas would threaten their pipeline dominance in the region. Those obstacles mean Central Asian gas on the eastern shores of the Caspian would likely flow to China instead of Europe, Wood Mackenzie said.

"Our view is that China will require additional imports over and above Central Asia's current contract of around 45 billion cubic metres (bcm) by 2015. "We forecast that China will have around 50 bcm of gas demand in 2020 that needs to be satisfied by additional imports, and Central Asian gas could play a key role in meeting this demand," O'Rourke said.

Pipeline supplies would beat increasing competition from sea-borne l iquefied natural gas (LNG) imports as well as rising Chinese production of unconventional gas, the analyst said, but noted that China would strive to keep its supply diversified. "China will balance domestic supply and its portfolio of imports, to avoid becoming too dependent on any one supplier," O'Rourke said. Although Central Asia could also supply Russia, Iran, India and Pakistan with gas, Wood Mackenzie said that the realistic supply potential was limited due to stagnant demand, security risks, and political obstacles in those regions.